Case Studies / Electricity Transmission

Swissgrid

Swissgrid is Switzerland’s national grid company, responsible for operating, maintaining, modernizing and expanding 6,700km of high voltage grid.

Project Overview

Investment Year: 2014 and 2016
Ownership Stake: 18% (indirect; look-through)
Technology: 6,700km of 380 and 220kv grid infrastructure
Industrial Partner: BKW

Swissgrid collects tariffs from electricity producers and distributers, who are indirectly compensated by electricity end users.

Its core purposes are to ensure security of supply, maintain balance between electricity producers and consumers, and handle cost-covering remuneration for electricity feed-in to the grid on behalf of the federal government.

The first and largest financial investor in the Swiss transmission grid

Swissgrid is continuously modernizing and expanding the grid system, and replacing aging infrastructure insufficient for modern-day needs. With billions of Swiss francs ultimately required to cover these costs, Energy Infrastructure Partners saw an opportunity to be part of the solution.

EIP was the first financial investor to gain exposure to Swissgrid, enabling its Swiss institutional investors to become part of the backbone of Switzerland’s electricity market. Through a partnership with international energy and infrastructure company BKW, together we became the largest shareholders in Swissgrid after acquiring shares across two transactions in 2014 and 2016.

How Swissgrid works

Switzerland’s regulatory environment supports stable revenue for investors

With the reorganization of the Swiss electricity market in 2008 through the Electricity Supply Act (StromVG), electricity generation, trading, distribution and transmission were separated. In 2013, Swissgrid took over the transmission grid in accordance with this act.

Swissgrid’s services are defined in the Swiss Electricity Supply Act and monitored, as well as influenced, by the Swiss Electricity Commission (ElCom). In addition, its financial performance results are extensively regulated.

The Swiss regulatory environment is very stable overall, with a low risk of quick and unexpected regulatory changes. Swissgrid’s activities are protected by a natural monopoly, therefore its strong market position is not threatened by competitive pressures or price- and volume-related risks. Given the nature of the business, revenues are stable and provide highly predictable cash flows.

Swissgrid supports Switzerland’s economic and social growth

Approximately 900 companies are currently involved in the production, distribution and supply of electricity in Switzerland, ranging from small entities supplying single communities to international power companies. Swissgrid’s position as a neutral body operating the high-voltage grid guarantees non-discriminatory access to the grid for all companies, ensuring that everyone benefits from the same conditions.

Swissgrid plays an important role as Switzerland develops economically and socially, taking care to adhere to all guidelines set out for the health and wellbeing of Swiss society. This includes regulations to protect residents from grid-related electromagnetic radiation and noise pollution. In addition, a third-party environmental supervisor is appointed to assess concerns and ensure compliance with environmental regulations before a project begins and throughout construction.

Volume risks are largely eliminated through balancing payments over following periods

Source: EIP. Note: RAB stands for regulatory asset base; EBI for earnings before interests. Simplified view; RAB for the year influences EBI calculation of the year after next.

Upgrading the network to meet future demand

Most of Switzerland’s transmission grid system was built in the post-war period, and despite a dramatic shift in demand in recent decades, only a third of the grid dates from the period after 1980. Furthermore, the existing networks were often planned without a European or national perspective in mind, leading to bottlenecks within the current grid infrastructure.

Swissgrid is developing its targets for the next few decades in cooperation with the Swiss federal government, the electricity industry and European grid operators. This will eliminate existing bottlenecks and bolster the implementation of Switzerland’s Energy Strategy 2050, with objectives to increase energy efficiency and prioritize renewable technologies across the country.