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IVM Institute for Environmental Studies

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THE ECONOMICS OF SWISS HYDROPOWER PRODUCTION

A cost-‐benefit analysis of hydropower production in Switzerland

Author: Charlotta Canzler

This report was supervised by: Prof. Dr. Roy Brouwer and Dr. Ivana Logar 16 July 2012


IVM Institute for Environmental Studies VU University Amsterdam De Boelelaan 1087 1081 HV AMSTERDAM The Netherlands T +31-‐20-‐598 9555 F +31-‐20-‐598 9553 E [email protected]

Copyright © 2012, Institute for Environmental Studies All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical, photo-‐copying, recording or otherwise without the prior written permission of the copyright holder


A cost-benefit analysis of hydropower production in Switzerland

Contents

Acknowledgements 5

Summary 6

List Of Abbreviations 7

1 Introduction 9 1.1 Setting The Scene 9 1.2 Research Objectives And Questions 10 1.3 Paper Outline 10

2 Conceptual Framework 11 2.1 Economic Value Theory 11 2.2 External Costs And Benefits 12 2.3 Environmental Value Transfer 13 2.4 Stages Of A Cost-‐Benefit Analysis 14 2.5 Literature Review 15

3 Hydropower In Switzerland 21 3.1 Hydropower Essentials 21 3.2 Types of Hydropower Plants 21 3.3 Swiss Hydropower History 23 3.4 The Swiss Hydropower Sector Today 24 3.5 Swiss Energy Policy And Perspectives 28 3.6 Hydropower And The Environment 30

4 Cost-‐Benefit Analysis 33 4.1 Defining The Project And Scenarios 33 4.2 Identifying Impacts That Are Economically Relevant 34 4.3 Physically Quantifying The Impacts 35 4.4 Calculating A Monetary Value 36 4.5 Discounting And Weighting The Results 39 4.6 Conducting A Sensitivity Analysis 40

5 Conclusion And Discussion 45 5.1 Conclusion 45 5.2 Limitations Of This Study 46

References 49

Annex A 53

Annex B 63


A cost-benefit analysis of hydropower production in Switzerland 5

Acknowledgements

The financial and administrative support provided by Eawag, Swiss Federal Institute of Aquatic Science and Technology, are gratefully acknowledged with many thanks in order to Peter Reichert (Eawag) and Bernhard Truffer (Eawag).

Special thanks are furthermore expressed to Prof. Dr. Roy Brouwer (IVM), Dr. Ivana Logar (Eawag), Stefan Vollenweider (Wasser-‐Agenda 21), Thomas Geissmann (Centre for Energy Policy and Economics) and Dr. Urs Meister (Avenir Suisse).

The author gratefully thanks her parents who have made possible and have always supported her educational career.


6 Summary

Summary

This research project was made possible due to a cooperation of Eawag, Swiss Federal Institute of Aquatic Science and Technology, and IVM, Institute for Environmental Studies. The underlying analysis is the result of my final research project for the Master of Science Environment and Resource Management at VU University Amsterdam.

The motivation for this investigation was based on the decision of the Swiss Federal Council that nuclear power production will no longer be part of the Swiss electricity supply mix and shall be phased out until 2034. Switzerland has decided to pursue a large expansion of its already existing hydropower sector as well as other renewable energy sources. For this purpose, an extended CBA has been performed in order to estimate the total economic value added of hydropower production in Switzerland under the current conditions, i.e. under the status quo scenario, and under the expansion scenario as projected by the Swiss Federal Council. The CBA was conducted for a time period of 23 years from 2012 until 2034, as Swiss nuclear power production will be phased out by then. Two calculations have been conducted for both the pure financial costs and benefits, and the economic costs and benefits arising from an expansion of hydropower.

The results show that when looking only at the financials, the expansion of hydropower as compared to the baseline scenario would not be profitable as the calculated NPV revealed a negative value of -‐ CHF 42.2 million. However, when including the external costs and benefits associated with hydropower production, it was found that the projected expansion does indeed reflect an efficient allocation of resources. The NPV of the economic CBA resulted in CHF 99.8 million. The large difference in the results of the CBAs shows the significance of including the wider, external costs and benefits in decision-‐making processes of policy evaluations. It is suggested that more research is conducted for this topic with in-‐depth analyses of the specific external costs and benefits, and their affects on Swiss policy and society as a whole.



List Of Abbreviations

B/C Benefit-‐Cost Ratio

BC Before Christ

BAFU Bundesamt für Umwelt (Federal Office for the Environment)

BFE Bundesamt für Energie (Federal Office for Energy)

CBA Cost-‐benefit analysis

CE Choice Experiment

CH4 Methane

CHA Canadian Hydropower Association

CHF Swiss franc

CO2 Carbon dioxide

EC European Commission

EIA U.S. Energy Information Administration

EUR Euro

GCC Gas-‐fired combined cycle power plant

GHG Greenhouse gas

GW gigawatt

GWh gigawatt hour (1,000,000,000 kWh)

ICOLD International Commission on Large Dams

IHA International Hydropower Association

IEA International Energy Agency

IRR Internal Rate of Return

IVM Instituut voor Milieuvraagstukken (Institute for Environmental Studies)

kW kilowatt (1,000 Watt)

kWh kilowatt hour

m meter


8 List Of Abbreviations

MW megawatt (1,000,000 Watt)

N2O Nitrous Oxide

NPV Net Present Value

OECD Organisation for Economic Cooperation and Development

ROR Run-‐off-‐the-‐river

Rp. Swiss Rappen (100 Rp. = 1 CHF)

t tonne (1,000 kilograms)

TWh terawatt hour (1,000,000,000,000 kWh)

WACC Weighted Average Cost of Capital

WTP Willingness to Pay



1 Introduction

1.1 Setting The Scene As we move forward in the 21st century, global energy consumption is rising to record levels never anticipated in the past. Economic development in emerging countries and the worldwide increased dependency on electric devices drives this energy consumption further to an ever-‐increasing scale. Yet, the majority of our energy comes from fossil fuels, i.e. oil, gas and coal that are finite (i.e. non-‐renewable) resources on our planet. Thus, there is a great emphasis in today’s energy and technology research to increase and improve sustainable energy options. Many people think of renewable energy as solely solar or wind energy, however more than 90 per cent of all renewable energy worldwide actually comes from hydropower production (International Hydropower Association [IHA], International Commission on Large Dams [ICOLD], International Energy Agency [IEA] & Canadian Hydropower Association [CHA], 2000). Hydropower is considered a renewable energy because it is based on the energy provided by the Sun that drives the hydrological cycle.

Many countries produce large shares of their total electricity generation with the energy derived from water. For example, Norway, Brazil and Venezuela produce 95.7 per cent, 83.8 per cent and 72.8 per cent, respectively, of their domestic electricity with hydropower (IEA, 2011). So too does Switzerland, with approximately 54 per cent of its electricity production coming from more than 550 large hydropower installations (Bundesamt für Energie [BFE], 2012a). The remaining share is largely produced by nuclear power with approximately 41 per cent and other electricity sources with 5 per cent. However, due to the dramatic events of the nuclear disaster in Fukushima, Japan in March 2011, the Swiss energy policy has radically changed its course. After the event, the Swiss Federal Council decided that nuclear power production will no longer be part of the Swiss electricity supply mix and shall be phased out until 2034. Naturally, this means a great change for the Swiss electricity industry and it raises the issue of how to replace the base electricity supply, which is currently provided by nuclear power plants.

With the new Energy Perspectives 2050, the Swiss Federal Council recently announced its solution to this problem, namely increasing the share of renewable energy production and enhancing energy efficiency (Previdoli, 2012). According to the new energy strategy, renewable energy production will be particularly increased with solar and wind energy, but also with hydropower production. The strategy proposes an increase in hydropower efficiency and new production of 3.2 TWh, which roughly amounts to 9 per cent of current hydropower production (BFE, 2012a). In addition, another 7.5 TWh will be derived from newly constructed pumped-‐storage plants, with three plants already being under construction (namely, Hongrin-‐Léman/Veytaux 2, Linth-‐Limmern/Muttsee, and Nant de Drance/Emosson). These numbers represent the maximum possible increase of hydropower production in Switzerland, as the technical boundaries of the national hydropower potential have almost been reached, whereas the economic boundaries will be subject to this study. Yet, the use of hydropower has always been subject to considerable conflict within the Swiss population and so does its expansion. More specifically, there is a so-‐called water-‐energy nexus conflict between the positive and negative external effects associated with hydropower production. These are on the one hand the benefits from electricity production with very low amounts of greenhouse gas (GHG) emissions as compared to conventional electricity production. On the other hand there are the negative impacts on nature and landscape due to the construction of hydropower facilities and reservoirs.


10 Introduction

1.2 Research Objectives And Questions This on-‐going debate shows that there is much uncertainty about the true benefits and costs associated with hydropower production in Switzerland, as well as its total economic value added for the Swiss electricity industry and the country in general. For this reason it seems important to conduct a study that would compare the costs and benefits of the existing hydropower production in the country with those of the projected expansion. Therefore, the aim of this research paper is to estimate the total economic value added of hydropower production in Switzerland under the current conditions, i.e. under the status quo scenario, and under the expansion scenario. This is done by conducting an extended cost-‐benefit analysis (CBA) that takes into account not only financial impacts but also external effects such as environmental and societal gains or losses. Thus, this research assesses the current and projected costs and benefits of hydropower installations in Switzerland.

For this purpose, the research paper addresses the following two research questions:

1. What is the financial value of hydropower production when comparing the projected expansion scenario to the current situation?

2. What is the economic value when comparing the projected expansion scenario to the current situation?

For this purpose, economic value is defined as the sum of private value and external value. A detailed explanation of economic value theory follows in section 2.1.

1.3 Paper Outline The following research is structured as follows. Chapter 2 discusses the conceptual framework of the study and explains the methodological techniques used in the analysis. The subsequent chapter, Chapter 3, gives a detailed description of hydropower production in general and in Switzerland, and discusses the environmental effects associated with hydropower production. Chapter 4 presents the results of the CBA and discusses the various steps taken in the analysis. Lastly, Chapter 5 concludes the study with a discussion of the CBA findings and limitations to the research.



2 Conceptual Framework

The moment we ask ourselves whether or not something is worth the effort, we are using a cost-‐benefit analysis. Consciously, or not, we often use CBA when making decisions in our daily life. Having set a particular course of action or a project, we intuitively assess the costs of that action and compare them with the benefits we gain from it in order to decide whether the action ‘is worth it’. “CBA is above all a set of tools for guiding decisions” (Snell, 1997, p.3). As this, CBA provides a structured overview of all relevant positive and negative effects of alternative policy actions. Before going deeper into the essentials of CBA, it is necessary at this point to first explain the concept of economic value. This will be done in the following subsection. Subsection 2.2 explains external costs and benefits, and subsection 2.3 discusses the technique of environmental value transfer. Subsequently, subsection 2.4 presents the different stages of the CBA and, lastly, subsection 2.5 discusses the most important CBA studies in the field of hydropower that have been conducted previously.

2.1 Economic Value Theory Whenever one assesses the costs or benefits of a particular action, a value is needed in order to calculate them. Put simply, a value is defined as the benefit or cost that an individual or a society obtains from a good or service. It forms the basis of economic efficiency, which seeks to maximize social welfare as measured by this notion of value as the net benefits to individuals or communities of individuals (Kahn, 2005). Economic value theory explains the concept of value with two characteristics. First, economic value is anthropocentric, which means that it is determined by people themselves and not by law or the government. Second, economic value is determined by people’s willingness to make trade-‐offs between, for example, buying one good instead of another. This is best explained by the notion of budget constraint, namely, when an individual spends money on one good or service, there will be less money available to buy other goods (Kahn, 2005). Thus the individual needs to make a trade-‐off between different goods and is expected to choose the good, which provides the highest benefit.

When assigning values to a certain course of action or project, one has to distinguish between use and non-‐use values. Use value is defined as the value that humans derive from directly using goods or services. Use values can be used either directly, when for example resources are extracted from the soil, or indirectly like in the case of erosion and flood protection provided by ecosystems (Pearce & Turner, 1990). In contrast, non-‐use value is the value derived from non-‐use benefits of a good or service to humans. Non-‐use values have been divided into three different categories. First, there are option values, which are derived from retaining options that may become beneficial in the future, such as future medical discoveries. The second category is called bequest values, which are the benefits derived from preserving nature or making sacrifices today for future generations. The third group are existence values, which are the values derived from simply knowing that a species or an ecosystem service exists (Kahn, 2005).

The economic value of hydropower production Q is determined by three production factors, F. These are the cost of labour L, the cost of capital C and energy H. The water required for the electricity production can be counted as the required energy, H (Geissmann, 2012). This can be shown as follows,



Q = F (L, C, H).

Thus this research project aims at exploring the added value of Q.

2.2 External Costs And Benefits When using CBA, it is crucial to understand the concept of external value or externalities. According to Owen (2004), externalities are the “benefits and costs generated as an unintended by-‐product of an economic activity that do not accrue to the parties involved in the activity and where no compensation takes place” (Owen, 2004, p. 3). In other words, external values occur when a decision causes benefits or costs to individuals or groups other than the one making the decision. Thus, externalities can be either positive or negative, depending on the circumstances of the action. The concepts of external and internal value as well as private and social value are best explained by Figure 2 -‐1.

Figure 2-1 Distinction between internal and external values

Source: Beukering, van & Botzen, 2012

Let us assume there is a privately owned coal fired power plant. This power plant leads to internal and external costs and benefits. Internal benefits are the revenues gained from electricity production, whereas an example of an internal cost is the work or coal needed to generate electricity. Together, they form a private value arising from this economic activity. External benefits include gains due to the employment of people at the power plant, whereas external costs are air pollution and acid rain resulting from burning the coal. These external effects form the social value. Together, the private and social value of a good represent the economic value of that good:

Economic Value = Private (Financial) Value + Social (External) Value.

External costs such as environmental damages are difficult to determine, as for these types of values often no market, and thus no market price, exist. This means that most market prices do not reflect the “true” economic value of a product. This is also called a market

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9

Private value // financial value

Social value // economic value

Externalities

10

Reasons for economic valuation of externalities

a) Advocacy/awareness

b) Decision and policy making

c) Damage assessment

d) Extract revenues



failure. For example, many goods are traded at prices that do not account for the environmental damages occurring during the good’s manufacturing or use, and are therefore traded at a too low price. If the external cost would be internalized, i.e. accounted for in the market price, the good would be more expensive. This is further explained by Pearce and Nash (1981) who state that a Pareto optimum exists when the marginal external cost (MEC) equals the marginal net private benefits (MNPB).

MNPB for a firm is defined as

MNPB = P – MC,

where P is the product price and MC is the marginal private cost. If MNPB = MEC, then the first equation can be re-‐written as

MEC = P – MC or further MEC + MC = P = MSC,

where MSC is the marginal social cost (Pearce & Nash, 1981). Under this condition, the product price equals the marginal social cost. However, this condition rarely holds in reality and thus product prices rarely reflect the marginal social value (i.e. external costs or benefits).

2.3 Environmental Value Transfer The analysis conducted in this thesis will mainly be based on a desk study that uses environmental value transfers in order to obtain the estimates used in the conducted CBA. Environmental value transfer is defined as the “transposition of monetary environmental values estimated at one site (study site) through market-‐based or non-‐market-‐based economic valuation techniques to another site (policy site)” (Brouwer, 2000, p. 2). The reasons for using the results of previous studies here and also in other papers are, first of all, cost-‐effectiveness and time effectiveness, which makes this technique a very attractive alternative to more time-‐consuming research studies. This is especially relevant in cases where information is required for quick policy decisions. Therefore, this technique has been used extensively in various natural resource policy situations with the study by Constanza et al. (1997), about the value of the world’s ecosystem services and natural capital, probably being one of the most influential and evocative in terms of the validity and reliability of environmental value transfer.

This is because the technique of environmental value transfer remains very controversial and even testing it could not yet help to validate the practice. Especially due to academic and political uncertainties over the usefulness and technical feasibility of economic valuation tools to express the significance of environmental values in policy decisions, proponents and users of the technique have induced widespread indignation (Brouwer, 2000). A review by Bateman, Jones, Nishikawa and Brouwer (2000) recommends that in order to improve the technique of environmental value transfer improvements need to be made especially in the original studies such as the use of a minimum set of variables, a standard treatment of common variables and a sensitivity analysis to minimise the uncertainties. Furthermore, when applying environmental value transfers researchers need to be aware of the limitations of using previous estimates and need to account for uncertainties (Bateman et al., 2000).

For this study, the choice of using environmental value transfer was explicitly done due to considerable time constraints. Nevertheless, the author is aware of the limitations and controversy of the technique. Thus, a sensitivity analysis will be included in the CBA in order



to address some of the uncertainties regarding the used estimates and, lastly, a more detailed discussion of the data limitations will be provided in the conclusion.

2.4 Stages Of A Cost-‐Benefit Analysis The CBA conducted in this study will be structured as depicted by Hanley and Spash (1993), who defined seven stages for conducting a CBA. These include (1) defining the project and scenarios, (2) identifying impacts that are economically relevant, (3) physically quantifying impacts, (4) calculating a monetary valuation, (5) discounting, (6) weighting, and (7) conducting a sensitivity analysis.

Stage one is the definitional step, which explains the proposed project or scenarios used in the analysis. It defines the reallocation of resources being required for the project and which are the potential populations of gainers and losers. Limitations are sometimes also explained in this step, but this can also be done at the end of the analysis.

The second stage has two purposes. First, it identifies all negative and positive effects or impacts resulting from the project implementation. Second, it determines those impacts that are economically relevant and that should be considered in the analysis. Regardless of whether impacts have a market price or not, they can be regarded as economically relevant as long as they affect the costs, benefits or utility of a project. For environmental externalities to be accounted for as impacts, one out of two conditions should be satisfied. These conditions are: (1) that at least one person in the relevant population becomes more or less affected in his or her utility, and/or (2) that the level of a positively valued output changes.

Stage three involves the physical quantification of the relevant impacts. This means that the formerly identified costs and benefits are explained in terms of their flows, their occurrence in time or, if applicable, their probability of occurrence. All calculations in this stage can be performed with different degrees of uncertainty.

In the next stage, stage four, the impacts are converted into one common unit of value in order to be co-‐measurable. The most common unit for a CBA is a monetary value because prices carry important information about people and their behaviour. This is because markets create relative values for all traded goods and services, which are expressed in prices. In this stage, the task of the researcher is to adjust market prices where necessary or create prices where they do not exist. Adjusting market prices might be required under certain circumstances, for example, in the case of imperfect competition or government intervention in the market that distorts prices. When a market does not exist (e.g. in the case of landscape quality change), monetary values can be created by using shadow prices or stated or revealed preference prices that reflect the non-‐market scarcity value of an environmental impact as experienced by those affected.

After the monetary valuation of the relevant impacts, all values need to be converted into their present value terms. This is done in stage five, which is the discounting step of the analysis. Discounting is an important tool in CBA and it arises due to the time value of money, or time preference. This means that most people prefer receiving 100€ today than in one year, because they prefer investing the money today in a bank at an interest rate of 10 per cent, for example. This would give them 110 EUR after one year (100 EUR + 0.1 * 100 = 110 EUR). During the lifetime of a project, costs and benefits can occur throughout different years and periods. Therefore, they need to be made comparable regardless of when they occur which is done by calculating their present values. The discount factor, usually referred to as the discount rate, can vary considerably between studies and is



subject to a person’s preference for things now rather than later. For example, the higher the discount rate, the higher one values present benefits as opposed to the benefits occurring in the future. The procedure of discounting is usually done by calculating the present values for each element of the project and then summing up all discounted values.

Subsequently, in stage six, the discounted costs (C) and discounted benefits (B) are weighted against each other, using a discount rate (i). This is done by calculating the Net Present Value (NPV) of the project or scenarios. If the sum of discounted benefits exceeds the sum of discounted costs, then the project represents an efficient allocation of resources. Thus, if

NPV = ∑B1(1+i)-‐1 -‐ ∑Ct(1+i)-‐t > 0,

where the summation runs from time t = 0 (first year of the project) to t = T (last year of the project), then the project should be accepted. Two other most commonly used indicators in CBA are the benefit-‐cost ratio (B/C ratio) and the Internal Rate of Return (IRR). The former is another way of presenting the NPV and is calculated by dividing the sum of discounted benefits by the sum of discounted costs. If the ratio exceeds unity, the project should proceed. The IRR is the rate of interest at which the NPV equals zero or the rate of return on the resources used in the project. All three indicators, the NPV, B/C ratio and IRR will be used in the analysis presented here.

The final stage involves the sensitivity or uncertainty analysis in order to identify to which parameters the NPV results are most sensitive. This is an important step because during the CBA calculations, many assumptions need to be made concerning physical and monetary flows that can introduce uncertainty into the analysis. Therefore, it is essential to recalculate the decision criteria with a changed set of parameters, for example, the discount rate, changed physical quantities or the project life span.

2.5 Literature Review Prior to the analysis, it is useful to explore the CBA studies that have already been conducted in the field of hydropower production. Therefore, a literature review will be presented in order to discuss the available findings and to explore the missing gaps in estimating the economic value of hydropower generation. The review has shown that only a limited number of studies exist that calculate the financial costs and benefits of Swiss hydropower production. Even fewer studies could be found that also take into account the external effects of hydropower production. This section presents an overview of these studies.

2.5.1 Studies for Switzerland

An investigation conducted by Filippini, Banfi, Luchsinger and Wild (2001) provides a first overview of the economic perspectives of hydropower production in Switzerland with regard to its competitiveness in a more liberalised energy market. It was found that the competitiveness of hydropower production is mainly determined by both European electricity prices and the frontier technologies for base and peak load electricity production. According to this study, base load electricity prices are determined by gas-‐fired combined cycle power plants and nuclear power plants, whereas peak load electricity prices are determined by gas turbine power plants. The authors estimated an average electricity price at 5.6 Rp./kWh. The results show that especially for those plants producing peak load electricity the average costs of production (e.g. 7.8 Rp./kWh for pumped-‐storage plants) exceed the average market price for electricity. Thus, in order to stay competitive in



a more liberalised market, these plants need to introduce measures that would help them decrease their costs of production. For example, this could be achieved by a decrease in operating costs such as technical improvements raising the level of efficiency of the machinery or a more diversified financing portfolio. Furthermore, the study concludes that the degree of competiveness varies greatly between different types of hydropower plants and in some cases even within one plant category. Therefore, it is difficult to provide a general judgement about the situation of Swiss hydropower production, as the heterogeneity with regard to cost and price structure of the plants is very high. Finally, the study concludes that economic measures that focus on the internalization of external costs of the electricity sector are needed in order to increase the competitiveness of hydropower production in the long-‐run.

In 2008, a report by Ott, Bade, Hürlimann and Leimbacher (2008) on behalf of the BFE was released. It represents the evaluation of nature protection, repair and replacement measures due to Swiss hydropower plants. The goal of the study was to elaborate methodological techniques for the assessment and evaluation of adverse ecological effects from hydropower plants on particular ecosystems and on the environment in general. Furthermore, the study discusses methods and techniques for the monetization of costs and benefits of nature protection, repair and replacement measures that need to be undertaken due to the ecological effects of hydropower plants. One section of the report deals with direct and indirect benefits of hydropower production in monetary terms. In contrast, for the cost side the effects are only discussed qualitatively and methods for the quantification of these effects are proposed. As for the direct or financial benefits, it is concluded that the real market prices of electricity reflect the gains generated by hydropower production. A comparison of different studies is presented, which revealed that the mean prices for peak load and base load electricity as of 2007 amounted to 9.2 Rp./kWh and 6.7 Rp./kWh, respectively. Furthermore, the report states that large benefits are generated due to the possibility of creating balancing energy (energy that balances the peak demands for electricity) with storage and pumped-‐storage plants for peak demands. These benefits are expected to increase further in the future when more balancing energy is needed to regulate the production volatilities of other renewable energy sources, such as solar and wind power. With regard to the so-‐called indirect benefits, it is stated that electricity production in general leads to many negative effects or external costs, such as loss of biodiversity, GHG emissions due to fossil fuels, or radioactive waste from nuclear power plants. However, it is argued (and quantified empirically) that the external costs of electricity production other than hydropower production exceed the external costs from hydropower production. Therefore, hydropower production creates net external benefits or avoided external costs. The study compares the net external benefits of hydropower production to six other types of electricity production, namely nuclear, oil, gas, wind, biomass, and solar powered electricity production. It is shown that hydropower production has a net external benefit as compared to the other types of electricity production (except for wind power with a net external benefit of -‐0.4 Rp./kWh).

A recent study conducted by Geissmann (2012) reveals an economic analysis of the Swiss water tax system with regard to an alternative tax system. Financial costs and benefits of 66 Swiss hydropower production companies are investigated for the years 2000 to 2009. The study distinguishes between three types of hydropower plants, namely ROR plants, storage plants, and pumped-‐storage plants. The total financial revenues are defined as the sum of the revenues from electricity sales, capitalized own work, other operating incomes, financial earnings, non-‐operating revenues, and net extraordinary revenues. The study found that the mean financial revenue for all hydropower companies in year 2009 amounted to 5.58 Rp./kWh. The mean revenues from all companies in year 2009 for the



three plant types were found to be as follows. For ROR plants 4.3 Rp./kWh, for storage plants 5.5 Rp./kWh and for pumped-‐storage plants 6.1 Rp./kWh. As for the financial costs, the study estimates the mean costs of production for the three different plant types, including various cost criteria. These are the costs of water rates, amortisation, materials, financing, personnel, energy and grid usage, dividends, and other taxes and costs. For ROR plants, the mean costs of production in 2009 were calculated with lower and upper bounds at 4.9 Rp./kWh and 5.6 Rp./kWh, respectively. For storage plants the mean costs of production in 2009 amounted to 5.7 Rp./kWh and for pumped-‐storage plants 6.3 Rp./kWh. Comparing the mean financial revenues with the mean financial costs of production for the three plant types, it was concluded that the costs of production exceed the revenues for all plant types.

2.5.2 Studies for other countries

Kataria (2008) conducted a choice experiment in Sweden in order to evaluate people’s willingness to pay (WTP) for ecological improvements of rivers that are regulated by hydropower plants. The analysis considers four attributes, namely increased fish stock, improved conditions for bird life, species richness for benthic invertebrates, and erosion and vegetation. The findings reveal that Swedish people are indeed willing to pay for environmental amendments of hydropower regulated rivers. The results showed that the WTP values were ranging between 1100 and 1400 Swedish Krona (SEK) per household per year (i.e. approximately 150 – 191 CHF per household/year1).

In a recent report by Klinglmair, Bliem, Brouwer and Graser (2012) an evaluation of the hydropower energy development in Austria is presented. It explored the energy-‐water nexus using public choice models. The goal of the study was to analyse various costs and benefits arising from hydropower production with regard to the future hydropower energy development in Austria. The focus was given particularly to the trade-‐offs between important positive and negative external effects of hydropower production. The study was conducted by applying a public choice experiment with the purpose of eliciting people’s WTP for the expansion of hydropower. For the choice experiment, four attributes were considered, namely creation of jobs, reduction of CO2 emissions, impact on nature and landscape and distance to the hydropower plants. It was found that for 100 jobs created people are willing to pay € 0.2 per month per household in addition to their current electricity bill and € 1.3 per month per household for an expansion of hydropower. Furthermore, if a hydropower plant is built at least 5 km away from their house, people are willing to pay € 0.3 per month per household in addition to their current electricity expenses. However, the WTP for the impact on nature and landscape is valued negatively with € -‐13.5 per month per household, which means that people value the expansion of hydropower production negatively when a strong impact on nature and landscape occurs.

2.5.3 Comparing the findings

Table 2-‐1 summarizes the previously discussed studies based on the authors, year of study, country, data collection method, main objective and results. Below a comparison of the studies is presented.

1 Currency conversion rate: 1 SEK = 0.137 CHF as of June 30, 2012. Retrieved from

http://www.exchangerates.org.uk/SEK-CHF-exchange-rate-history.html.



Table 2-1 Summary literature review

Authors Study-‐ Year

Country Type of Analysis Main Objective Results

Filippini et al.

2001 Switzerland Financial CBA Evaluating the competitiveness of Swiss hydropower

Average Revenues: 5.6 Rp./kWh Average Costs: 5.8 Rp./kWh

Ott et al. 2008 Switzerland Qualitative and quantitative evaluation

Elaborating methods for assessing adverse ecological effects from hydropower plants

Average revenues peak: 9.2 Rp./kWh Average revenues base: 6.7 Rp./kWh Net external benefits: 4.8 Rp./kWh

Geissmann 2012 Switzerland Financial CBA Evaluating an alternative tax system for the current water rate system

Average Revenues: 5.58 Rp./kWh Average Costs: 5.6 Rp./kWh

Kataria 2008 Sweden Choice Experiment

Estimating WTP for environmental improvements of hydropower regulated rivers

CHF 150 – 191 per household per year

Klinglmair et al.

2012 Austria Choice Experiment

Analysing various costs and benefits arising from hydropower production

Jobs: € 0.2 CO2: € 1.3 Nature: € -‐13.5 Distance: € 0.3 (all per month/ household)

When comparing the results from Filippini et al. (2001) and Geissmann (2012) one can see that they show similar patterns. The study by Filippini et al. (2001) was conducted approximately 10 years earlier than the one of Geissmann (2012). Even though the average results from the latter study show almost the same estimates for the revenues and production costs per kWh, the specific values for the three types of hydropower plants show that all values for revenues are lower than those of the production costs. These results reveal that the Swiss hydropower production industry has not yet achieved a sufficient degree of competitiveness and its financial profitability. This is surprising if one takes into account the much higher degree of liberalisation of the Swiss energy market for the time period of the study conducted by Geissmann (2012), since in a more liberalized market profitability is a crucial survival criteria for any company.

According to the study conducted by Ott et al. (2008) hydropower production creates net benefits from the perspective of a society. This is because the external costs created from hydropower production are lower than those generated by other forms of electricity



production. The average net external benefit of hydropower production was calculated in comparison to six other forms of electricity production, and amounts to 4.8 Rp./kWh. Therefore, the costs of production of hydropower would have to be at least this amount in order for hydropower to produce a net cost to society.

The two choice experiments conducted by Kataria (2008) and Kinglmair et al. (2012) show very similar results in terms of the mean WTP of respondents for improvements of natural amenities affected by hydropower. In the study conducted by Kataria (2008) in Sweden people are on average willing to pay CHF 150 – 191 per household per year for environmental improvements of rivers affected by hydropower production. Similarly, the choice experiment conducted by Kinglmair et al. (2012) in Austria found that people value the impacts of nature and landscape with CHF 194 per household per year (CHF 16.2 x 12 = CHF 1942). The similarity of the results is surprising since the studies have been conducted in two different countries and at different points in time.

The review of previous studies has shown that there is a lack of a comprehensive CBA that takes into account both pure financial costs and benefits associated with hydropower production and the wider, external costs and benefits arising from hydropower. Therefore, the following analysis attempts to fill in this gap by merging the findings of some of the previously discussed studies and conducting an extended (economic) CBA of hydropower production in Switzerland. Since the analyses conducted by both Filippini et al. (2001) and Geissmann (2012) show that there is a negative net financial benefit of current hydropower production in Switzerland, it is interesting to investigate whether this result would change if external costs and benefits of hydroelectricity production are included into the analysis.

2 Currency conversion rate: 1 € = 1.2008 CHF. Retrieved from

http://www.ecb.int/stats/exchange/eurofxref/html/eurofxref-graph-chf.en.html.



3 Hydropower In Switzerland

3.1 Hydropower Essentials Hydraulic power is based on the energy provided by the sun as it drives the hydrological cycle on our planet (Energy Information Administration [EIA], 2012). Solar energy heats the water on the Earth’s surface, which subsequently evaporates to the atmosphere due to the thermal lift. There the water vapour condenses and thereinafter redounds upon the Earth in the form of precipitation. Due to the Earth’s gravitational force, surface water will always flow to lower lying regions. The energy that is created by this flowing or falling water is called hydraulic power. As the solar energy continuously supplies water to the Earth in the form of precipitation, hydraulic power is classified a renewable energy.

The energy from water has been used for centuries dating back to 300 BC, when water wheels in China were installed to help farmers grinding their grains (Deutsche Energie-‐Agentur, 2012). In this process, the kinetic energy of water is converted into mechanical energy by means of a rotation of a waterwheel. Even in medieval times, the use of water as an energy source has had a relatively high efficiency of more than 70 per cent whereas the steam engine in the beginning of the industrialisation only achieved an efficiency of about 10 per cent (Hairer, 2005). Although waterwheels are still in use in some parts of the world, nowadays, hydraulic turbines with a much higher efficiency rate have mainly replaced the waterwheel. In modern installations, water is channelled through a so-‐called penstock (pipeline) and pushes the blades of a turbine, which in turn spins a generator (EIA, 2012). The speed of the rotation depends on the pressure of the water flow and the vertical distance (head) with which the water falls through the penstock (IEA, 2010). The higher the speed of the turbine, the more power is created. The electricity that is created by the generator is called hydroelectric power, or hydropower.

3.2 Types of Hydropower Plants Despite many similarities of hydropower installations as, for example, the energy conversion from potential to electrical waterpower, hydropower plants can vary in different aspects such as the storage or feeding of water. These technical differences allow for a categorisation of hydropower plants into different types. Various aspects of the installations can be taken into consideration when categorizing the plants, which has lead to a multitude of typologies often depending on individual definitions. For example, some typologies use the differences in the water head, namely low, medium and high head, to differentiate between hydropower plants (Geissmann, 2012). Others use the maximum power potential of the plants for a classification, namely small hydropower plants with ≤ 1 MW, medium-‐sized hydropower plants with 1-‐100 MW, and large hydropower plants with ≥ 100 MW (Geissmann, 2012). The most frequently used categorisation, however, looks at the available quantity of water and generally has three different types of installations, namely run-‐off-‐the-‐river, storage and pumped-‐storage plants (IEA, 2010). For this study, the latter categorisation of hydropower plants will be used, as this is the typology most frequently used in official data and information underlying this thesis. They are further explained in more detail in the following.



• Run-‐Off-‐The-‐River (ROR) plants: These hydropower plants use the constant flow of water in a river or stream to generate energy. In this process, the force of the water current is the energy source that drives the rotation of a turbine. Thus, the amount of electricity generated in ROR plants depends on the amount of water flowing through the penstock. This is also called flow volume. Usually, ROR plants have a low head, 40m or lower, with which the water falls through the penstock. As water is constantly flowing through and driving the turbines, ROR plants are most suitable for providing the electric base load to the respective region or nation. This also means that their production is independent from changes in the electricity market prices, as electricity is generated constantly (Geissmann, 2012).

• Storage plants: Hydroelectric storage plants, also called impoundment or reservoir facilities, are the most common type of hydropower installations (IEA, 2010). Contrary to ROR schemes, storage plants have the capacity to store large quantities of water behind a dam and, when needed, use parts of the stored water for electricity generation. This technology allows electricity to be generated at peak demands within an almost immediate response time, which is the most efficient form of peak load energy production (Pfammatter, 2012). Storage plants are usually medium-‐ to high-‐head installations.

• Pumped-‐storage plants: A pumped-‐storage plant is a type of storage plant that has the capacity to pump water back from a lower reservoir into the upper, main reservoir, if the natural water feeding into the main reservoir is too low. The process of pumping occurs when base load electricity prices are low, which is usually the case during nights or during those hours of the day when electricity demand is low. Modern pumped-‐storage plants have an efficiency rate of 0.8, which means that 20 per cent of the generated electricity is lost due to the process of pumping back the water. Nevertheless, pumped-‐storage plants still are the most efficient and ecological form of indirectly storing energy (Pfammatter, 2012). The head of pumped-‐storage plants is usually high and they are also used for peak energy demand. As electricity is required to pump the water into the higher reservoir, this type of hydropower is not classified as renewable energy (IEA, 2010).

Furthermore, in Switzerland, another type of hydropower plants exists, the so-‐called Umwälzwerk [no official translation found], which can be best described as a re-‐circulation plant. It uses two water reservoirs with a different geographical altitude, and it does not have natural water feeding, which makes it different to a pumped-‐storage plant. When electricity is demanded at peak times, water is released from the upper reservoir into the lower reservoir thereby producing electricity. When electricity prices are low again, the water is pumped back into the upper reservoir. Thus, the water that is used for electricity production at one time can be re-‐used for electricity production over and over again. Naturally, this type of hydropower plant cannot be classified a renewable energy, as electricity is needed to re-‐circulate the water between the reservoirs.

The following figure (Figure 3-‐1) represents the former discussed classification of hydropower plants in a graphical manner. As shown, this classification distinguishes between plants that are based on natural water feeding only, and pumped-‐storage plants



with or without natural water feeding. The former group includes ROR plants and storage plants, whereas the latter group consists of pumped-‐storage plants with a natural water feeding and Umwälzwerke, without natural water feeding.

Figure 3-1 Classification of hydropower plants

3.3 Swiss Hydropower History Hydropower generation has been a long established source of renewable energy in Switzerland. Around 10,000 small hydropower plants have been counted at the end of the 19th century and approximately 50 years later a massive expansion of large hydropower schemes followed. This expansion was largely due to the increasing electricity demand and newly invented technologies after World War II, and was also observed in many other European countries, such as Austria and Germany (Hairer, 2005). Furthermore, the rapid economic expansion since the mid 20th century required secure electricity supply for the growing industries and households. Figure 3-‐2 shows the electricity generation and electricity consumption in Switzerland in GWh from 1950 until 2010 (BFE, 2012a).



Figure 3-2 Development of Swiss energy production and consumption between 1950 and 2010

Source: BFE, 2012a

The Swiss electricity production was almost entirely based on hydropower until the late 1960s, when electricity supply could just fulfil the national-‐wide electricity demand. Furthermore, the development of hydropower production and electricity demand were growing almost parallel until the 1960s, where after hydropower production levelled off as most economically efficient sites had been discovered already. However, electricity demand kept increasing resulting in the construction of the first nuclear power plant, Beznau, which became operational in 1969. Since then four more nuclear power plants have been constructed to secure Swiss base load electricity supply. Nowadays, activities within the hydropower industry are mostly constrained to the optimisation and efficiency increase of installed plants, whereas new constructions of hydroelectric power plants have become relatively rare (Geissmann, 2012).

3.4 The Swiss Hydropower Sector Today In 2011, the Swiss electricity production amounted to 62.9 TWh, out of which approximately 34.0 TWh were produced by Swiss hydropower plants (BFE, 2012a). As can be seen in Figure 3-‐3, hydropower forms the backbone for Swiss electricity supply with a share of 54 per cent, followed by nuclear power production with 41 per cent and other electricity sources with a share of 5 per cent. This is important as it explains the high economic as well as political significance of hydropower production in Switzerland.

13

3. Erzeugung elektrischer Energie3.1 Entwicklung der Landeserzeugung

Der schweizerische Kraftwerkpark erreichte 2010 mit 66 252 GWh ein gegenüber dem Vorjahr um 0,4% verringertes Produktionsergeb-nis. Dies entspricht dem fünfthöchsten jemals erzielten Produktions-ergebnis. Die zeitliche Entwicklung der verschiedenen Erzeugungs-arten und deren anteilsmässiger Beitrag an die Landeserzeugung gehen aus Tabelle 8 und Figur 9 hervor. In Tabelle 11 ist die saisonale Aufteilung der hydraulischen Produktion dargestellt.

Der hohe Ausbaugrad der Wasserkraft hat zur Folge, dass sich das Angebot an hydraulischem Strom von der technischen Seite her nur noch begrenzt steigern lässt. Schwankungen in der effektiven Wasserkrafterzeugung rühren deshalb hauptsächlich von der unterschiedlichen Wasserführung der Flüsse und von den Speichermöglichkeiten in den Stauseen her. Die Wasserkraftwerke erzeugten im hydrologischen Jahr 2009/2010 7,3% weniger als im Vorjahr und 2,9% weniger als im Mittel der letzten zehn Jahre.

3. Production d’énergie électrique3.1 Evolution de la production nationale

La production du parc suisse des centrales électriques a reculé de 0,4% en 2010 par rapport à 2009, atteignant 66 252 GWh. C’est le cinquième meilleur résultat enregistré à ce jour. Le tableau 8 et la figure 9 montrent comment les différents modes de production ont évolué dans le temps, ainsi que leur contribution respective à la pro-duction nationale. Le tableau 11 présente la répartition saisonnière de la production hydraulique.

Techniquement, l’offre d’électricité d’origine hydraulique ne peut être accrue que de façon limitée, du fait du haut degré d’utilisation de cette ressource. Les fluctuations de production que l’on observe sont dues surtout aux variations du débit des cours d’eau ainsi qu’aux possibilités de stockage dans les lacs d’accumulation. Les centrales hydrauliques ont produit, durant l’année hydrologique 2009/2010, 7,3% de moins que l’année précédente et 2,9% de moins que la moyenne des dix années écoulées.

Fig. 9Entwicklung der einzelnenErzeuger -kategorien seit 1950

Fig. 9Evolution desdifférentes catégories de production depuis 1950

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20100

10000

20000

30000

40000

50000

60000

70000

80000

Konventionell-thermische und andere Kraftwerke-Centrales thermiques classiques et divers

Kernkraftwerke-Centrales nucléaires

Laufkraftwerke-Centrales au fil de l'eau

Speicherkraftwerke-Centrales à accumulation

GWh

Landesverbrauch/Consommation du pays

SpeicherkraftwerkeCentrales à accumulation

LaufkraftwerkeCentrales au fil de l’eau

KernkraftwerkeCentrales nucléaires

Konventionell thermische und andere KraftwerkeCentrales thermiques classiques et divers

Erzeugung elektrischer Energie

Tabelle 8Tableau 8

Anteile der einzelnen Kraftwerktypen an der LandeserzeugungParts des différents types de centrales électriques à la production nationale

24 51018 88821 04719 07817 761

16 73819 82620 87321 02621 420

34,929,132,330,030,7

26,930,131,231,632,3

25 29325 69225 93125 43222 020

26 24426 34426 13226 11925 205

60,256,255,955,356,6

52,455,256,155,856,5

36,139,539,740,038,0

42,240,039,039,338,1

2 6202 8062 8902 9743 139

3 3403 1993 2763 2393 597

Wasserkraftwerke – Centrales hydrauliques*Kalenderjahr

Année civile

Kernkraftwerke

Centrales nucléaires

Konventionell-thermischeKraftwerke und andere

Centrales thermiquesclassiques et divers

Total (= 100%)

Laufwerke

Centrales au fil de l’eau

Speicherwerke

Centrales à accumulation

Total

GWh % GWh % GWh GWh% % GWh % GWh

17 75117 62515 39816 03914 998

15 81916 54716 68616 11016 030

20012002200320042005

20062007200820092010

42 26136 51336 44535 11732 759

32 55736 37337 55937 13637 450

25,327,123,625,325,9

25,525,124,924,224,2

* siehe auch Tabelle 11/voir aussi tableau 11

3,74,34,44,75,4

5,44,84,94,95,4

70 17465 01165 26663 52357 918

62 14165 91666 96766 49466 252

!!"#$$%&'&()*#(#)+%(,-$./01,-%2"3%%24./0&563%!),*78&%4'7-)$%%9:9%4'7-)$%%;.('&7*%4,"&*%4'7-)$%%<,-=&-1,-7'%>?&*/#(7'%7-5%:)?&*%4,"&*%4'7-)$%



Figure 3-3 Shares of Swiss electricity production, 2011

Data source: BFE, 2012a

As of January 1st, 2012, there were 566 Swiss hydropower installations with a maximum power above 300 kW, out of which nine installations are located outside Switzerland, mainly in France, Germany and Italy (BFE, 2012b). Of the plants located domestically, ROR plants have a share of 47 per cent (455 plants) in the average hydropower production, storage plants account for 48 per cent (85 pants), and pumped-‐storage plants have a share of 5 per cent (14 plants) (BFE, 2012b). This is shown in Table 3-‐1.

Table 3-1 Electricity production by power plant type

Power Plant Type Number Production in GWh in per cent ROR plants 455 16,938 47 % Storage plants 85 17,286 48 % Pumped-‐storage plants 14 1,594 5 % Total 554 35,818 100 %

Data source: BFE, 2012b

Furthermore, there are about 700 small hydropower installations with a maximum power below 300 kW. However, these plants will not be taken into consideration in the analysis of this study because their relative importance for national electricity production is very small compared to the larger plants. This is shown in Figure 3-4, which illustrates the percentage of hydropower plants (orange) divided into three categories by production capacity and their relative share in total electricity production (green). The left axis shows the number of plants, whereas the right axis shows the electricity production in TWh. It can be seen that the number of small hydropower plants with a maximum capacity below 300 kW has a share of 57 per cent out of all operating hydropower plants in Switzerland. However, their total contribution to gross hydropower production accounts only for 1 per cent.



Figure 3-4 Relative share and percentage of hydropower plants in total electricity production

Source: Bryner, 2011

The high share of renewable energy and its dominance in the country’s electricity supply are largely facilitated by the natural, mountainous topography of Switzerland and the numerous water sources stemming from the Swiss glaciers. It is not surprising thus, that two-‐thirds of the electricity produced from hydropower are generated in the Swiss alpine cantons Uri, Graubünden, Tessin and Wallis with 22, 95, 30, and 95 hydropower plants, respectively. Other important regions of hydropower generation are the cantons of Bern, Glarus and Aargau. The geographical distribution of large hydropower installations in Switzerland is illustrated in Figure 3-‐5.

Figure 3-5 Map of hydropower facilities with a maximum capacity above 10 MW

Source: BFE, 2011a

Eawag: Das Wasserforschungs-Institut des ETH-Bereichs

Wasserkraft und Ökologie – Faktenblatt Mit 20% Anteil (rund 3400 TWh) an der weltweiten Stromproduktion kommt der Wasserkraft eine Schlüssel-rolle zu, auch wenn ihr Anteil am Endverbrauch aller Energieträger nur rund 2% beträgt. Dies vor allem des-halb, weil sie kurzfristig regulierbar ist und in den Talsperren grosse Reserven gespeichert werden können. In der Schweiz stammen rund 56% des Stroms aus Wasserkraft. Weltweit existieren mindestens 47‘655 grosse Staudämme und Schätzungen gehen von 800‘000 kleineren aus.1,2 Seit 2000 wird wieder mehr in Wasserkraftprojekte investiert. Die Weltbank und die Welt-Damm-Kommission rechnen mit einer weiteren starken Zunahme3. In der Schweiz existieren:

576 Zentralen (>300kW Leistung) und zusätzlich rund 700 Kleinstwasserkraftwerke (<300kW). Rund 1400 Entnahmestellen4 und 102 Stauseen >0.1km2 5 Landeserzeugung Strom (2010): 66.3 TWh/a; davon Wasserkraft 37.5 TWh/a (56%)6 Speziell an der Wasserkraft in der Schweiz ist der hohe Anteil (57%) an Spitzenproduktion aus alpi-

nen Speicherseen. 43% stammen aus Laufkraftwerken. Verbrauch der Speicherpumpen (2010): 2.5 TWh/a

Zubau Wasserkraft 1950-2010 (nur Werke >300kW) 7 Verhältnis Anzahl Anlagen zur Produktion8 Die Nutzung der Wasserkraft bringt vielerorts Gewinne für die Wasserversorgung und für die Bewässerung in der Landwirtschaft, doch sie hat Folgen für die Gewässerökosysteme. Dabei ist zu berücksichtigen, dass die Artenvielfalt in aquatischen Ökosystemen durch chemische Belastungen, Überdüngung und den Struk-turwandel (Verlust von Feuchtgebieten, Abholzung, Wasserentnahmen, Verbauung und Stau von Flüssen) überproportional betroffen ist.9 Die Süsswasserfauna weist einen fünffach höheren Artenrückgang auf als terrestrische Lebensräume.10 Von den ehemaligen Auen der Schweiz sind 91% verschwunden.11 Von total 65‘000 km Fliessgewässern sind 22% in einem schlechten ökologischen Zustand: 40% im Mittelland, 80% im Siedlungsgebiet; 4000 km sind eingedolt. Unterbrechung des Fluss-Kontinuums

Talsperren und Wehre unterbrechen den Fluss als Längskontinuum. Die Verinselung der Lebensräume gefährdet vor allem Arten, die in ihrem Lebenszyklus lange Wanderungen durchführen (z.B. Lachs, Nase, Aal). Arten, die auf strömendes Wasser angewiesen sind, verlieren in den Stauräumen ihren Lebensraum. Wie stark künstliche Barrieren den Fischen zu schaffen machen, wiesen Eawag-Fischbiologen an der untersten Töss (ZH) nach: Unterhalb eines sechs Meter hohen Wehrs zählten sie 23 Fischarten, oberhalb noch 12. An der Sitter (SG/AR/AI) waren 46 der 54 untersuchten Zuflüsse für die Groppe nicht erreichbar. Umgekehrt stieg die Zahl der Fisch-arten im Lichtensteiner Binnenkanal innert nur vier Jahren von 6 auf

16 an, nachdem ein Absturz an der Mündung in den Alpenrhein fischgängig umgestaltet worden war. Die Aufwärtswanderung der Fische wird an den Kraftwerken mit Fischaufstiegshilfen ermöglicht. Nicht alle Fischpässe weisen jedoch einen guten Standard auf, und für einige Fischarten sind die bestehenden Fisch-pässe nicht geeignet. Für die Abwanderung an den Kraftwerken existieren in der Schweiz keine Abstiegshil-fen. Beim Abstieg über die Turbinen werden viele Fische verletzt oder sterben.

SCHIFFENEN

HAGNECKAARBERG

NIEDERRIED MÜHLEBERGFELSENAU

REFRAIN

LE CHÂTELOT

VEYTAUX

CHÂTELARD-BARBERINE 1+2

CHÂTELARD-VALLORCINE

MARTIGNY-BOURGLA BÂTIAZ

VERNAYAZ (CFF)MIÉVILLE

LAVEY

LA PEUFFEYREMONTHEY (VIÈZE)

ORSIÈRES

PALLAZUIT CHANRION

FIONNAY (DIXENCE)FIONNAY (MAUVOISIN)

ARDON

BIEUDRONNENDAZ

RIDDESCHANDOLINE

BRAMOIS

CROIXST. LÉONARD

MOTEC

VISSOIE

CHIPPIS(RHONEWERK)

NAVISENCE

CHANCY-POUGNY

VERBOIS

INNERGSTEIG

TURTMANN

STEG

STALDEN (KWM)

ACKERSAND 1ACKERSAND 2

ZERMEIGGERN

GONDO

GABI

BITSCH (BIEL) MÖREL

ALETSCH

HEILIGKREUZ

FIESCHERTAL

NEUBRIGGERNEN

LA DERNIERLES CLÉES

MONTCHERAND

OELBERG

HAUTERIVE

BROC

MONTBOVON

SPIEZERLENBACH

KANDERGRUND

AARAU-STADT RUPPERSWIL

GÖSGEN

RUPPOLDINGENWYNAU

BANNWIL

FLUMENTHAL

WILDEGG-BRUGG WETTINGENWETTINGEN

BREMGARTEN-ZUFIKON

KEMBS

BIRSFELDENAUGST

WYHLEN

RHEINFELDEN

RYBURG-SCHWÖRSTADT

SÄCKINGEN

LAUFENBURG

ALBBRUCK KLINGNAU

BEZNAU

RECKINGEN EGLISAU

RHEINAU

SCHAFFHAUSEN

KUBEL

ETZELWERKALTENDORF

SIEBNENREMPEN

AM LÖNTSCH

SCHWANDEN(NIEDERENBACH)

SCHWANDEN(SERNF)

SARELLI

KLOSTERS

KÜBLISMARTINA

PRADELLA

OVA SPIN

CAMPOCOLOGNO 1

ROBBIA

PALÜ

CASTASEGNA

LÖBBIA (ALBIGNA)

FERRERA 1

BÄRENBURG

SILS (KHR)SILS (EWZ)

TIEFENCASTEL (ALK)FILISUR

TIEFENCASTEL WEST

TIEFENCASTEL OST

TINIZONG

REALTA

ROTHENBRUNNEN (EWZ)ROTHENBRUNNEN (KWZ)

REICHENAU

MAPRAGG

ZERVREILA

SAFIEN PLATZ

ILANZ 2ILANZ 1

MUTTEINS

TAVANASA (KVR)

SEDRUN 1

RUSSEIN

LINTHAL (LIMMERN)FÄTSCHBACH

TIERFEHD (LIMMERN)TIERFEHD (HINTERSAND)

WERNISBERG

BISISTHAL

BOLZBACH BÜRGLEN (UNTERSCH.)

ARNIBERG AMSTEG

PFAFFENSPRUNG

GÖSCHENEN 1+2

DALLENWIL

OBERMATT

HUGSCHWENDIUNTERAA (LUNGERERSEE)

INNERTKIRCHEN 1HOPFLAUENEN (TRIFT)

HANDECK 3+2+1

GRIMSEL 1 (OBERAARSEE) GRIMSEL 2

MOROBBIASASSELLO

GRONO

LOSTALLOSOAZZA

SPINA (ISOLA)

VERBANO 1+2

GORDOLA

BIASCABIASCHINA

OLIVONELUZZONE

PIOTTINO

TREMORGIO

RITOM

STALVEDRO (AET)AIROLO

CAVERGNO

ROBIEI

BAVONA PECCIA (SAMBUCO)

MUTT

Zentralen von Wasserkraftanlagen der Schweiz,mit einer maximal möglichen Leistung ab

Generator von mindestens 10 MW

Centrales d’aménagements hydro-électriquessuisses d’une puissance maximale disponibleaux bornes des alternateurs d’au moins 10 MW

Centrali d’impianti idroelettrici svizzeri conuna potenza massima disponibile ai

morsetti die generatori d’almeno 10 MW

10 - < 50 MW (103 Zentralen)

50 - < 200 MW ( 63 Zentralen)

200 MW ( 17 Zentralen)

Zentrale einer internationalen WasserkraftanlageCentrale d’un aménagement hydro-électrique internationalCentrale d’un impianto idroelettrico internationale

Legende / Légende / Leggenda

Stand / Etat / Stato: 1.1.2011

INNERTKIRCHEN 2

TIERFEHD (UMWÄLZWERK)

ALBBRUCK-WEHRKRAFTWERK

GRIMSEL 1 (GRIMSELSEE)

TASCHINAS

NANT DE DRANCE

UNTERAA (MELCHAA)

LIMMERN



It shows 183 hydropower facilities with a maximum capacity from 10 MW as of January 1st, 2011 (BFE, 2011a). As can be seen the large hydropower plants with a maximum capacity above 200 MW are particularly located in the Alpine areas of southern and east-‐southern Switzerland.

3.4.1 Swiss hydropower production compared to the world

With its diverse technical, economical and ecological advantages, it is believed that hydropower will play a key role in future world energy provision, particularly in developing countries (IHA, ICOLD, IEA & CHA, 2000). Today, hydropower accounts for the biggest share of renewable energies. Namely, in 2008, world electricity production from hydropower accounted for 3,329 TWh (IEA, 2011), which was equivalent to more than 16 per cent of total world electricity production (20,181 TWh). Since 1990, China has had the largest absolute growth in hydropower exploitation, with an increase of 50 per cent until 2010 in terms of hydropower production and it still has large potentials for further expansion (IHA, ICOLD, IEA & CHA, 2000). Figure 3-‐6 shows the global distribution of hydropower production for 2008 of the ten leading countries and the rest of the world (‘other’) (IEA, 2010). It can be seen that China holds the largest share with 18 per cent of yearly hydropower generation. It is followed by Canada (12 per cent), Brazil (11 per cent) and the United States (9 per cent). The other six countries, Russia, Norway, India, Venezuela, Japan, and Sweden, hold shares equal to or below 5 per cent. Lastly, all other countries not specified further generate 30 per cent of hydropower production. For a comparison, the share of Swiss hydropower production lies approximately at 1.1 per cent of total world hydropower production (IEA, 2011).

Figure 3-6 Global shares of hydropower production

Source: IEA, 2010

The share of hydropower production in the world energy provision is expected to increase further in the future, as the IEA estimated that the worldwide hydropower potential lies at about 16,400 TWh per year (IEA, 2010), which means an increase potential of approximately 500 per cent. However, this potential is quite unevenly distributed, as the top five countries with the largest prospective, namely China, the Unites States, Russia,



Brazil and Canada, could generate more than half of this electricity per year (8,360 TWh). Together with the bottom five countries, these nations form about two-‐thirds of the worldwide, unexploited hydropower potential (IEA, 2010). According to the IHA, most OECD countries have already actively developed their potential hydropower use, except for the US and Canada (IHA, ICOLD, IEA & CHA, 2000). This holds specifically for Switzerland, whose proportion of developed hydropower potential amounts to 88 per cent and therefore ranks first of all countries with developed hydropower production above 30 TWh per year (IEA, 2010). This can be seen in Figure 3-‐7, which shows the countries with the highest developed proportion of their hydropower potential. As one can observe, Mexico is ranked second with 80 per cent developed hydropower potential, followed by Norway (70 per cent), Sweden (69 per cent) and France (68 per cent) (IEA, 2010).

Figure 3-7 Countries with the highest proportion of developed hydropower potential

Source: IEA, 2010

3.5 Swiss Energy Policy And Perspectives

As a consequence of the Fukushima nuclear disaster that took place in Japan in March, 2011, the Swiss government has decided to phase out nuclear energy production in the long-‐term (Teuwsen, 2011). Three days after the disaster, D. Leuthard, a member of the Swiss Federal Council, announced the abrupt change in nuclear energy policy to the Swiss people and, in addition, notified that the construction of three new nuclear power plants had not been approved. Since then, it has been decided that the five nuclear power plants will not be replaced with new plants after the end of their technically safe operating period, which is expected to be 50 years for each plant (Zacharakis, 2011). This means that in 2019 the first Swiss nuclear power plant will be shut down, with the last one being closed in 2034. In May 2011, the Swiss Federal Council has released the new Energy Strategy 2050, which depicts future strategies and perspectives for the Swiss energy industry (Schweizerischer Bundesrat, 2011).

The new energy strategy is based on the four pillars of energy efficiency, renewable energies, large power stations and active foreign energy policy (see Figure 3-‐8). Furthermore, it is grounded on the concept of a 2000-‐Watt-‐society, which means 1 t of CO2 per capita per year. For a comparison, current CO2 emissions per capita in Switzerland are



almost seven times as much, namely 6.82 t of CO2 per capita (BAFU, 2012). It has been estimated that total electricity demand in 2050 will increase to 61.86 TWh. To meet these demands, the increase of energy efficiency and the expansion of renewable energies in particular are a central focal point. According to the Council, this needs to be accompanied by a paradigm change, not only in policy but also in society as a whole, which will lead to a decrease in energy intensity per capita (Schweizerischer Bundesrat, 2011).

Figure 3-8 The four pillars of the new Energy Strategy 2050

Due to the planned close-‐down of the nuclear plants, about 25.2 TWh, or 38 per cent of base load electricity will be lost in the electricity supply mix. This expected shortfall will be compensated with a mixture of increased hydropower, new renewable energies, electricity imports, cogeneration plants and gas-‐fired combined cycle plants. However, the degree of using cogeneration plants and gas-‐fired cycle plants has not yet been determined, as a wide-‐spread use of these plants would undermine reaching the Swiss CO2 emission targets (Schweizerischer Bundesrat, 2011). The development for renewable energy technologies will particularly focus on hydropower, photovoltaic, wind and geothermal plants (BFE, 2012). The potential supply of electricity from the renewable energy sector by 2050 is expected to amount 22.6 TWh, where about 10.4 TWh will come from photovoltaic installations, 4.0 TWh from wind energy, 4.4 TWh from geothermal installations and an additional 3.8 TWh from other renewable sources. The maximum potential expansion of hydropower installations is estimated to be around 10.7 TWh, with 7.5 TWh coming from an increase of pumped-‐storage facilities and 3.2 TWh from optimisation and new constructions of other hydropower facilities (Previdoli, 2012).

The abrupt change of the national energy strategy and especially the expansion of hydropower facilities are associated with considerable conflict potential and opposition from the Swiss population as well as political parties. On the one hand, Switzerland tries to reach the targets regarding its climate and energy policy like investing in renewable energy sources. For example, the Swiss green party is criticizing the long operating periods of the nuclear power plants and has been fighting for a close-‐down of all plants by 2029 (Zacharakis, 2011). Furthermore, there is widespread doubt whether Switzerland will be able to keep its CO2 emissions low, when gas power plants have to be used as intermediate solution for peak electricity production during the energy transition period. On the other hand, there are many nature standards and water protection agreements as for instance



the Modular Stepwise Procedure for waterways that need to be considered when new hydropower facilities are built (Bundesamt für Umwelt [BAFU], 2011). Hence, ecologists and biologists have for long been calling for a reduction of Swiss hydropower installations as it can also lead to adverse environmental effects. The environmental advantages and disadvantages of hydropower production will be explained in more detail in the following section.

3.6 Hydropower And The Environment Needless to say, there is no such thing as an environmentally neutral electricity generation. However, according to many studies hydropower production is at least one of the most environmentally friendly ways of energy production (Pfammatter, 2012; IHA, ICOLD, IEA & CHA, 2000). Despite much debate and protest, only a few would “disclaim that the net environmental benefits of hydropower are far superior to fossil-‐based [energy] generation” (IHA, ICOLD, IEA & CHA, 2000, p. 5). This is due to various, positive characteristics of hydropower generation.

First, and as discussed before, water occurs in high volumes around the world and there is still a large share of its real potential to be developed. This holds particularly for many developing countries that can benefit from the positive impacts of hydropower development such as continuous irrigation systems, flood-‐risk prevention, and the provision of low CO2 electricity. Second, hydropower production is an ancient and well-‐proven technology dating back centuries. Due to its long history, it uses a very advanced technology with modern plants delivering the most efficient energy conversion method of more than 90 per cent as compared to other conversion techniques (IHA, ICOLD, IEA & CHA, 2000). Third, hydropower plants hold the longest plant life with the lowest operating costs as compared to other energy production facilities. This provides large economic as well as ecological benefits. For example, the generated emissions and adverse effects from construction materials are much smaller per life cycle year than for other plants. Today, large dams are built with an operating life of 100 years, while older plants with an operating life of 40-‐50 can be improved to double their operating life (IHA, ICOLD, IEA & CHA, 2000). Lastly, GHG emissions from hydropower plants have proven to be 30-‐60 times lower than those of fossil fuel production, which is a significant environmental benefit regarding avoiding global climate change (IHA, ICOLD, IEA & CHA, 2000).

It needs to be noted here that for many years it has been advocated that hydropower production is a GHG-‐neutral source of electricity production. However, studies conducted since the 1990s have discovered that this may not hold true (Fearnside, 1997; Diem et al., 2012). In particular, these studies have shown that artificial storage lakes and reservoirs do in fact emit three important GHGs, namely methane (CH4), carbon dioxide (CO2) and nitrous oxide (N2O). These GHGs are emitted either directly or indirectly during the various stages of a reservoir. Direct emissions occur during the construction phases of the reservoirs and during peak electricity production, when large quantities of the water are flushed through the turbines. Indirect emissions are found mainly from decaying biomass from land flooding (Gagnon & van de Vate, 1997). These studies reveal important information as they disprove the general assumption of hydropower being a GHG-‐free source of energy. However, GHG emissions from hydropower production, when considered throughout the whole life cycle are still many times lower than those from fossil fuel production (IHA, ICOLD, IEA & CHA, 2000; Ott et al., 2008).

As an illustration, GHG emissions from hydropower storage and pumped-‐storage plants were calculated for the production difference between the baseline and the expansion



scenario. The results are shown in Table 5-10 (Annex B) as t of CO2 equivalents. However, the illustrated GHG calculations will not be further considered in the CBA, as other estimates will be used to value the external costs and benefits of hydropower as explained in the following sections.

As to the further adverse environmental impacts of hydropower generation, there are generally three main problems that can be distinguished, namely sedimentation, impacts on fish, and the reduction of water quality. These are explained as follows.

“Sedimentation occurs when weathered rock, organic and chemical materials transported in a river system are trapped in a reservoir” (IHA, ICOLD, IEA & CHA, 2000, p. 9). These materials accumulate in the reservoir and may occupy significant volumes of a storage dam for electricity production. Many of those materials have important refreshing purposes for downstream river systems and agricultural lands, which are lost if materials are trapped upstream. Today, only a small proportion of dams has serious problems with sedimentation, but it is expected that many large dams in dry areas will have sedimentation problems in the future (IHA, ICOLD, IEA & CHA, 2000). Measures to reduce sedimentation are periodic flushing or dredging from reservoirs, which have the advantage that pollutants retained in the sediment are also retrieved from the water and will not harm downstream ecosystems.

The protection of fish populations has been a serious concern related to hydropower installations for many decades. The main problems include the destruction and changes of habitat, changes in flow regime and fish passage, especially in storage schemes. As water is released from the reservoirs, it passes through the turbines with a very high velocity, which makes it inevitable that large quantities of fish enter the production flow. This is especially the case during times of spawning and incubation of migratory species. Furthermore, large dams form an insuperable barrier to returning fish species, i.e. fish that return to up-‐stream areas for spawning, which may considerably reduce fish reproduction cycles (IHA, ICOLD, IEA & CHA, 2000). Numerous measures have been designed in the past to reduce negative impacts on fish populations from hydropower schemes, including bubble curtains, acoustic barriers, electrical fields, fish ladders, underwater lights and louvre screens (generating turbulence). It is estimated if modern systems are well-‐designed and installed, a 90 per cent exclusion rate for certain species can be reached (IHA, ICOLD, IEA & CHA, 2000).

The reduction of water quality in large dams is a real concern not only due to its adverse effects on fish species, but also for downstream ecosystems and land use. As water in large dams is stored in deep reservoirs, water tends to be colder and often has changed levels of dissolved minerals, such as oxygen. Therefore, water flowing downstream from reservoirs often has lower levels of oxygen and may lead to fish mortality or forced relocation. Other problems of water quality are the increase in total dissolved gases, modified amounts of nutrients and increased levels of heavy metals. Measures to reduce these problems include, for example, oxygenation of the benthic water by auto-‐venting turbines the mixing of water bodies at lower levels (IHA, ICOLD, IEA & CHA, 2000).



4 Cost-‐Benefit Analysis

4.1 Defining The Project And Scenarios The aim of this research is to estimate the total economic value added of hydropower production in Switzerland under the current conditions and under the potential expansion as explained earlier. Thus, the question is whether or not hydropower production in Switzerland generates a positive economic value added when moving from the status quo to an expansion scenario. For this purpose, a CBA is used to provide a structured overview of the positive and negative effects of the two situations or scenarios, which are the with-‐ and without-‐project situation. In this sense, the project is defined as the expansion of hydropower. The two scenarios can then be defined as (1) the baseline scenario and (2) the expansion scenario:

• Baseline Scenario The baseline scenario is the without-‐project situation and reflects the continuation of the present situation. Thus, this scenario illustrates the status quo of hydropower production in Switzerland and assesses the current costs and benefits of hydropower production. Furthermore, it serves as the reference scenario for the expansion scenario. In the baseline scenario, 554 hydropower plants are analysed, as these are the plants located within Switzerland with a maximum capacity above 300 kW. This includes 455 ROR plants, 85 storage plants and 14 pumped-‐storage plants. Together, these plants generated an average 35,818 GWh of electricity in 2012 (BFE, 2012b). However, this number does not take into account the electricity produced by Swiss re-‐circulation plants nor does it count small hydropower plants with a maximum capacity below 300 kW. This is because their production capacities are relatively small compared to the other facilities, namely approximately 3 per cent for re-‐circulation plants and less than 1 per cent of overall hydropower production for small hydropower plants (Bryner, 2011). For this reason re-‐circulation plants and small hydropower plants will not be considered in the analysis here.

• Expansion Scenario The expansion scenario is the with-‐project situation and describes the projected expansion of hydropower production in Switzerland. Therefore, it assesses the future costs and benefits of hydropower generation and calculates its expected economic value. For the expansion of hydropower installations, diverse numbers as to the extent of production increase and new constructions can be found (Previdoli, 2012; Wüest, 2012; BFE, 2011b). The numbers used for this analysis are therefore based on the most recent publication of the BFE that presents total estimations amounting to 10.7 TWh for hydropower expansion (Previdoli, 2012). This number can be divided into two ways of expansion. These are first new constructions and optimisation of existing plants from which additional 3.2 TWh of electricity can be generated, and second the additional electricity production from new pumped-‐storage facilities amounting to 7.5 TWh. However, this analysis will only include the former estimates for the following reasons. Pumped-‐storage plants have an efficiency degree of only 80 per cent, which has already been explained in section 3.2. This means that 20 per cent of the electricity generated is lost in the process of pumping up the water. The inclusion of these estimates would require extensive new calculations that unfortunately lie outside the scope of this paper due to the limited amount of time to write this thesis. Thus, the analysis here will be conducted with an expansion of 3.2 TWh.


34 Cost-Benefit Analysis

Assessing different scenarios is a crucial tool of CBA as it helps policy-‐makers comparing alternatives and thereby finding the most suitable solution for the existing policy problems. In the case of Swiss hydropower production, it is important to highlight the true economic value of hydropower production from a societal point of view, as there is a widespread uncertainty regarding its positive and negative impacts. By comparing the current situation with the projected expansion scenario, one can conclude whether there is an economic gain of the expansion. Hydropower plants that are located outside Switzerland will not be counted here since the study focuses on a national level only and the economic costs and benefits affecting the Swiss population.

4.2 Identifying Impacts That Are Economically Relevant This step looks at the impacts resulting from the hydropower production expansion, and ultimately selects those impacts that are considered most economically relevant for the analysis. For this purpose, an effects table has been created as shown in Table 4-‐1. The table lists the direct and indirect effects of hydropower production, which are further divided into market and non-‐market effects. Direct market effects are those impacts of a project or action that are measurable in terms of a market price and that are intended direct outcomes. Indirect market effects can be defined as often unintended effects of the project that are measurable with a market price. In contrast, non-‐market effects are those external impacts that cannot be valued directly based on market prices and that may have substantial non-‐use values, as discussed in section 2.1. Thus, direct non-‐market effects are those impacts that directly occur from a project, and that have a positive or negative use or non-‐use value to humans but fall outside existing markets. Indirect non-‐market effects are then those impacts that do not directly occur and that are not measurable directly in monetary terms through market prices.

Table 4-1 Effects Table

The direct market effects for the depicted scenarios are the common financial costs and benefits arising from hydropower generation, as discussed by most standard financial CBAs (Filippini et al., 2001; Geissmann, 2012). These include the electricity generation itself as a benefit, and the costs of production as the costs. The latter includes factors such as the costs of investment, operation, maintenance, and labour throughout the plant’s lifetime. As already mentioned, these are the criteria discussed in a standard CBA with the aim of calculating the financial gains and losses of a project. Therefore, they will also be analysed



and calculated in this analysis. Besides those, however, this study attempts to also assess the three other dimensions listed above with a particular focus on the direct and indirect non-‐market effects. The assessment of indirect effects on the economy as a whole requires a macro-‐economic model and corresponding data collection that lie outside the scope of this study.

As to the direct, non-‐monetary effects two main impacts have been identified and will be included in the analysis. These are environmental and biodiversity losses and the reduction of GHG emissions by hydropower production as compared to other electricity sources. Regarding the cost of environmental and biodiversity losses, various impacts are included in this category as discussed in section 3.6. These are sedimentation due to river flow alteration, the loss of fish habitat and the consequent loss of fish population, and the reduction of water quality. These direct but non-‐market externalities are crucial in environmental CBA because they change the quality of output of some positively valued commodity (Hanley & Spash, 1993). As discussed previously, hydropower production is not GHG-‐neutral, however, it emits considerable lower amounts of GHG than other conventional ways of energy production. Therefore, this needs to be included in the CBA calculations as a benefit of hydropower production.

In the lower right quadrant of Table 4-‐1, the indirect and non-‐monetary impacts are listed. These are the potential damage costs and the costs from changes in landscape. Damage costs may arise in the case of material defects or obsolete technologies in use, which can lead to substantial damages as for example a dam failure and the consequent flooding of downstream villages or regions. Therefore, this is a cost of hydropower production. Regarding the effects of landscape changes, this should be included as a cost associated with hydropower production. Landscape changes are a cost to those people that highly value the aesthetic characteristics of nature.

Lastly, the indirect market effects are flood protection and local employment. Flood protection can be an indirect benefit from a storage or ROR plant, if a region is prone to extensive flooding periods. With hydropower facilities the water can be alternated to various regions or, in the case of a storage plants, can be released with a constant flow volume to downstream regions. Local employment is an indirect effect of hydropower production, especially for the early investment phases. For this analysis, none of the two effects will be considered. This is because estimations for employment rates are very site-‐specific and so far there is no commonly accepted method for calculating the social benefit of jobs created in the hydro industry (European Commission [EC], 1995). Regarding the effect of flood protection, it is argued in this paper that hydropower facilities within Switzerland are almost exclusively used for electricity generation and therefore do not operate as flood protection systems per se.

Summarising this section, the following criteria will be considered in the analysis. On the benefit side these are electricity generation and the benefits from reduced GHG emissions. On the cost side, these are the costs of production, environmental and biodiversity losses, potential damage costs and the costs from landscape changes.

4.3 Physically Quantifying The Impacts As previously explained this step explains the identified costs and benefits in terms of their physical flows, their occurrence in time or, if applicable, their probability of occurrence. Here, all physical positive and negative flows are based on yearly electricity output from the individual hydropower plant types. Furthermore, the CBA has been calculated for a



timespan of 23 years starting in year 2012 and ending in year 2034. The reason for taking this timespan was the assumption that the last nuclear power plant will be taken from the grid and closed-‐down by 2034, as decided by the Swiss Federal Council. Therefore, it was interesting to calculate the economic CBA for hydropower production in Switzerland within this time period. Furthermore, all calculations of the positive and negative effects will start in year one of the calculations, as the used monetary estimates reflect average yearly values per kWh of electricity.

For the baseline scenario it was assumed that electricity output from hydropower production would slowly increase within the next 23 years. However, this increase was expected to be much smaller than the one for the expansion scenario. In order to calculate the electricity output per year for the future 23 years in the baseline scenario, projections from the BFE (BFE, 2012a) were used that provide estimates for the coming six years, until 2018 (see Table 5-1, Annex A). For the years afterwards it was assumed that electricity output from hydropower would increase by 10 GWh per year, which is based on the increase between the years 2017 and 2018 as estimated by the BFE (BFE, 2012a).

For the expansion scenario, it was assumed that electricity output would increase by 3.2 TWh by 2034 as discussed previously. This gives a yearly increase of approximately 140 GWh for 23 years. In order to identify the production increases per power plant type, it was assumed that 47 per cent from the total production comes from ROR plants, 48 per cent from storage plants and 5 per cent from pumped-‐storage plants (see Table 3-‐1). The division of shares was held constant for all the years throughout the CBA for both the baseline and expansion scenario.

4.4 Calculating A Monetary Value Having quantified the positive and negative effects for the CBA, this stage discusses the calculations of the analysis by giving the impacts monetary values.

In order to calculate the financial benefits gained from hydropower production, it was necessary to find recent data about the volume of production for the three different plant types as well as current prices for electricity from hydropower plants. As to the former, this was already discussed in the previous subsection and the production volume is based on the annual statistics of Swiss electricity production and consumption that include detailed data about the national wide hydropower production (BFE, 2012a). The average electricity production as of January 1st, 2012 amounted to 16.9 TWh for ROR plants, 17.3 TWh for storage plants and 1.6 TWh for pumped-‐storage plants (see Table 3-‐1) (BFE, 2012b). For the analysis, this data will be used as basis for all following calculations. Furthermore, it is assumed that considering the average yearly production volume (instead of the differences of summer and winter production), gives a sufficient overview of the general production volume and characteristics.

The second item required to quantify the financial gains from hydropower production are the revenues gained per kWh of electricity sale. Therefore, market prices of electricity have been used that have been identified by one of the most recent CBAs by Geissmann (2012). The study identifies revenues gained per kWh for the three different plant types, ROR, storage and pumped-‐storage, by analysing 66 Swiss hydropower companies over a period of 10 years, from 2000 till 2009 (Geissmann, 2012). As of the year 2009, the mean revenues for the three different plant types were found to be as follows. For ROR plants revenues amounted to 4.3 Rp./kWh, for storage plants 5.5 Rp./kWh and for pumped-‐storage plants 6.1 Rp./kWh (Geissmann, 2012). When comparing these findings to current electricity



prices of the Swiss electricity market as depicted on the European Energy Exchange (EEX, 20123) the average electricity price for one week can be found amounting to 4.7 Rp./kWh for base load electricity and 5.5 Rp./kWh for peak load electricity4. As explained previously, ROR plants generally produce base load electricity, whereas storage and pumped-‐storage plants are used to generate peak load electricity. As the analysis here requires exact price data for the three hydropower plant types, it was concluded that the estimates found by Geissmann (2012) are more suitable for being used in the analysis and are sufficiently reflecting current market prices for electricity. Hence, they are used as price estimates for the calculations of the revenues or financial benefits gained from hydropower production. They will start in year one of the calculations.

To calculate the financial costs of hydropower production the costs of production per kWh are considered for each power plant type in addition to the average yearly volume of production. The latter has already been explained and quantified. As to the former, several studies exist that reveal costs of production for the three hydropower plant types ROR, storage and pumped-‐storage. For example, Moser, Pfammatter, Ribi and Zysset (2009) prepared an overview of the financial indicators of the Swiss water industry, including water supply, sanitation, flood control and hydropower. The paper uses data from other, earlier studies and includes the following estimates for hydropower costs of production. For ROR plants the estimates range between 3 – 7 Rp./kWh, for storage plants between 4 – 10 Rp./kWh and for pumped-‐storage plants between 6 – 16 Rp./kWh (Moser et al., 2009). Average costs of production for all plant types are 6.6 Rp./kWh. Unfortunately, the paper does not reveal the cost criteria included in the estimates. Geissmann (2012) analysed the costs of production for the three power plant types for the years 2000 till 2009. The author defines costs of production as the sum of the costs of water rates, amortisation, materials, financing, personnel, energy and grid usage, dividends, and other taxes and costs. As the study actually details the different cost criteria of the costs of production, it was decided that the estimates provided by Geissmann (2012) would be used here instead of those from Moser et al. (2009). Moreover, it is important to note that no additional cost category for ‘investment costs’ will be calculated as the costs for the initial investment and construction are included in the cost criteria ‘amortisation’. Hence, the costs of production can be calculated starting in year one of the CBA, as they represent average costs of production including the initial investment phase.

The revenues from electricity production in the baseline scenario for ROR plants, storage and pumped-‐storage plants are shown in Table 5-‐2 (Annex A) using the previously discussed price estimates from Geissmann (2012). Table 5-‐3 (Annex A) shows the costs of production for the three plant types with the estimates from Geissmann (2012). The same is shown for the expansion scenario in Tables 5-‐4 and 5-‐5 (Annex A) using the same estimates for the revenues and costs per kWh.

As to the external or indirect effects from hydropower production the following estimates will be used for the calculations. As discussed in the literature review, Ott et al. (2008) identified the avoided external costs from hydropower production in Switzerland. As already explained these avoided costs can be seen as external or social benefits due to the use of hydropower instead of other conventional or nuclear power production. The estimates have been taken from the ExternE studies first conducted by the European

3 European Energy Exchange (EEX) (2012). Market Data: Swissix - hour contracts. Retrieved June 30,

2012 from http://www.eex.com/en/Market%20Data/Trading%20Data/Power/Hour%20Contracts%20|%20Spot%20Hourly%20Auction/spot-hours-table/2012-07-01/SWISSIX.

4 As of June 24 - 30, 2012, with a currency exchange rate of € 1 = CHF 1.2.



Commission in 1995 with several follow-‐up studies (e.g. EC, 1995; EC, 2003; Ecoplan, 2007). The studies have analysed and produced estimates about the external costs of electricity production from various production sources, namely coal, peat, oil, gas, nuclear, biomass, water, solar, wind and waste. Figure 5-‐1 (Annex A) shows the average external costs of electricity production in Europe and Switzerland as calculated by different studies. Various effects have been considered to calculate the estimates of the external costs of electricity production and include the following. First, there are the external costs due to emissions from fossil fuels, that lead to the reduction of life expectancy due to additional diseases, damages to property from air pollution and acid rains, crop failures due to air pollution, losses of biodiversity and ecosystems due to acidification, GHG emissions and fossil fuel induced climate change, and lastly, radioactive radiation from nuclear power plants. Second, there are aesthetical adverse effects for landscapes and heritage areas that arise from the power plants’ infrastructure. Third, it includes the deterioration of waterways and habitat due to hydropower plants and cooling systems from fossil fuel plants. Fourth, there are the potential risks of accidents especially from nuclear power plants and dam failures from storage plants. Lastly, there are the risks of disposal and processing from nuclear waste. The study by Ott et al. (2008) used the estimates from Ecoplan (2007) and compared the external costs from hydropower with the external costs from nuclear, oil, gas, wind, biomass and solar power plants. The difference between the estimates is then the avoided external cost from hydropower production in Rp./kWh as depicted in Figure 4-‐1.

Figure 4-1 Avoided external costs from hydropower

Source: Ott et al. (2008) The depicted estimates are used in the following analysis in order to compare the expansion scenario to the baseline scenario in terms of the potential external benefits gained by expanding the hydropower sector instead of using other energy sources. As with the other impacts, it is assumed that the occurrence of the external benefits starts in year one of the calculations until the end of the plants operating lifetime.

In order to calculate the monetary values of the avoided external costs from hydropower production, first the difference in the production output from the baseline and expansion scenarios for all years was calculated. The results were then multiplied by a weighted rate of avoided external costs that was defined as follows. It was assumed that the alternative of an expansion with hydropower production would be 50 per cent production with gas-‐fired combined cycle plants (GCC), 25 per cent solar power, 15 per cent wind power and 10 per cent biomass power production. This assumption is based on scenarios developed by the Swiss Federal Council discussing the alternatives for the provision of electricity with regard to the lost supply from nuclear power plants for the coming 50 years (Schweizerischer Bundesrat, 2011). Taking the estimates from Figure 4-‐1, the weighted sum of the avoided external costs gives a value of 1.3 Rp./kWh (0.5*2.2 + 0.25*0.1 + 0.15*-‐0.4 + 0.1*2.4 = 1.3). The value is multiplied with the production difference for each year in the CBA leading to

40 Nutzen der Wasserkraft

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Vermiedene externe Kosten

in [Rp./kWh]

Kernenergie Risikoaversion:

ohne mit

Öl Gas Wind Biomasse Photovoltaik

Wasserkraft:

- Speicher-KW

- Laufkraftwerk

0.0 – 18.0

-0.2 – 17.0

0.1 – 17.3

6.2

6.0

6.3

2.2

2.0

2.3

-0.4

-0.6

-0.3

2.4

2.2

2.5

0.1

-0.3

0.0

!Tabelle 5 Vermiedene externe Kosten [Rp./kWh] gemäss 'Durchschnittswert' von

Tabelle 12 in Anhang A-1 bei Wasserkraft anstelle von anderen Produkti-onstechnologien.

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3.4 Fazit: Nutzen der Wasserkraft

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the results depicted in Table 5-‐6 (Annex A). The next two steps of the CBA, discounting and weighting, will be discussed together in the following section.

4.5 Discounting And Weighting The Results Discounting is an important tool in CBA and needs to be done because of the time value of money. The costs and benefits that have been calculated for the time period of 23 years need to be expressed in their present values in order to be comparable. Therefore, the results are discounted with a discount rate of 4.5 per cent. The discount rate has been chosen according to the CBA conducted by Filippini et al. (2001) that was discussed previously in this thesis. The authors stated that this is the rate of the weighted average cost of capital (WACC) for investments made in the hydropower sector. Therefore, this rate was used as the discount rate for the original calculations in this analysis. The sensitivity analysis conducted later in this study shows variation calculations for alternative discount rates.

This analysis attempts to investigate both the financial and the economic value of hydropower production under the projected expansion scenario as compared to the baseline scenario, i.e. the current situation. Therefore, the following steps were taken. First, the total costs of production of the baseline scenario are deducted from the total costs of production of the expansion scenario (for each year in the timeline), which gives the net financial costs as depicted in Table 5-‐7 (Annex A). The same has been done for the financial benefits, namely deducting the total financial benefits of the baseline scenario from the total financial benefits of the expansion scenario for each year. The results are shown in Table 5-‐8 (Annex A). As for the net economic benefits, the calculation has been explained in the previous section already and the results are shown in Table 5-‐6 (Annex A). Having calculated all net financial and economic costs and benefits, the next step was to discount the monetary values for each year. Thus, the results were discounted for each year with a discount rate of 4.5 per cent, as shown in Table 5-‐9 (Annex A). Subsequently, in order to calculate the financial NPV, the sum of the discounted financial costs was deducted from the sum of the discounted financial benefits. As expected, the NPV for the financial CBA resulted in a negative value amounting to -‐ CHF 42.2 million, as shown in Table 4-‐2.

Table 4-2 Results of the Financial CBA with a discount rate of 4.5%

4.5% DISCOUNT RATE FINANCIAL CBA NPV (in CHF) -‐ 42,222,490 B/C RATIO 0.93

IRR cannot be calculated

Furthermore, the benefit-‐cost ratio was calculated and the result gave a value below 1, namely 0.93. Because the NPV is a negative value and the net benefits for the financial CBA will always be negative, the IRR could not be calculated. The results of the three decision criteria lead to the following recommendation. Because the NPV has a negative value, or NPV < 0, the projected expansion should not be implemented from a pure financial point of view. The same recommendation can be concluded from the B/C ratio that is smaller than 1, or B/C < 1. In other words, when looking only at the financial costs and benefits of the projected expansion for hydropower, hydropower production should not be expanded.

However, this analysis was specifically set up to conduct an economic CBA for the projected expansion scenario that also takes into account the wider external costs and benefits



associated with hydropower production. Therefore, discounted economic benefits (or the discounted avoided external costs) were added to the calculation. The sum of the discounted values was added to the NPV of the financial calculations leading to the results as shown in Table 4-‐3. The NPV for the economic CBA is a positive value amounting to CHF 99.8 million. Furthermore, the B/C ratio equals 1.17, thus B/C > 1, and the IRR gives a value of 54 per cent (IRR > discount rate). These numbers lead to a very different recommendation as opposed to the results from the pure financial CBA. Namely, under the consideration of the external effects from hydropower production the results of the economic CBA represent an efficient reallocation of resources and thus support the projected production expansion of Swiss hydropower.

Table 4-3 Results of both CBAs with a discount rate of 4.5%

4.5% DISCOUNT RATE FINANCIAL CBA ECONOMIC CBA

NPV (in CHF) -‐ 42,222,490 (< 0) 99,788,720 (> 0) B/C RATIO 0.93 (< 1) 1.17 (> 1)

IRR cannot be calculated 54% (> DISCOUNT RATE)

The difference in the results shows that it is important to take into consideration the wider, external effects when it comes to the question of whether or not to implement such large-‐scale projects within a country. It is thus not sufficient to look at the pure financial indicators of such projects, in this case the financial costs and benefits from hydropower production. A more detailed discussion of the findings will be elaborated in the conclusion. The following section presents the results from a sensitivity analysis of the different estimates.

4.6 Conducting A Sensitivity Analysis The final step of a CBA is the completion of a sensitivity analysis for various estimates sued in the calculations. This is important because it helps identifying those parameters to which the results are most sensitive. First, the sensitivity analysis has been performed for different values of the discount rate and its effects on the NPV. Next, alternative estimates have been used for the costs of production and revenues from hydropower, and their effects on the B/C ratio. Lastly, it has been investigated how increases in the estimates of the avoided external costs change the B/C ratio. All sensitivity calculations have been done for the results of the economic CBA.

As explained in section 2.4, the discount rate is used to calculate the present value of a future cost or benefit. The higher the discount rate, the higher one values costs or benefits accruing today. Or otherwise stated, the lower the discount rate, the higher one values costs and benefits accruing in the future. Thus, in the sensitivity analysis the CBA calculations were performed again but with increased values of the discount rate to show their effects on the NPV. The discount rate was increased by 5 per cent, 10 per cent, 15 per cent and 20 per cent as compared to the original calculations that have been done with a discount rate of 4.5 per cent. The results are shown in Figure 4-‐2. The x-‐axis shows the percentage increase in the discount rate and the y-‐axis shows the NPV in million CHF. It can be seen that as the discount rate increase, the NPV becomes smaller. This is in line with the general expectation as the IRR was calculated to be 54 per cent. This means that with a discount rate of 54 per cent, the NPV would be zero (0). The sensitivity analysis shows that for every increase by 5 per cent, the NPV halves approximately. Lastly, it can be concluded



that the NPV is very sensitive to different values of the discount rate. Thus, the choice of the used discount rate in this CBA for a very large extent determines the outcomes of this analysis and should be adapted according to changing rates of the WACC for future analyses.

Figure 4-2 Sensitivity of NPV to discount rate increases

Figure 4-‐3 shows the results of a sensitivity analysis of the B/C ratio to increased costs of production. This was done for cost increases of 5 per cent, 10 per cent, 15 per cent and 20 per cent. This was done in order to investigate to what extent costs of production could rise until the B/C ratio reaches a value of 1 or a value below 1. This could be of particular interest, as future costs of production cannot be estimated with certainty. Thus there is the possibility that due to the high costs of investments for the hydropower expansion, costs of production might increase by a higher percentage than what is expected today. The sensitivity analysis shows the following results, with the x-‐axis presenting the cost increases and the y-‐axis showing the B/C ratio. It can be seen that as costs of production increase, naturally the B/C ratio decreases as expected. Thus, the expansion becomes less profitable from an economic point of view. Moreover, as costs of production increase by a higher rate than 15 per cent, the B/C ratio turns below 1. Thus, it can be concluded that any increases of costs that are higher than 15 per cent would turn the expansion to be economically less preferable.

99.8

45.5

22.3 11.6 6.6 0

20 40 60 80 100 120

0% 5% 10% 15% 20%

NPV

IN M

ILLION CHF

DISCOUNT RATE INCREASE

Sensifvity of NPV to discount rate increases

NPV



Figure 4-3 Sensitivity of the B/C ratio to cost increases

Figure 4-‐4 shows the results of a sensitivity analysis of the B/C ratio to price decreases and depicts a very similar trend line as shown in Figure 4-‐3. This is also according to expectations as both cases, cost increases or price decreases, lead to the same result in net benefits, namely a decrease in net benefits. This sensitivity analysis was conducted for the case that electricity prices would fall in the future due to a surplus in European electricity production. As the Swiss electricity grid is tightly connected to other European electricity grids, this would have an effect on Swiss electricity prices too and thus decrease electricity prices. The x-‐axis shows the percentage decrease of electricity prices and the y-‐axis shows the values for the B/C ratio. It can be seen that a price decrease by 15 per cent leads to a B/C ratio of 1.02. For a price decrease by 20 per cent, the B/C ratio turns below 1. Thus, it can be concluded that any price decrease higher than 15 per cent would suggest that the expansion of hydropower becomes economically unattractive.

Figure 4-4 Sensitivity of the B/C ratio to price decreases

1.17 1.12

1.06 1.02

0.98

0.80

0.90

1.00

1.10

1.20

0% 5% 10% 15% 20%

BENEFIT -‐ CO

ST RAT

IO

COST INCREASE

Sensifvity of B/C rafo to cost increases

B/C ra}o

1.17 1.12

1.08 1.03

0.99

0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20

0% 5% 10% 15% 20% BENEFIT -‐ CO

ST RAT

IO

ELECTRICITY PRICE DECREASE

Sensifvity of B/C rafo to price decreases

B/C ra}o



Another sensitivity analysis was conducted for decreasing estimates of the avoided external costs from hydropower. It was expected that as the estimates decrease, the NPV for the economic CBA would also decrease, and vice versa. The results of the sensitivity analysis support the expectations. This is shown in Figure 4-‐5, with the x-‐axis depicting the percentage decrease in avoided external costs by 5 per cent, 10 per cent, 15 per cent and 20 per cent. The y-‐axis shows the values for the B/C ratio. Thus, as the avoided external costs decrease the B/C ratio decreases accordingly by a slow rate. This is an interesting scenario as the original calculations were based on a weighted average estimate calculated for a combination of different electricity production techniques. However, if this combination would change contrary to today’s expectations to the case that renewable energies, such as wind and solar, have larger shares, then the weighted average would decrease. Accordingly, the results for the conducted CBA would become less supportive for the projected hydropower expansion.

Figure 4-5 Sensitivity of B/C ratio to decreases of avoided external costs

Lastly, a sensitivity analysis was conducted taking into account the results from the previously discussed choice experiment conducted by Klinglmair et al. (2012). This was done in order to give particular significance to the adverse impacts on nature and landscape associated with hydropower production, even though they seem to be included in the estimates from the ExternE studies (Ott et al., 2008; Ecoplan, 2007). However, no data could be found about the share of these impacts in the estimates. Therefore, it was of particular interest to investigate the change in the CBA calculations when including the results from the choice experiment conducted in Austria, not least because the validity and feasibility of the estimates from the ExternE studies are subject to controversy themselves.

The results of the choice experiment reveal that people in Austria value adverse impacts to nature and landscape due to hydropower production with EUR 13.5 per household per month. By using environmental value transfers this value can be re-‐stated as CHF 194 per household per year for Swiss people. The average amount of Swiss households was found to be 3.2 million as of 2000 (Bundesamt für Statistik [BFS], 2010). To calculate the costs of adverse impacts per year the number of households was multiplied by the yearly amount that people would be willing to pay, namely CHF 194. Subsequently, the amounts were

1.17 1.16

1.15 1.13

1.12

1.08

1.10

1.12

1.14

1.16

1.18

0% 5% 10% 15% 20%

BENEFIT -‐ CO

ST RAT

IO

DECREASE OF AVOIDED EXTERNAL COSTS

Sensifvity of B/C rafo to decreases of avoided external costs

B/C ra}o



discounted with a discount rate of 4.5 per cent for each year. The discounted yearly costs were summed up and subtracted from the financial NPV.

Furthermore, the benefits from reduced emissions from hydropower as compared to other electricity production technologies were added. These were calculated by comparing the amount of GHG emissions from storage and pumped-‐storage plants due to the expansion (as depicted in Annex B) with hypothetical emissions that would occur if the expansion, thus 3.2 TWh of electricity, would be done with gas power plants. It was found that direct emissions from gas power plants amount to a minimum of 362 g of CO2 equivalents per kWh (World Nuclear Association [WNA], 2012). When comparing the emissions that would arise from electricity production with gas power plants with those from hydropower production, it was found that for the time period of 23 years, the emissions from hydropower production are approximately 40 per cent lower than those from gas power plants. The first 10 per cent of GHG reduction would occur in year 10, 20 per cent reduction would be achieved after year 15, 30 per cent after year 20 and 40 per cent GHG reduction would occur after year 23. Klinglmair et al. (2012) have found that people in Austria are willing to pay EUR 1.3 per household per month for every 10 per cent reduction of GHG emissions obtained by the intensified use of hydropower. Transferring the value to Switzerland gives an estimate of CHF 19 per household per year. This estimate was multiplied by number of households for the year 10, 15, 20 and 23, and discounted by the respective discount year. The benefits were summed up and added to the financial NPV.

The results of subtracting the costs from landscape and nature plus the benefits of reduced GHG emissions are shown in Table 4-‐4 and reveal an interesting result.

Table 4-4 Sensitivity analysis to NPV including the estimates from Klinglmair et al., 2012

4.5% DISCOUNT RATE ECONOMIC CBA CBA with estimates Klinglmair et al. (2012)

NPV (in CHF) 99,788,720 ( > 0) -‐8,659,117,673 ( < 0) B/C RATIO 1.17 ( > 1) 0.07 ( < 1)

IRR 54% cannot be calculated

As can be seen, when adding the costs from adverse impacts on nature and landscapes plus the benefits from reduced GHG emissions, the NPV of the economic CBA becomes highly negative, namely -‐ CHF 8,659 million. Furthermore, the B/C ratio gives a very low value of 0.07. Naturally, these results suggest that the projected expansion does not result in an economic benefit and should not be commenced. It should be noted here that the estimates for the loss of nature and landscape used for this sensitivity study have been calculated with a study conducted in Austria and present an average WTP from the people participating in the study. Thus, there is high uncertainty as to what extent these estimates reflect the true WTP of Swiss people with regard to the topic, especially when assuming that probably not all households would really pay that amount. The same holds true for the estimates of GHG emission reductions. However, this sensitivity analysis was conducted particularly in order to show what could be the results when using different estimates.



5 Conclusion And Discussion

The aim of this study was to estimate the economic value added of hydropower production in Switzerland under current conditions, i.e. under the status quo scenario, and under the expansion scenario as projected by the Swiss Federal Council. The motivation for this investigation was based on the decision of the Swiss Federal Council that nuclear power production will no longer be part of the Swiss electricity supply mix and shall be phased out until 2034. Instead, Switzerland has decided to pursue a large expansion of its already existing hydropower sector as well as other renewable energy sources. For this purpose, an extended CBA has been performed taking into account not only the financial costs and benefits associated with the expansion, but also the positive and negative external effects of electricity production from hydropower, such as reduced GHG emissions, reduced damages from air pollution, or the loss of ecosystems and biodiversity. Surprisingly, few analyses have been conducted in the past in Switzerland investigating the costs and benefits of hydropower generation, which contrasts the fact that hydropower production plays such a critical role in the Swiss economy. A possible explanation for the low number of previous studies could be the fact that the Swiss electricity market only recently became more liberalised and involved in the wider European energy market. In the past, electricity production in Switzerland was governed and controlled almost entirely by the individual Swiss cantons. Thus, the need or even the possibility to conduct a national study about the sector’s economic value was perhaps less urgent than it is seems to be today, especially in view of the recent aforementioned decision taken by the Swiss Federal Council. The results of the analysis conducted in this thesis are discussed in the following subsection.

5.1 Conclusion The CBA was conducted for a time period of 23 years from 2012 until 2034, as Swiss nuclear power production will be phased out by then. Two analyses have been conducted for both the financial costs and benefits, and the economic costs and benefits arising from an expansion of hydropower. The difference between the two types of analysis is the inclusion of the external costs and benefits in the economic CBA. It has been found that when looking only at the financial flows of expected costs and revenues, the expansion of hydropower does not seem profitable compared to the baseline scenario in view of the fact that the calculated NPV revealed a negative value of – CHF 42.2 million. However, the benefit-‐cost ratio is very close to 1, indicating that the projected revenues from the current electricity bill almost cover the projected expansion costs. Moreover, when including the external net benefits associated with hydropower production, it was found that the projected expansion does indeed reflect an efficient allocation of resources. The NPV of the economic CBA results in that case in a positive value of CHF 99.8 million. The estimates used to calculate the external costs and benefits included according to the literature in which these values were estimated, the following main effects: (1) GHG emissions and fossil fuel induced climate change, leading to damages to property, crop failures due to air pollution, losses of biodiversity and ecosystems due to acidification, and the reduction of life expectancy due to additional diseases; (2) aesthetical adverse effects on landscapes and heritage areas; (3) deterioration of waterways and habitat due to hydropower plants and cooling systems from fossil fuel plants; (4) potential risks of accidents especially from nuclear power plants and dam failures; and (5) risks of disposal and processing from nuclear waste.



The difference in the results of the CBAs shows the importance of including the wider, external costs and benefits in the decision-‐making process of policy evaluations. This is especially relevant for this case, as hydropower production is a crucial part of the electricity sector in Switzerland and subject to considerable debate within research, politics and the economy. The financial results would suggest that the scheduled expansion may not be fully profitable for the sector and lead to a loss. However, when comparing hydropower production to alternative types of electricity production, the results of the CBA show a different picture and the expansion appears profitable.

Clearly, this study is subject to various limitations and uncertainties whose importance should not be underestimated. Therefore, an in-‐depth discussion of these limitations is provided in the following and last subsection.

5.2 Limitations Of This Study First of all, it should be emphasized that most assumptions underlying this study with regards to the hydropower expansion scenario are based on official documents provided by the BFE. A few other studies exist that have investigated the potential expansion possibilities of Swiss hydropower production and varying numbers were found (e.g. Wüest, 2012). However, here only the numbers were used as calculated by the BFE since these official data and information were expected to be the most accurate and up to date ones available.

Regarding the uncertainties associated with the used estimates for costs of production and electricity prices, these were taken from Geissmann (2012), who conducted a study of 66 Swiss hydropower production firms for a time period of 10 years from 2000 until 2010. The estimates for the costs and revenues of hydropower production were the most recent and accurate data that could be found after a thorough review of the existing published and unpublished literature in this field (most of which was written in German) and contacting different sources in Switzerland. For this study it was furthermore important to take specific data for the three hydropower plant types and their specific cost and price estimates, which is not available anywhere else when examining other information sources, for example for electricity prices. As pointed out in section 4.3, the price estimates used in this study from Geissmann (2012) are nevertheless similar to current electricity prices found on the European Energy Exchange (EEX, 2012). The study by Geissmann (2012) was conducted based on internal, often unofficial documents received from the electricity companies detailing their cost statements. These cost statements could not be verified and had to be trusted on their face value. The companies who supplied the data and information may have had strategic interests (and behaved accordingly when supplying the data) to specify their costs of production higher than they actually were in order to secure future financial support from the government. Validating the reliability of the data and information used falls outside the scope and time boundaries of this study, and the potential bias underlying the estimates can merely be acknowledged here.

The assumption that the unit costs per kWh for the costs of production will remain the same in the baseline and the expansion scenario, is perhaps more questionable. Due to the expansion of the hydropower capacity, the costs of production might in fact be higher compared to the baseline scenario. The outcome of the sensitivity analysis presented in section 4.6 shows that the investment in the expansion scenario remains beneficial in the economic CBA as long as any increase in the estimated costs is not higher than 15 per cent. This suggests that the outcome of the economic CBA remains sensitive to the cost estimation. An error margin of 15 per cent is not much. Turning to the estimated net



benefits of the externalities associated with the expansion of hydropower in Switzerland, one of the key questions remains what exactly is included in the avoided external cost estimates by Ott et al. (2008). The information provided in this report, based on the well-‐known European research project ExternE, was insufficiently specified to be able to assess the reliability of the data and information. The sensitivity analysis in Section 4.6 showed that even if the avoided external costs are 20-‐25 per cent lower than estimated, the investment in the expansion scenario can still be justified. Using, however, the external nonmarket value of hydropower expansion on water ecology and landscape from a recent economic valuation study conducted in Austria, causes the outcome of the economic CBA to turn negative. This particular area of environmental costs and benefits requires more consideration as the largest uncertainties are expected to be found in these external (nonmarket) effects, not so much in the estimated costs.

Finally, based on the above there is sufficient reason to initiate and conduct further detailed research in this particular field, especially in view of the important role of hydropower production in the Swiss economy and political arena. The limited availability of relevant data and information from previous studies is remarkable given the crucial role of this type of information for policy decisions and the important economic status of hydropower in Switzerland.



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Annex A

Figure 5-1 Average external costs of electricity production in the EU and Switzerland for hydro, nuclear, oil, gas, wind, biomass and solar power

Source: Ott et al. (2008)

Table 5-1 Production projections for the baseline scenario

Data source: BFE (2012a)

Anhang: Nutzen der Wasserkraft 115

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Externe Kosten in [Rp./kWh]

Geltungsbereich

ExternE

EU

NewExt

EU

Hauenstein et al.

CH

econcept/ In-fras/Prognos

CH

Hirschberg/ Jakob

CH

Durch- schnittswert

CH

Wasserkraft - Speicher-KW - Laufkraftwerk

0.02 – 0.8 0.36 – 0.39 0.44 – 0.58

0.64 - 1.44 0.47 – 0.97

0.00 – 1.20 0.8 1.0 0.7

Kernenergie - mit Risikoaversion

0.73 – 1.15 0.32 0.31 – 0.85 1.31 – 35.7

0.20 – 1.30 0.8 18

Öl 4.06 – 17.0 3.36 – 8.57 3.3 – 5.4 3.50 – 17.8 7.0

Gas 1.07 – 4.69 1.24 – 2.42 2.2 – 7.0 0.80 – 5.50 3.0

Wind 0.07 -. 0.39 0.10 – 0.60 0.4

Biomasse 0.2 – 8.6 1.0 – 2.1 2.5 – 5.8 3.2

Photovoltaik 0.21 – 0.51 0.10 – 1.50 0.7 !

Tabelle 12 Bandbreiten von Abschätzungen externer Kosten der Stromproduktion in der EU und in der Schweiz für verschiedene Produktionstechnologien in [Rp./kWh]. ( Quel-len: Ecoplan 2007 und Hauenstein et al. 1999)

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Table 5-2 Revenues from electricity production for the baseline scenario



Table 5-3 Costs of hydropower production for the baseline scenario



Table 5-4 Revenues from electricity production for the expansion scenario



Table 5-5 Costs of hydropower production for the expansion scenario



Table 5-6 Avoided external costs from hydropower production



Table 5-7 Calculating the net financial (and economic) costs of production



Table 5-8 Calculating the net financial benefits (revenues from electricity production)



Table 5-9 Undiscounted and discounted net financial costs and benefits, and economic benefits



Annex B

The calculations are based on study results from Gagnon and van de Vate (1997) that found an average emission factor of 15g CO2 equivalent per kWh from hydropower production. The study included CO2, CH4 and N2O. First, the emission levels for each scenario were calculated individually. Subsequently, the difference between the two scenarios was calculated, by subtracting the emission levels of the baseline from those of the expansion scenario to receive the net emission levels. The emissions were calculated for storage and pumped-‐storage plants only, as emission levels from ROR can be seen as negligible. It can be seen that emissions would rise by nearly 19,000 t of CO2 equivalents by 2034.

Table 5-10 GHG emissions from storage and pumped-storage plants

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