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Revision of the Swiss Water Fee System: Distributional Effects and Long Term Aspects

 

The revision of the water fee system is considered among the most important challenges ahead for Swiss hydro. The complementary study “Revision of the Swiss Water Fee System: Distributional Effects and Long Term Aspects” examines two aspects of the reformation of the water fee system: 1) potential shifts in financial streams to companies, cantons and municipalities under a mixed fixed-variable water fee regime; 2) long-term impacts of water fees (i.e. investments, external impacts, uncertainty and sustainability issues), on the economic and financial effects on cantonal and regional level, as well as the impact on the upcoming renewal of concessions. The focus of the complementary study is aligned with the ongoing political process for the reformation of the water fee framework.

Project description (ongoing research project)

The complementary study focuses on two aspects of the reformation of the water fee system: First, it highlights the potential shifts in financial streams to companies, cantons and municipalities under a mixed fixed-variable water fee regime. Using a set of potential market development scenarios, the distributional effects of the proposed water fee adjustments are examined. Second, the derived insights on changed water revenues and fees are used to evaluate the role of water fees for long-term aspects (i.e. investments, external impacts, uncertainty and sustainability issues), on the economic and financial effects on cantonal and regional level, as well as the impact on the upcoming renewal of concessions.

The research on operational and revenue estimates is linked with the financial streams in and between cantons. Taking these results into account as well as an investment analysis and the regional and conceptual research the long-term prospects of a change in the Swiss water fee framework is evaluated.

The complementary study builds on the existing work carried out in the NRP 70 joint project ‘The Future of Swiss Hydropower’.

Aim

To address the challenges associated with the reformation of the water fee framework, the complementary study answers two related main research questions:

What are the distribution effects of new water fee regimes?

Water fees represent an important income for mountain cantons whereas the companies’ dividends and taxes represent income for several lowland cantons. Changes in the existing water fee regime with its fixed tariffs towards more flexible mechanisms will alter this picture. The objective of the first project part is to highlight this interrelation, provide estimates for potential shifts in income under varying market price scenarios, and analyze this in the context of national fiscal equalization.

What are regional, fiscal and economic feedback effects of those changes?

The various water fee models are likely to lead to changes in the current strategy and practices of the hydro power operator companies, as it will affect the revenue and the design of the investments in the Swiss hydro sector. Similar the change in financial streams is bound to have feedback effects on the cantonal and municipality levels. In a second step of the project a set of feedback effects is evaluated to get a better understanding of the potential long-term impacts of the proposed changes.

Relevance

The revision of the water fee system is considered among the most important challenges ahead for Swiss hydro. With about CHF 500 million per year the fees represent an important income for mountain cantons and municipalities. At the same time, the revenues of hydro companies and the resulting tax income as well as dividend payments to shareholders represent important income for many Swiss cantons which are often not the same that profit from the water fees. The Federal Council periodically decides about the upper cap on the fees.

Thus the upcoming need for a revision of the cap also provides the possibility to adjust the overall water fee regulation. The current proposal of the Federal Council foresees a transition period from 2020 to 2022 in which the fix cap is lowered. From 2023 onwards the regime is supposed to be replaced by a mix of a fixed and variable fee, parallel to the ongoing reformation of the general electricity market design.

The focus of the complementary study is aligned with the ongoing political process. The study will provide important quantifications for the involved decision makers on the potential impact of the discussed changes. Furthermore will then provide a basis for important follow-up aspects linking the water fee topics with the larger picture of the Energy Strategy 2050 and the objective to increase Swiss hydro output. Both inputs should provide a sound basis for the envisioned reformation in 2023.

Original title

Revision of the Swiss Water Fee System: Distributional Effects and Long Term Aspects

Project leader

Prof. Dr. Hannes Weigt, Universität Basel

Further information on this content

 Contact

Prof. Hannes Weigt Wirtschaftswissenschaftliche Fakultät
Universität Basel
Peter Merian-Weg 6 4002 Basel +41 61 207 32 59 hannes.weigt@unibas.ch