The Switzerland-EU Electricity Agreement – Analysis

Could Switzerland’s dams pass into European hands? This is one of the many key questions that the text of the electricity agreement must clarify. 

By Balz Rigendinger

For a long time, the Swiss Alps were nothing but an obstacle: steep, massive, impassable. Then came the year 1872, when Switzerland laid the foundation stones for two important developments: the construction of the Gotthard Tunnel and, in the same year, the first concrete dam.

Anyone seeking to understand why Switzerland and the EU have concluded an electricity agreement should take a look back in time.

The Gotthard Tunnel levelled the Alps and made Switzerland the gateway between northern and southern Europe. At the time, there was no quick route around the small country in the middle of the continent.

With the construction of the dams, Switzerland transformed its steep slopes into electricity. It built reservoirs that would soon become Europe’s energy stores. In so doing, it became the gatekeeper of the European electricity market. Switzerland had turned its handicap into its trump card.

The beginnings were nonetheless modest. Europe’s first concrete dam was built by a 34-year-old Swiss engineer in the canton of Fribourg. At first, this only supplied water to the nearby town and 300 horsepower of mechanical energy to several factories.

Electrification progressed rapidly, however. Soon, more and more dams flooded the mountain valleys, thereby securing the country’s power supply. Today, Switzerland has the highest density of reservoirs in the world.

Electricity for Milan, Munich and Strasbourg

It soon became clear that the reservoirs had another winning feature. Not only did they produce energy, but they also stored it.

From the 1960s onwards, Switzerland thus became the battery of Europe. When the neighbouring countries needed more electricity than they produced themselves, Switzerland powered the turbines for the industries of Milan and Munich or the cooking stoves of Stuttgart and Strasbourg.

A key factor in this was the grid. With its remote reservoirs, Switzerland had long had to transport the electricity over great distances. This led to another pioneering feat. In 1958, Switzerland linked its high-voltage network to those of Germany and France.

The European power grid was born. The Star of Laufenburg, a large substation near the German border, was key in ensuring secure and stable electricity supply in Europe in the post-war period.

The larger or more finely spun a network is, the more stable it is, as loads are distributed evenly across it. This is particularly important for electricity grids, as irregularities in current flow lead to blackouts.

Today, Switzerland is connected to the high-voltage grids of its neighbouring countries via 41 nodes. And, like in 1958, Swissgrid, the company operating the Swiss high-voltage grid, controls European power flows through Switzerland.

Access to the European electricity market

For Swissgrid, the electricity agreement with the EU means integration into the electricity management of its European partners. It would thus face fewer surprises resulting from unplanned electricity flows, which today sometimes enter the Swiss grid from Europe and need to be balanced out.

These electricity flows are also a consequence of international electricity trading. Under the agreement, Switzerland would also be able to participate in this in the future.

“What is already happening physically will be reflected economically and secured legally thanks to the agreement,” says Jürg Grossen, president of the Liberal Green Party. And the federal government writes: “The electricity agreement will help strengthen security of supply and build grid stability.”

The details of the electricity agreement are not yet known, however. It will not come before the parliament until 2026, and to date there is only a first fact sheet on the subject. The text of the agreement is due to be published in mid-June.

A perfect deal between highlands and lowlands

The reservoirs were not initially intended for Europe, of course. They were built to meet the needs of Swiss industry and towns in the lowlands – which also had the necessary expertise and money to build the hydropower plants and reservoirs in the first place.

This required a deal, however, between the mountainous parts of the country and the lowlands, between rich and poor. Municipal and, above all, cantonal electricity utilities from the lowlands built the infrastructure: turbines and dams, roads and power lines. In return, remote mountain communities gave up their valleys and rivers, and sometimes entire settlements.

The deal was fair, though. Usage agreements were concluded. These concessions were usually negotiated for periods of between 50 and 80 years, which was the length of time the companies needed to recoup their investments. After that, according to the deal, the infrastructure was to revert to the municipalities and belong to them, in a process known as “reversion”.

The contracts thus spanned more than one generation. But so that the local communities also benefited in the present, water tariffs were built into the deal. The power plants had to compensate the mountain communities for the water they converted into electricity. In this way, poor villages became rich through no effort of their own, and the energy companies became even richer. It was a perfect win-win situation.

What will happen after reversion?

To understand the new Switzerland-EU agreement, it is important to be aware of this historical dimension. Most of the over 220 reservoirs in Switzerland were built between 1950 and 1970. The concessions will thus soon end, and they will revert to the communities. This leads to one of the major unknowns of the electricity agreement.

If local municipalities or cantons can soon award new concessions, the following question arises: who will be allowed to bid for them? Could, for instance, a European electricity company also operate a Swiss dam?

This is the main question troubling people following the issue. It would also likely be a key argument in any referendum on the agreement.

Another question concerns the water tariffs. Could the EU view these as a distortion of competition? Would it try to end this historic Swiss deal?

“The electricity agreement contains no provisions regarding water tariffs or the granting of concessions for hydroelectric power plants. Current practice in this regard can be maintained,” the federal government’s fact sheet reads. But EU opponents remain sceptical, for the electricity agreement requires Switzerland to liberalise its electricity market. Basically, this will give European providers access to the Swiss market.

When Switzerland turned towards nuclear power in the 1970s, the importance of the reservoirs shifted. They complemented the new technology perfectly. Nuclear power plants produce the same amount of electricity by day as by night, but people need power during the day. So what should be done with the night-time electricity?

Rechargeable reservoirs

This is where pumped-storage power plants came into their own. Thanks to them, the reservoirs, which are veritable batteries, become rechargeable. Like normal reservoirs, they release water when demand is high and electricity prices are high, often around midday. Then, at night, they pump the water back up into the lake using cheap electricity. Filling up when prices are low and emptying when they are high: it is a perfect business model.

The Fukushima reactor accident in 2011 sparked the start of the energy turnaround – and the reservoirs are once again demonstrating their strength. In Europe, electricity production is becoming more skittish. Wind and solar sources provide fluctuating power with sharp peaks and flat troughs. Reservoirs smooth out the daily cycle.

There is, however, also a yearly cycle: in winter nature provides little energy, and in summer a lot. The reservoirs should therefore be filled in winter. Since 2023, the Swiss government has been responsible for determining these winter reserves – as a result of the Russian war of aggression and the ensuing shock to European energy supply. It sees to it that there is still enough energy available at the end of winter. Clearly, the government is intervening in the economic freedom of energy operators – against payment, but fully in line with a command economy approach.

This leads to the last big question that the text of the electricity agreement must answer. In future, will the EU be able to decide the requisite water level in Swiss reservoirs at the start of winter? This would also stir great controversy.

The deep blue reservoirs will soon take centre stage in the epic debate on Switzerland’s position vis-à-vis the EU.

And it is not just about ensuring Switzerland’s energy supply. Dams are powerful symbols. They embody fundamental values such as strength, purity and simple clarity – as well as a whole range of perfect deals.