Swiss electric companies such as Axpo operate abroad. They provide businesses with green electricity. With hundreds of contracts, this is a risk.
The Belgian outback has field after field, with wind turbines in between. Axpo owns the electricity it produces. Axpo will sell this electricity to a plastics factory in Belgium from January, over the next nine years. This is a typical example of a long-term contract for the supply of electricity.
The Swiss energy company has now concluded hundreds of such contracts in Europe, and is therefore one of the leading companies in Europe. “Axpo took a pioneering role more than ten years ago and started to enter into such contracts in the Nordic countries,” says Christophe Brand, Axpo president.
Electricity supplier insurance
Today it is the norm. “The business is growing strongly in Europe, but also in the USA,” says Brand. Meanwhile, other power groups such as BKW and Alpiq are beginning to conclude such contracts abroad, albeit slowly.
Legend:
Christoph Brand is satisfied with long-term supply contracts abroad.
Keystone / Archives
In principle, such contracts are beneficial to both parties. On the other hand, for electricity producers who build a new wind farm or new solar system, says Rolf Fustenhagen, professor of renewable energies at the University of St. Gallen.
There is a need among project developers to clarify their long-term profits. “When I’m building a solar system or a wind power plant, I like to have financial coverage so I know how much income I can make, and that’s where long-term supply contracts like this help.”
Security planning on the buyer’s side
On the other hand, electricity users plan for security. In the current case, the plastics manufacturer knows the expected electricity costs in the next nine years. Regardless of whether prices are falling as in the past or rising as they are now.
In addition, the company can reduce carbon emissions if the electricity comes from renewable sources. Something that, according to Wüstenhagen, sells well. You know that you are under pressure from investors to do something to protect against climate risks. Such contracts for the supply of electricity are a simple solution to that.” You can be supplied with renewable electricity for ten or fifteen years.
Wüstenhagen explains, whether the electricity supply contract also represents a financially beneficial business will only become clear at the end, when the contract expires. “When prices go up, buyers will say, OK, we’ve hedge our risk after looking. On the other hand, sellers might get upset that they can’t get higher prices.”
Balance at the end of the period
Even if these contracts serve as coverage: they are not fully comprehensive insurance. There is still a certain risk to consumers, but above all to electricity suppliers such as Axpo with its many contracts. Hundreds more will be added.
When Brand was asked about these risks, he said, “It’s very complex. You need a very good risk management system. But I think, if we look at the last 10 years, we’ve consistently shown that we have it under control.”
In fact, Axpo has not incurred any major losses with such contracts. However, most contracts will last for years or even decades. So it remains to be seen if the offshore mainstay is worthwhile for the Swiss electric companies, or whether it will end up in a lost-adventure.
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