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JUL. 29, 2022

Winter is Coming

It seems unthinkable at the moment, considering we are now even assigning names to heatwaves, but a time will come when temperatures will drop, and we will need to start heating again.

Heating in Switzerland comes mainly (78%) from boilers fuelled by oil, gas, or wood. The remaining 22% is provided by electric radiators, electrically driven heat pumps, and district heating networks.
Switzerland is 25% energy independent, meaning the country imports most of the energy it consumes: mainly petroleum products (crude oil, petrol, diesel, kerosene, fuel oil), natural gas, coal (in minimal quantities), and nuclear fuel. A proportion of the country's energy needs are met through local resources, such as hydropower, incineration, and wood.
Such a high level of energy dependence from other countries could constitute a risk in a period such as this one, when the geopolitical instability gives rise to uncertainty surrounding quantities and prices of fossil fuel imports. Switzerland, however, has been diversifying its energy suppliers to minimize risk. For crude oil, imports come from countries in north and West Africa, Mexico, the US, and Kazakhstan. For natural gas, more than 60% of the imports come from European countries, with the balance coming from Russia and North Africa. Switzerland does not have gas supply contracts with Russia but purchases Russian gas indirectly through Germany, with substitution clauses in the event of a failure of Russian supplies.

Electricity is different: Switzerland produces enough electricity in the summer, mainly through hydroelectric facilities, and consumption in this season is lower. In the winter, on the other hand, river flows are reduced, and the energy produced is about 50% of the summer levels. By contrast, consumption is higher in the winter, meaning Switzerland needs to import electricity. The main suppliers of electricity are countries in Central Europe that produce electricity from fossil fuels and nuclear. France, the largest nuclear producer in Europe, is going through some issues at its nuclear power plants, and about half have been taken offline.

Switzerland is preparing for the winter: the federal government is forcing gas companies to stock a physical reserve of gas equal to 15% of the country's annual consumption and an additional 20% of the winter consumption in options for future delivery. If, even with these measures, gas supply becomes limited, the government will first ask consumers to reduce gas consumption voluntarily and then impose consumption quotas. The first to be impacted in this sense would be large consumers and companies, as the state wants to impact private citizens as little as possible. The topic was not central in the Q2 earnings calls of Swiss companies that are taking place on these days.

Switzerland remains less impacted than the rest of Europe in the ongoing energy crisis. Still, the country is part of a broader ecosystem of nations, and we cannot exclude harsher measures will need to be taken if necessary.

We thank you for your continued support.

The FAM team