Jens Alder, Alpiq’s Chairman of the Board discusses the challenges faced by the Swiss energy industry and the opportunities created by digitalization.
Jens Alder: Electricity market liberalization came to a standstill halfway through. In a monopoly, electricity producers with end consumers and a regulated grid can pass their costs on to end consumers. Pure producers of electricity without end consumers or their own grid are being forced to sell their Swiss nuclear power and hydropower on the market below cost. The way things stand today, the regulatory regime prevents us from earning money with nuclear power and hydropower. What we need is for the political framework to be redefined so that domestic power production becomes profitable again.
We urgently need a political consensus regarding our dependency on foreign power production, something we currently lack. When it comes to the country’s power supply, I think the Swiss population has a notion of self-reliance that is rooted in their minds. This also came to the fore when the nuclear exit initiative was rejected. If politicians were to set a target level of self-sufficiency, their next step could be to devise new models that redefine the rules of the market. Other key measures include the electricity agreement with the European Union plus the creation of a federal institution that would be responsible for ensuring the security of supply. None of this is clearly defined at the moment.
While Energy Strategy 2050 is a step in the right direction, it still doesn’t solve the underlying problem which is the lack of a regulatory framework. Because the solution to our long-term business problem, namely hydropower and nuclear power being generated at a loss, lies outside the company. Cost cutting won’t get us out of this difficult situation – even if we’ve already made great strides in that respect, something I’d really like to stress.
The most important thing is that we can conduct our business while preserving both our value and our capital market viability. On the one hand, the regulatory regime needs to be adapted so that pure producers of electricity are capable of shifting long-term negative cash flows in nuclear power and hydropower back to the black. On the other hand, we also have to continue developing our profitable divisions, namely Commerce & Trading and Energy Services. I’m convinced that this is the right diversification strategy. Plus on top of that, we also have to reduce our historic mountain of debt.
Our goal is to get our cash flow balanced since the diversified part of our business is currently unable to offset the losses being incurred in Swiss power production. We’re planning on selling just under half of our hydropower portfolio as a result. This measure – and I’m very consciously refraining from calling it a strategy – will largely be able to stabilize Alpiq and restore the balance I spoke of. Simultaneously we also have other ongoing divestment efforts aimed at reducing net debt as well as cost-cutting programs.
The way I see it, there are two sides to the digitalization coin: One of these is technological advancement and the other is the fundamental transformation of our business model. In terms of technology, we’re banking on targeted investments which are a top priority at Alpiq. These offer us huge optimization potential in our core business. Digitalization is also causing a fundamental change in business models which could open up space on the market for entirely new services. We are seeing a growing number of “prosumers”, for instance, in other words customers who are both producers and simultaneously consumers of electricity. These developments have prompted us to shift our focus to the specific needs of those customers.
We’re still trying to push ahead with investments in digitalization, even despite our current restructuring efforts. We would like to do even more to promote Switzerland as a research location. In order to do that, however, we would have to regain our ability to generate more added value in our core business, Swiss power production.
We’re experiencing increasing internationalization, at least at the continental level. Alpiq is currently involved in a number of promising large-scale projects within Europe and has acquired a leading provider of demand response services in Great Britain. We’ve also expanded several different strategic partnerships.
I’m extremely impressed by both the company’s senior management and its staff as well as by how they deal with the challenges I mentioned and push ahead with cost-cutting measures. I feel very at ease in my day-to-day dealings with senior management. Jointly we’ve been able to pull a solid strategy together in very little time that we are now implementing. Switzerland’s regulatory policies, by contrast, have shocked me with their lack of any clear concept or direction. This, in turn, is shifting many people’s focus to the problems associated with Swiss power production when we really should be seizing the opportunities presented by the energy future instead.
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