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The 1997 Electricity Act states that everyone has the right to be connected to the grid. The distribution system operators (DSOs) set their own prices for connection, but their pricing methods must be approved by the regulator. Customers may appeal to the regulator about the level of the connection fee.

Allocation of grid connection costs

When generators plan to connect their projects to the electricity grid in areas where the grid lacks the capacity to accommodate the new project, the generator can be forced to pay the entire cost of upgrading the grid’s capacity, which includes capacity that the generator’s project may not need. Generators that subsequently connect to the same part of the grid are not required to bear this cost. For this reason, generators are reluctant to be the first to connect to the grid in a given area. Referred to as the “threshold effect”, this complicates the connection of new renewable energy projects to the grid.

To reduce the threshold effect for new renewable electricity generation, the government developed a transitional solution that came into effect in May 2015 and remains in place as of September 2018. Since then, DSOs may recoup the entire investment cost for upgrading the grid, while generators that connect to the grid only pay for the additional share of grid cost due to their connection to the grid. DSOs may apply for grid-upgrading loans from the TSO for the portion of the investment cost that corresponds to the unused capacity.

Generation

Electricity generation in Sweden is dominated by a few major generators. The stateowned Vattenfall generates slightly over 40% of the total. The three largest generators, Vattenfall, Fortum (50.8% owned by the Finnish state), and Uniper (47% owned by Fortum), are responsible for around 73% of the total. These three companies also own the nuclear power capacity in the country (Chapter 8). However, the competition in generation should be seen in the context of the well-interconnected Nordic market. SEMI considers that the conditions for competition in the wholesale market are good (SEMI, 2018).

Although Sweden’s price area 1 is mainly dominated by one producer and frequently has surplus electricity, it typically forms a common price area with area 2. This limits the market power of individual producers. In the south, price area 4 also has only one major producer, but it typically forms a common price area with price area 3 or with Denmark. Also, the Sydvästlänken transmission grid cable, to be commissioned in 2019, will improve the situation in price areas 3 and 4.

Market design

Wholesale market

Around 95% of the physical power trade in Sweden takes place at the Nord Pool, a regional power exchange that includes Sweden, Norway, Finland, Denmark, Estonia, Latvia and Lithuania. There were 380 market participants of various sizes in 2017. For

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the regional market to function properly, regulations are harmonised across the member countries.

The Nord Pool has two physical power markets: a day-ahead market (Elspot) and a continuous intraday market (Elbas). Although the intraday market is growing, the vast majority of trading occurs in the day-ahead market. In 2017, the Elspot traded volume was 387.3 TWh and the Elbas volume 6.7 TWh. The combined volume of 395 TWh is a new record.

The Nord Pool is responsible for the market up to the point of gate closure, which is currently defined as one hour before real time. After the gate closure, the responsibility for the power system is handed over to the various national TSOs.

In addition to the physical Nord Pool markets, a separate market for financial derivatives is operated by the National Association of Securities Dealers Automated Quotations (Nasdaq). This Nasdaq OMX (also known as Nasdaq Nordic) market offers market participants products for long-term financial hedging. In 2016, 761 TWh of power products were traded on it.

At present, the Nord Pool is the only power exchange in the Nordic region. Under the European Union’s network codes, additional power exchanges are allowed, and therefore may be developed within the Nordic area. The Nordic power market, which also participates in the Price Coupling of Regions, is coupled to the rest of Europe. Therefore, price developments in other regions can affect Sweden, and vice versa. The increasing level of interconnection is set to increase price convergence across regions.

Market participants are responsible for balancing (see below), and the “balancing responsible parties” are defined by the TSOs (for Sweden, it is Svenska kraftnät). The Nord Pool is a zonal market, with zones defined at the national level by the relevant TSO. In 2011, Sweden moved from a system of one zone to four zones (see “Congestion management” above).

In 2017, Sweden was a uniform price region 59.7% of the time. For 30.7% of the time, there were two price regions and for 9.6% of the time the country was divided into three price regions. Most price differences occur between southern (price areas 3 and 4) and northern (price areas 1 and 2) Sweden (Figure 7.9), primarily during periods of transmission restrictions or production losses, particularly in price area 4. The price differences between areas 3 and 4 are expected to fall considerably when the 1.2 GW Sydvästlänken (South-West Link) transmission project is commissioned in 2019 (SEMI, 2018).

Wholesale electricity prices in the Nordic region have been relatively low for several years, after a decline that began in 2011. Demand has barely grown, while supply has increased. The Nord Pool Elspot day-ahead price has varied between 20 and 40 EUR/MWh, in contrast to peak levels of around EUR 90/MWh in 2010 and 2011 (Figure 7.9). In comparison, the levelised costs of electricity (LCOE) for nuclear, hydropower and biomass co-generation in Sweden were all around EUR 34/MWh, according to the 2016 Energy Commission. The LCOE for wind power was EUR 70/MWh and for waste co-generation, EUR 28/MWh. As a result, market-driven investment in new capacity has been low.

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Price variation is typically often related to the availability of hydropower, the most abundant source for large-scale generation in the Nord Pool. In a normal year, hydropower generation in the Nordic market area amounts to around 200 TWh, but it can range from 150 to 250 TWh.

Figure 7.9 Monthly spot electricity prices in the Nord Pool system and in Sweden by price area, 2013-18

The four price areas of Sweden show very small differences and most of the time are close to the system average.

Source: Nord Pool (2018), Historical Market Data - Elspot Prices, www.nordpoolspot.com/historical-market-data/.

Nordic balancing market

One area of active collaboration on the Nordic market is to provide balancing services. Electricity supply needs to be secured at all times, an increasing challenge in a power system with a growing share of wind power and changing consumption patterns. By 2025, the Nordic region is expected to add around 23 GW of wind power, which will require a much more flexible power system. Also, peak power availability and rotating mass will be needed, despite ample generating capacity.

The balancing markets remain national, but the Nordic TSOs have agreed to develop Nordic balancing markets in the forthcoming years. Their 2018 agreement outlines their roles and responsibilities and a roadmap for implementation. For example, the common Nordic capacity market for automatic frequency restoration reserves is to be operational in the second quarter of 2019 and the one for manual frequency restoration reserves by the fourth quarter of 2019.

In 2017, three of the Nordic TSOs (in Norway, Finland and Sweden) combined their balance settlement processes in a single organisation, eSett Oy. Since summer 2018, they and the Danish TSO Energinet.dk are investigating options for Energinet.dk to join the common balance settlement.

Retail market and prices

The Swedish end-user market has around 5.4 million customers who are served by more than 120 suppliers. At the end of 2017, the largest suppliers were Vattenfall (960 000 customers), E.ON (670 000) and Fortum (630 000) (SEMI, 2018). Some of the suppliers only operate locally or regionally.

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Figure 7.10 Electricity prices in IEA member countries, 2017

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Swedish industry pays the second-lowest electricity prices in the IEA, partly thanks to low taxes, whereas prices for households are around the median.

Notes: Data missing for Australia, Italy, Japan and New Zealand. Differences in data reporting methods can lead to different price data compared to that reported by the European Commission.

* Tax information not available for the United States.

Source: IEA (2018c), Energy Prices and Taxes, Second Quarter 2018, www.iea.org/statistics/.

Figure 7.11 Electricity price trends in selected IEA member countries, 2007-17

Sweden’s electricity prices follow similar trends as those of the Nordic neighbours.

Source: IEA (2018c), Energy Prices and Taxes, First Quarter 2018, www.iea.org/statistics/.

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