News
16/04/26
Electrification, US shape Swiss chemical, pharma demand
Electrification, US shape Swiss chemical, pharma demand
London, 16 April (Argus) — Electrification is likely to boost electricity demand
in Switzerland's chemical and pharmaceutical industry, but high power prices and
US trade policy could accelerate offshoring, according to experts from chemical
and pharmaceutical industry association Scienceindustries. Power demand from the
chemical and pharmaceutical sector accounts for around 10pc of Switzerland's
total industrial power demand and around 5pc of total Swiss demand,
Sciencesindustries environment and sustainability head Anna Bozzi told Argus .
Power demand is comparable between the two sub-sectors. Demand from the two
sectors rose by almost 20pc over 2016-22, before falling by around 10pc in
2022-24, according to the latest data from Swiss energy office BFE. Rising
electrification and increasing energy efficiency have "shaped" the sectors'
demand over the past 10 years, Bozzi said. Power prices big issue for chemicals
But there is an "acute" danger that high power prices will cause chemicals
production to relocate abroad, in particular to the US and China, the
association's deputy director and energy head, Michael Matthes, said. Power
prices play a less decisive role in overall production costs for
pharmaceuticals. Power prices in Switzerland have fallen significantly since the
energy crisis of 2022, but industry is still feeling its impact, most notably in
the increase in the country's power reserve tariff, Matthes said. This was
introduced in 2024 to finance Switzerland's winter energy reserve and protect
against power shortages. It equates to an additional 0.01 Swizz francs/kWh
(1.3¢/kWh) in grid costs, or SFr3mn/yr (€3.25mn/yr) for a company with 300
GWh/yr of power consumption, Bozzi said. A successful power agreement with the
EU could stabilise prices by improving market integration, increasing grid
efficiency and opening up access to a broader range of grid reserve capacities,
she said. The agreement was signed and submitted to parliament last month, but
will likely go to a public referendum if passed. But geopolitical tensions in
the Middle East are adding uncertainty to global energy markets, which
"reinforces" existing challenges for the chemical and pharmaceutical industry,
including "persistently elevated energy costs" and uncertainty surrounding
long-term investment and location choices, Bozzi and Matthes said. Swiss spot
prices averaged €95.95/MWh over 2023-25, but jumped to around €120/MWh following
the start of the Iran war — the highest for the period since 2022. Prices for
2027 have risen by around 11.5pc since 27 February — the last session before the
outbreak of the conflict — but remain around €12/MWh above 2028 prices. And 2028
prices are around €5/MWh above recent trades for 2029, according to the latest
assessment. This backwardation in the forward years reflects expectations of
growing renewable energy capacity and increased LNG supply availability in the
coming years. The median final power price for businesses decreased over
2024-26, according to federal power regulator Elcom, and transmission system
operator (TSO) Swissgrid tariffs will fall on the year in 2027 , owing partially
to a reduction in the power reserve tariff. But the tariff for solidarity-based
costs — covering grid enhancements, among other things — will rise next year,
and Swissgrid expects the power reserve tariff to increase in future years
because of the country's new reserve power plants set to be commissioned over
2027-30. Peak shaving not on the cards, but storage possible Large-scale
chemicals production cannot be shifted to nighttime or weekends, Matthes said.
Sites tend to either run at full capacity or not at all, some for 48 weeks a
year, and only smaller companies have processes where shifting production in
time is possible. Halting production would destroy the micro-organisms and
bioactive substances involved in biotechnological process, and any subsequent
restart could take weeks and incur enormous costs, Bozzi explained.
Nevertheless, storage solutions such as power-to-chemicals — synthetic methane
or methanol, for example — could help increase system flexibility in the longer
term by allowing electricity storage in chemical form, she said. Empty threats?
Power prices are a structural "push factor" and play a key role in long-term
location decisions. But threats of punitive export tariffs from the US add an
"additional source of uncertainty", Matthes said. The US was the largest single
destination of Scienceindustries member company exports last year, accounting
for SFr36.7bn (€39.8bn) of exports. US tariff threats will not lead to an
overnight shutdown of Swiss production, but will harm the investment climate and
could accelerate relocation trends that would have happened anyway, Matthes
said. Chemicals sector production, indexed to 2021, was largely flat over
2004-24, the latest data from federal statistical office BfS show.
Pharmaceuticals sector production rose sharply over this time, peaking in the
first quarter of 2025 ( see chart ). Some companies have announced long-term
investment plans and are committed to remaining in Switzerland. The US labour
market also faces constraints and finding the skilled personnel for production
processes could be "challenging", Matthes said. Technological developments trump
Trump Technological developments point to a "slight upward trend" in future
industrial power demand, Bozzi and Matthes said. The "next steps" for the
chemical and pharmaceutical industry involve the electrification of processes,
Bozzi said. Switzerland's focus on new and highly energy-intensive carbon
capture technologies will add further strain to power demand. In a worst-case
scenario, production could move away from Switzerland, but this "disruptive"
factor is something that cannot be assessed yet, Matthes said. Technological
developments will produce a "larger, more dominant effect" that would lead to a
slight increase in power demand, he said. By Bea Leverett Swiss spot vs forward
curve, 2023-28 €/MWh Swiss chemical and pharmaceutical production and
electricity consumption 2013-24, indexed to 2013 Send comments and request more
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