Technical contracts and their limits

Why «technical agreements» do not represent a real alternative to an electricity agreement

Author: Jacqueline Kalberer


Switzerland and the European Union (EU) are currently holding further negotiations regarding an electricity agreement as part of the Bilateral Agreements III. Switzerland’s aim is to ensure equal participation of Swiss players in the European internal electricity market. Furthermore, as the transmission system operator for Switzerland, Swissgrid should be integrated into European processes for operating the transmission system on an equal footing with other participants. Finally, Switzerland is endeavouring to establish cooperation between Swiss authorities and institutions with their counterparts at European level. Negotiations began in March 2024 and are expected to be finalised by the end of the year.

Although most people are in favour of the negotiations with the EU, there are also a number of critics. If an electricity agreement fails to materialise, possible alternatives are already being sought at a political level and in the media. It has been suggested several times that the relationship with the EU in the electricity sector could also be governed by technical contracts. These contracts could work in a similar way to Swissgrid’s contract with the transmission system operators in the «Italy North» region, which sets out the conditions for the inclusion of Switzerland in the region’s capacity calculation and security coordination processes. However, technical contracts do not represent a real alternative in terms of grid stability, security of supply in Switzerland, legal certainty and the ability of Swiss players to help shape the electricity system. They have clear disadvantages compared to an electricity agreement.

Electricity agreement vs. technical contracts: the fundamental difference

An electricity agreement would be a treaty at intergovernmental level. According to Switzerland’s definitive negotiating mandate, it would apply in the areas of production, transmission, distribution, exchange, storage and supply of and with electricity. If Switzerland and the EU conclude an electricity agreement, they will jointly define which laws and regulations apply to both contracting parties with regard to Switzerland’s participation in the EU’s internal electricity market. The agreement will also determine how to respond to any future changes to the law. In addition, Switzerland and the EU will together agree on the institutional rules that would apply in the event of disputes.

Instead of a comprehensive electricity agreement, Switzerland could try to conclude an intergovernmental agreement with the EU that is limited to purely technical matters. In contrast to a full electricity agreement, a partial agreement of this kind would only involve the inclusion of Swissgrid in European processes for operating the transmission system. It would not include access to the European internal electricity market for Swiss players or any other aspects. However, the EU has made it clear that it is not prepared to negotiate an agreement at intergovernmental level on purely technical aspects of energy exchange without clarifying institutional issues and other negotiating topics at the same time.

Technical contracts between Swissgrid and neighbouring transmission system operators are often mentioned as another possibility for ensuring grid stability. In order to fulfil its legal mandate for the secure operation of the transmission system in Switzerland, Swissgrid must comply with the technical and operational requirements for grid operations that apply internationally. To do so, the company concludes corresponding contracts governed by private law with transmission system operators in the EU. One example of this is Swissgrid’s contract with the transmission system operators in the «Italy North» region on Switzerland’s southern border. Contracts governed by private law are contracts concluded between companies on the basis of applicable EU law. However, EU law in this area is increasingly public law, which overrides any agreements to the contrary governed by private law, such as the contracts mentioned here. In addition, these contracts have a limited term and must be renewed annually. The agreement of all the transmission system operators and regulators in the countries concerned is required for a contract to be concluded. The extension of a contract is always risky because the contracting parties and, above all, their regulatory authorities, may decide to refuse an extension due to diverging interests or unrelated arguments.

Consequently, only an electricity agreement with the EU offers the necessary legal certainty in the long term.

Only an electricity agreement can provide security.

Limits to the contents of technical contracts

When concluding contracts governed by private law, Swissgrid may and must clarify individual technical aspects relating to its legal mandate – the secure operation of the transmission system in Switzerland – with the transmission system operators of neighbouring countries. For example, the contract with the transmission system operators in the «Italy North» region includes provisions defining how Switzerland is included in the calculation of cross-border capacities at Switzerland’s southern borders. Throughout its term, the contract ensures that Switzerland is taken into account in the relevant processes, and specifies the method to be used for doing so. This reduces unscheduled electricity flows in the Swiss grid and improves grid stability.

However, this by no means resolves all the challenges associated with operating the transmission system. For example, unscheduled electricity flows do not only occur when Switzerland is not sufficiently taken into account in the cross-border capacity calculations of neighbouring countries. The increasing international exchange of control energy can also lead to unscheduled electricity flows in the Swiss grid and jeopardise grid stability. Swissgrid is currently fighting before European courts for the right to participate in European control energy platforms, citing system security risks for Switzerland and the region. If Swissgrid had access to these platforms, the risk of unscheduled electricity flows would be reduced even further, and Swissgrid could use the European control energy market to remedy imbalances in the grid instead of using Swiss control energy, which is then no longer available for the actual supply of electricity in Switzerland. An electricity agreement would legally safeguard Swissgrid’s participation in the European control energy platforms, as this is the only way to regulate all aspects of grid operations and energy exchange in a coherent manner.

And last but not least, contracts under private law do not guarantee Swiss players in the electricity sector any opportunity to participate in European specialist committees. These committees prepare the regulations for grid operations and energy exchange. Concluding an electricity agreement is the only way to ensure that Swiss players can influence the further development of the European electricity system, of which Switzerland is an integral part.

Contracts governed by private law are like poorly adhering «plasters» on an increasingly perforated sieve.

Switzerland needs an electricity agreement

Until Switzerland and the EU have an electricity agreement, contracts governed by private law are a means for Swissgrid to regulate technical aspects of grid operations within its area of responsibility with neighbouring transmission system operators for a limited period of time. This enables the company to improve grid stability to a limited extent. However, the challenges associated with grid operations are constantly increasing due to the transformation of the energy system and the ongoing development of the European electricity system. This is why contracts governed by private law are like poorly adhering «plasters» on an increasingly perforated sieve. An electricity agreement is the only way Switzerland will be able to successfully establish secure grid operations as a prerequisite for a secure supply of electricity on a permanent basis.


«Technical agreements»

The contracts on certain aspects of grid operations that Swissgrid concludes with other transmission system operators to fulfil its legal mandate are sometimes referred to as «technical agreements» in political discussions and in the media. However, the term «agreement» is misleading in this context, as in legal terms it refers to an intergovernmental agreement under international law. Swissgrid is not authorised to conclude intergovernmental agreements with the EU on behalf of Switzerland. The national grid company can only conclude contracts governed by private law with other companies.



Author

Jacqueline Kalberer
Jacqueline Kalberer

Stakeholder Affairs


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