Budget too tight in new renewables law -- Too much uncertainty in Switzerland

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Wind development in Switzerland is in the doldrums. Just one 2 MW turbine was installed last year, at Vernayaz-Martigny, bringing Swiss wind capacity to just 13.57 MW. A purchase price of CHF 0.20/kWh (EUR 0.135/kWh), made up of a green power incentive payment added to a variable market price, is deemed too low to make investments in wind projects viable in the mountainous and land-locked country. Wind association Suisse Eole says the extreme cold temperatures and difficult terrain are arguments for paying a higher rate, equal to that paid for offshore wind generation.

The purchase rate for projects coming online in 2009 is applicable for the first five years of operation, before dropping to CHF 0.17/kWh (EUR 11.5/kWh) for a further 20 years. Uncertainty exists, however. The production incentive may not exceed CHF 0.06/kWh and is fixed at CHF 0.045/kWh for 2009, but capped within an overall budget set by multiplying annual Swiss electricity consumption by the bonus. The "market price" for wind power is determined every three months and based on the price of electricity traded on SwissEx, part of Europe's EEX electricity exchange.

Yet investment interest is considerable after the market structure was introduced in a renewable energy law, the Kostendeckende Einspeisevergütung (KEV), in May 2008. Last month Swiss energy agency SFOE had to close the door on further applications from potential project developers, saying the 2009 budget of CHF 258 million from which to pay the incentive would not stretch to more. With such a firm show of interest by investors, Suisse Eole hopes the government will raise the production incentive on offer.

About 360 wind project applications have been made with a combined capacity of 678 MW, but the energy agency expects only about 120 MW will get built. Many projects are planned for sensitive sites and are unlikely to get permits, or are at such an early stage of development they will not fulfil the deadlines, says Regula Petersen at SFOE. Developers must receive a construction permit within two years and have plant running within five years of approval.

"You have to put in sporting performance to achieve this," she says. The aim had been to encourage only applications from serious projects to prevent large chunks of the budget being locked in limbo. But developers have thrown whole pipelines of projects into the registry.

Suisse Eole's Markus Ahmadi says 18 projects, consisting of 91 turbines with a combined capacity of 175 MW, could be online by 2012 if prices are raised from 2010. SFOE admitted last month that, "Further expansion of green electricity production in Switzerland based on the current KEV mechanism is no longer possible." It advocates removal of the budget limit to add more certainty to the market.

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