Switzerland's costs for solidarity in case of gas shortages

Frontier Economics has conducted a study to estimate the potential costs for the Swiss Confederation in the event of a gas shortage.

In a solidarity agreement in March 2024, Switzerland, Germany and Italy agreed to help each other with gas deliveries to supply protected customers in the event of an emergency. In addition to the agreement, Switzerland's parliament must also approve commitment credits. Commissioned by the Swiss Federal Office of Energy, our study helps to determine the amount of the commitment credits required to protect their supply alongside cost estimates. The study assumes that Switzerland finds itself in a gas shortage situation and therefore requests solidarity from Italy (IT) or Germany (DE).

Switzerland depends on its neighbouring countries for its gas supply

Switzerland has no natural gas production and no major domestic storage capacities, but imports gas mainly via Germany, France and Italy. In the past, 80% of gas imports to Switzerland came from Germany alone.

Switzerland's high dependence on imports poses a problem if there are bottlenecks in their gas supply from neighbouring countries. If other measures are no longer sufficient to cover the gas demand of protected customers, the solidarity agreement with Germany and Italy becomes the last resort.

Solidarity measures as a ‘last resort’ instrument

The solidarity request is associated with costs that depend on the supply capability of the neighbouring countries and the duration and quantity of gas demanded. In the study, we identified and quantified three drivers for the costs of solidarity measures:

gas demand from protected customers
the duration of Switzerland's solidarity request, and
the price for the ‘voluntary’ or ‘mandatory’ measures.

We derived the price for the ‘voluntary’ measures on the basis of the EU's historical maximum price for 2022. For ‘mandatory’ measures, the price was additionally increased by the compensation costs. The amount of the compensation costs was determined from the lost value added per volume of gas from industrial sectors. The costs were estimated for three different scenarios.

The costs in the event of a gas shortage are estimated at CHF 1.3 billion in the medium case, and CHF 3.7 billion in the worst case.

The estimated costs in the event of a possible request for solidarity depend heavily on the scenario selected, e.g. the duration of the gas shortage, and are subject to corresponding uncertainty. For the three scenarios - base, medium and worst case - this results in a range between CHF 304 million and CHF 3,704 million. We have also determined two additional sensitivities (higher price and longer duration of the gas shortage), which lead to an increase in the cost estimates up to CHF 9.2 billion.