Report of the Chairman of the Board of Directors

Dr Eduard Rikli, Chairman of the Board of Directors:

“Repower is continuing to pursue its strategy of a vertically integrated business model and is carrying out selected projects.”

More market for the energy transition

The energy sector faces a fundamental transformation. The politically and publicly motivated changes to the energy system are ambitious and give rise to uncertainties. Repower shares the focus of the Federal Council's 2050 energy strategy and also sees the opportunities it represents – given the right framework. The subsidy models for renewable energies, however, must be structured in such a way that market mechanisms are not cancelled out.

Electricity from new renewable energy sources is now making a noticeable contribution to energy supply in Europe. In Germany renewable energies already accounted for 23 per cent of total electricity generation in 2012. In addition to hydropower, electricity generation from biomass, wind and photovoltaics has also gained in importance over the last few years. This positive development reflects the political and public commitment to phase out finite energy sources and nuclear energy for power generation. The planned reform of the energy system, however, poses enormous challenges:

  • The volatile supply of wind and solar power is placing new demands on grid operation and requires adequate storage and transport capacities. Furthermore, consumption must be dynamically managed to compensate for fluctuations in the electricity grid. Intelligently combining consumption, generation, storage and transport will play a key role in the future.
  • The cost to generate electricity from new renewable energies, however, is only partially reflected on the market because it is paid by taxes and fees. When the sun's rays and the wind are strong, a large quantity of supposedly free electricity flows to the market, artificially driving down electricity prices and pushing unsubsidised facilities out of the market. In Germany, the subsidy for renewable energies will increase to more than EUR 0.05 per kilowatt hour in 2013, which is higher than the average market price for electricity. The paradox arising from this situation is that investments in generation capacities which can be flexibly deployed – for example, hydropower – will be put into question for economic reasons.

Need for market-oriented subsidy mechanisms

Repower largely shares the priorities found in the Swiss government's draft proposal for the 2050 energy strategy. However, the role of the federal government should not be to describe implementation in detail but should be limited to setting targets and guaranteeing a stable framework. An efficient and sustainable energy supply can only be guaranteed if the one-sided electricity sector-specific view is replaced by an overall perspective of the energy system as a whole. To this extent, one-sided specifications for electricity consumption – which makes up less than one quarter of final energy consumption – and electricity generation will not help meet the objectives.

The subsidy mechanisms must be adapted so that investment incentives remain intact and efficiency efforts are rewarded. The actual cost of generation must be reflected on the market, otherwise the need for subsidies will have increasingly greater implications. It would be absurd to also have to subsidise the reserve power plants necessary for guaranteeing security of supply because they would not be otherwise built. A market-oriented alternative to cost-covering feed-in remuneration (Kostendeckende Einspeisevergütung (KEV)) would be, for example, the quota model. In this system, the percentage of new renewable energies would be fixed by law. The energy supply companies would either generate this electricity in their own plants or purchase it at competitive prices on the market. Efficiency and renewable generation potential would automatically be used in the order which is more cost-effective.

Vertical integration in key markets

Like its competitors, Repower is also feeling the effects of the turmoil on the energy market. Therefore, the company structure will be adjusted, the project portfolio streamlined and sustainable cost-cutting measures implemented. No changes will be made to the basic Group strategy: Repower adheres to the principle of the integrated business model in its key markets of Switzerland, Italy, Germany and Romania. To secure procurement for sales and trading activities, our own portfolio of power plants will be expanded with targeted projects. We will, however, review and adjust our stakes in the individual projects as well as the timing of project development and implementation. The investments planned for the next 10-15 years will be significantly lowered compared to the previous plans. Repower strives to have a diversified generation portfolio with a focus on flexibly deployable facilities, however, when selecting the technologies, we orient ourselves around the characteristics of the local markets. In sales, Repower is responding to the complex conditions in the liberalised market by offering tailored products to meet the needs of small and medium-sized companies. On our domestic market of Switzerland, we are consolidating our position thanks to partnerships with other energy supply companies in the areas of generation (Repartner AG) and customer focus as well as grid operation.

Continued market economy orientation

In December of the year under review, Alpiq AG announced that it would give up its stake in Repower as part of its restructuring programme. The two shareholders Axpo and the Canton of Graubünden decided to each temporarily take over half (12.3%) of the stake previously held by Alpiq. Axpo and the Canton of Graubünden, to which the previous shareholding of 92 per cent will be distributed, continue to form a shareholder group on the basis of a shareholder agreement. They plan to take on a new strategic partner as a shareholder. Repower's strategic orientation and operational activities are not affected by the transaction. Repower will continue to be an energy company based in Graubünden and managed in accordance with business principles.

Shaping the changes

The energy policy developments mentioned above in combination with the economic situation create an extremely uncertain market environment. The factors that serve as parameters for our strategic orientation, however, remain unchanged: the share of electrical energy will continue to increase while total energy consumption declines in line with various forecasts. Guaranteeing security of supply requires storage capacities and reserve power plants which can absorb or supplement irregular generation from new renewables. Providing system services will become increasingly important.

Repower is convinced that it can successfully overcome the upcoming challenges thanks to its solid positioning. It can help restructure the energy system with its projects and forward-looking ideas.