An estimation of the Swiss hydropower rent

The electricity generation in Switzerland is mostly based on hydropower (∼58%) and nuclear power (∼38%). The exploitation of water in the hydropower sector can generate significant economic rent. One possibility to capture this rent is through royalties or fees. This system has been used in Switzerland since many decades. However, the actual water fee system is not flexible and does not take into consideration different production costs between the type and location of hydropower plants. Furthermore, storage plants can sell electricity to a higher price than run-of-river plants. A flexible system is needed in a liberalized electricity market, to take into account these different production situations and the fact that prices may vary considerably over time. The main goal of this paper is to calculate the potential economic rent that could be generated in the Swiss hydropower sector under a future liberalized market. Based on the results of the paper, it can be concluded that the introduction of a flexible fee system could improve the competitiveness of the hydropower sector and promote an energy system based on renewable energy sources.