Feed-In Tariffs and Economic Profit of Small Hydropower Plants in Switzerland - Johannes Manser -

1. Feed-In Tariffs and Economic Profit of Small Hydropower Plants in Switzerland- Johannes Manser -

2. Introduction to the Topic (1) • Basic Problem: Increase production of renewable energy Electricity Production in Switzerland (2008) Nuclear Renewables (excl. small hydro) Hydro (incl. Small hydro) Other (non renewable waste, fossil fuels) Photovoltaic Biofuels Wind Renewable waste Waste water treatment Source: Swiss federal office of energy 2/9

3. Introduction to the Topic (2) • Feed-in Tariffs in Switzerland = KEV (Compensatory feed-in remuneration) • introduced in January 2009 • Compensate costs of solar, biomass, waste, geothermal, wind and small hydropower plants • Applicable for small hydro projects renewed or realized after 1 January, 2006 • Tariffs based on reference plants • No further differentiation in terms of site-specific factors! • Assumptions: • 25 years of depreciation • 5% interest rate • Annual operation costs = 2% of initial investment costs • Influencing factors: Installed capacity, investment costs, investment costs for hydraulic constructions, gross head • Large waiting list • Chronological consideration of applications 3/9

4. Introduction to the Topic (3) • Factsheet Small Hydropower Plants (SHPPs): • Up to 10 MW installed capacity • 5 different technologies considered: • Drinking Water Power Plants (DWPP) • Run-off Power Plants (ROPP) • Discharge Power Plants (DCPP) • Wastewater Power Plants (WWPP) • Reserved Flow Power Plants (RFPP) • Mature technologies • High investment /production costs • Long term investments • Main Research Questions • Do power plants earn extra profits or are the tariffs really compensatory? • How efficient is the KEV system for small hydropower plants? • What are the possible improvements? Figure: Scheme of a DWPP 4/9

5. MethodApplied Survey among remunerated SHPPs Collection of data from operating SHPPs (first survey since starting of KEV) Survey in cooperation with Swiss federal office of energy (SFOE) Descriptive Analysis Detailed information about remunerated SHPPs in Switzerland Net Present Value and Break-even Tariff Calculation Profitability analysis of the sample of SHPPs 5/9

6. Results – Descriptive Analysis • Main Findings: • Sample : 190 remunerated SHPPs currently in operation • Response Rate: 78% = 148 power plants • SHPPs quite homogenously distributed across Switzerland • By far mostly used technologies: DCPP, DWPP, ROPP • 38% of SHPPs are expanded or renewed plants (62% new plants) • Most plants have an installed capacity between 10 and 300kW • DWPP are at average very small and can be associated with very high investment costs • Most SHPPs finance large parts of investments by equity (ca. 67% at average) • Operation costs are at around 2-5% of initial investment costs • Large heterogeneity among SHPPs!! Figure: Distribution of SHPPs 6/9

7. Results – NPV N= 108 21 53 32 45 63 15 33 30 21 9 SHPP Technologies SHPP Project Types SHPP Size [kW] 7/9 Figure: Result of NPV Calculations

8. Results – Break-even Tariff (=Production Costs) N= 108 21 53 32 45 63 15 33 30 21 9 8/9 Figure: Average Break-even Tariff vs. Average Received Tariff

9. Summary & Conclusion • Promotion of SHPPs with high production costs Merit order by auctioning capacity • Lack of differentiation • Typology-specific approach: appropriate adjustment of reference plants • Project-specific approach: determine tariff individually • Delayed payments of remuneration • Complex administration • Time of depreciation •  Trade-off: Risk for Investors – Compensation of Costs •  25 years against 48 years of weighted average operating time • Applied WACC of 5% rather low • THANK YOU! 9/9