In German-speaking Switzerland, there is a passionate debate about Axpo. Meanwhile, in Bellinzona, action is being taken instead of discussion. The Ticino electricity company has received a state loan of CHF 110 million.
Because of the drought, hydroelectric power plants in Ticino, such as the one in the Verzasca Valley, were able to produce less electricity than usual (archive photo from 2016).
Axpo is not alone. The Ticino electricity company Azienda Elettrica Ticinese (AET) also had to contact the state because of liquidity problems. Unlike Axpo, the company has already drawn on the credit line of its owner, the canton of Ticino. A spokesman for the company confirmed this to the NZZ: “Yes, on August 29, 110 million francs were drawn down via the credit line.” AET has since repaid the sum. The reason why the mini bailout didn’t make waves is because it was granted in a fairly clandestine manner.
A victim of drought
According to AET, the credit line tapped in August has existed for years. A public discussion was therefore unnecessary. An emergency legal intervention by the cantonal government or a parliamentary debate was not necessary for the payment. A spokesman for AET did not want to comment on the upper limit of the credit line. He emphasizes that the canton of Ticino received interest rates in line with the market for the loan. The interest rate is “very close” to the rates that AET pays its banks.
The drought in Ticino has affected AET as the operator of hydroelectric power plants. Rumors are circulating that the company not “only” has a liquidity problem, but is threatened with insolvency. The rumored reason: The amount of electricity that had already been sold to customers on time – i.e. in advance – but was not produced due to the drought had to be procured on the market at very high prices. This resulted in high losses for AET.
A company spokesman denies this: In spring, when the electricity price was still well below today’s level, forward purchases on the markets for the second half of 2022 were secured. This strategy has proven to be the right one and enables the company to compensate for the production losses at the hydroelectric power plants. In other words: AET was able to procure the missing electricity before the actual price explosion in the summer. The damage should therefore be reasonably limited.
AET explains its liquidity problems in a similar way to Axpo: The company sells the electricity it produces several years in advance, as is customary in the industry. Such forward transactions may evoke associations with the evocative word “speculation”. But it’s about the complete opposite: With forward sales, electricity producers like AET protect themselves against falling prices. That in itself is a conservative strategy.
The crux of the matter is that cash has to be deposited as collateral for such transactions. This ensures that the seller actually delivers the electricity on the agreed date. If the price rises, the value of the electricity traded increases. The seller must therefore add additional money as security. In jargon, the request to do this is referred to as a «margin call».
In normal times, this does not cause sleepless nights for the electricity producers: Firstly, they get the money back as soon as they have supplied the electricity. The security deposited is comparable to a rental deposit. Second, the electricity companies know the expected range of price fluctuations. Accordingly, they can estimate the liquidity requirements for possible margin calls.
negotiations with the canton
However, the times on the electricity market are anything but normal at the moment. Prices, for the well-known reasons, have multiplied to a level that no one in the industry would have thought possible two years ago. That is why the electricity producers now have to add enormous amounts as security as part of futures transactions. This is exactly what AET is obviously struggling with: the increased need for liquidity was caused by margin calls, a company spokesman confirms.
He assures that it is a temporary problem. The company’s earning power is secured and the situation is under control. However, price jumps like those seen at the end of August could lead to “temporary tensions”. These would subside again as the market stabilizes. In view of “possible unexpected market developments”, AET is in contact with the canton of Ticino to agree on an increase in the credit lines so that sufficient liquidity is available at all times.
It is unclear how much money is potentially at stake. In the current market situation, it is difficult to make forecasts, says the company spokesman. Although AET already has sufficient credit lines at the banks, talks are being held with the canton to make provisions for emergencies. Last year, AET produced 945 gigawatt hours of electricity with its power plants and generated an operating income of 790 million francs. The Bellinzona-based company has a state guarantee from the canton of Ticino.