Security of Renewable Energy Sources: interview with Alessandra Motz

Lack of reliability in electricity supplies can have serious consequences in a society like ours, where energy is an essential commodity for businesses and consumers. In this interview Alessandra Motz, researcher at the Institute of Economic Research (IRE) and responsible for energy analysis for the Observatory of Public Finance and Energy (O-FPE), talks to us about the shortage of energy supply, its effects, the point of view of companies and consumers, and possible solutions to curb the problem in this period of ecological transition.

Alessandra, what does shortage in energy supply mean? 

Energy is an essential commodity for everyday life and economic activities: we all use energy to travel, heat or cool our homes and workplaces, and run electronic equipment. Perhaps because we are used to always have the energy we want at a reasonable cost, we tend to forget the long and complex production chain that makes our consumption possible. However, the electricity or fossil fuel markets may undergo phases of a scarcity of supply, for example, due to failures, peaks in demand related to temperature or economic dynamics, or geopolitical tensions. Depending on the type of problem and the ability of the energy system to react, blackouts, price increases or even rationing periods can occur.

What are the causes of this scarcity?  

In recent months there has been much discussion about the certainty of electricity supplies. This topic has become timely as the green transition progresses. The growth of renewable sources such as solar and wind, whose production cannot be controlled, requires, in fact, a new approach to the management of electricity grids and investments in technologies to store small or large quantities of energy to be used in case of need. The gradual decommissioning of traditional plants, such as nuclear or, in other European countries, coal-fired plants, must also be carefully managed. In the fall of 2021, these problems, on which institutions and companies have been working for some time, were augmented by concern about a surge in natural gas and coal prices caused by a recovery in the world economy and consumption that was faster than the production chain could sustain. While some countries, such as China and India, have had to resort to rationing, in Europe and Switzerland, this phenomenon has not caused supply interruptions. Still, it has caused the wholesale price of electricity to triple in just a few months.

What would be the costs for companies in Ticino if there were an electricity blackout?  

A recent study conducted by the Institute for Economic Research investigated the impact of an electrical blackout on companies in Ticino through a questionnaire to measure the value of the security of electricity supplies for the economy of Ticino and Switzerland. Although they differ significantly in size and type of activity, almost all of the 543 companies interviewed were very attentive to the damage caused by a blackout: for most of them, an interruption of one hour causes damage estimated at 500 - 1'000 CHF, but this value can rise to 10'000 - 20'000 CHF for large companies or specific sectors. A blackout can interrupt almost all production activity and result in high costs, especially in terms of idle workforce, loss of data, IT damage, and time spent safely restarting production. That's why more than half of the companies surveyed said they have a backup system, such as a UPS or generator, and about one-third said they have insurance.

What role does the citizens' and businesses' willingness to pay play in such a scenario? What are the psychological variables at work? 

Individual citizens can also be harmed or even simply annoyed by the occurrence of a blackout. However, another study conducted by the Institute for Economic Research concerning the entire Swiss population has shown that people's reactions can be very different from businesses'. While about 47% of the 1006 respondents, who had little interest in energy and ecology, were willing to pay about 10% more for electricity to avoid a 5-minute blackout and 20% more to avoid a 4-hour blackout, another 47% or so were quite tolerant of occasional short blackouts if the electricity supply was not nuclear-powered. About 6%, who had a solid ecological sensibility, were highly tolerant of occasional blackouts in a solar-powered supply. Recognising the diversity of individual preferences is very helpful in designing customised solutions that address personal preferences while also helping the transition to a safe and sustainable energy system.

How can this problem be solved/addressed?

The green transition, that is, in the energy field, the gradual reduction in the use of fossil fuels, if well managed, contributes to solving the issue of security because it reduces price variability and the risks associated with extended supply chains. However, in the electricity sector, it is essential to define and gradually update a medium- and long-term strategy to direct investment in new infrastructure. In this context, the diversity of preferences of citizens and companies concerning sustainability and security of supply is a great asset. Soon, digital technologies and new small renewable plants will offer each consumer the opportunity to become, in turn, a small producer or to agree to modulate their consumption in exchange for a discount in the bill. Innovative and consumer-friendly Swiss electricity companies will leverage these individual contributions to improve sustainability and security for all.