7. ELECTRICITY
Assessment
Sweden has an almost fully decarbonised electricity generation sector, quite unique among the IEA member countries. Since the 1980s, electricity generation has been based on hydropower and nuclear power, a combination of stability and flexibility. In recent years, under the support system for renewable electricity, wind power has emerged as the fastest-growing source of electricity. It is expected to continue to grow rapidly over the next decades.
Wholesale electricity market
Sweden is part of the generally well-functioning Nordic electricity market and well interconnected with other countries. Cross-border lines with Norway, Finland and Denmark as well as Poland, Germany and Lithuania, with planned extensions, enable intensive trade and help to cope with possible capacity shortages. In recent years, Sweden has been a net exporter of electricity (19 TWh in 2017) and is projected to remain so in the coming decades.
Sweden’s 2016 Energy Agreement sets the ambitious target of a 100% renewable electricity system by 2040. The policies and measures to this end need to be well designed and based on evidence. Therefore, the government, along with the TSO, should analyse different scenarios of future development, with the focus to ensure the security of supply and the economic efficiency. These scenarios should be concentrated on capacity and its availability rather than on electricity generation. This should be the first step in defining how the target should be reached and on understanding what the impacts would be on the electricity balance, grid infrastructure and security of supply.
The 2016 Energy Agreement also brings stability to the nuclear energy sector for which policies have changed several times since the 1980 referendum. Existing NPPs are allowed to run as long as they are safe. Building new nuclear units is not banned either. Also, the tax on nuclear capacity is abolished. Therefore, the nuclear phase-out can be expected around 2040 as plants reach 60 years of operation. The possible earlier closure by the owners for economic reasons may result in a sudden decrease in the available capacity.
Sweden and the rest of the Nordic countries have indicated a preference for energy-only markets. However, wholesale prices in the Nordic market area have remained rather low in recent years and do not suggest a need for investment, something for the decision makers to consider. The surplus of capacity in Sweden and the availability of low-cost resources from the rest of the Nordic region are almost certainly primary reasons for this. This has been partly driven by divergent approaches to the implementation of renewable energy support schemes in the Nord Pool, which have distorted investment patterns throughout the region, as well as through Europe more broadly.
As electricity demand in the market is not expected to grow fast and adding new supply to the market will put pressure on electricity prices, the Nordic governments should consider ways to harmonise their policies on renewable electricity and, more generally, on climate change mitigation. A case for building more interconnections with the countries to the south from the Nordic market area could also be made.
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7. ELECTRICITY
Security of supply
Under normal conditions, Sweden has been self-sufficient for electricity. The level of installed capacity and the potential for a demand-side response have been sufficient to cover the peak demand of 25-28 GW that occurs in winter. Svenska kraftnät figures for the winter of 2018/19 indicate, however, that the country would be at a deficit both in normal winter (at -400 MW) and in a 1-in-10 cold winter (at -1 500 MW), which could be covered by imports and a strategic reserve.
The TSO, however, will be challenged to maintain the system in balance in the face of the expected gradual phasing out of nuclear power, the expiry of the current capacity reserve in 2025 and the foreseen significant increase in volatile wind generation. The IEA encourages the government and the TSO to take determined actions to ensure a sufficient level of system flexibility and availability of dispatchable capacity.
Monitoring the capacity situation in the interconnected market area is advisable, as the low wholesale prices discourage investments and, in the medium to long term, imports might not be readily available in the case of capacity shortages. This is exacerbated by the fact that wind power, the growing technology, does not offer a stable supply and baseload generators are retiring, particularly nuclear power. However, the prices of European Union Emissions Trading System allowances are expected to rise and encourage low-carbon investment, but it is not clear to what extent this would be reflected in the low-carbon Nordic market.
Sweden’s transmission system works in a stable way, but it needs strengthening for future challenges. Most lines are older than 30 years, and almost 30% are older than 60 years. Also, the system requires more transmission capacity from north to south and at the entry points of large cities. Encouragingly, the TSO is working on these issues and transmission capacity will be expanded in the forthcoming years.
Retail market
In the retail market, more than 120 companies serve around 5.4 million customers. The three largest suppliers have around 40% of the customers, with higher shares in specific regions, and the regulator considers the level of market competition to be healthy. Electricity prices for households are moderate (with a relatively large tax component) and prices for industry are relatively low. This benefits the country’s economy, but may limit incentives for demand-side response and energy efficiency.
Sweden has a high penetration of smart meters compared to most European countries. This creates a fine opportunity to develop smart grid systems and to introduce measures to foster demand-side response in the residential sector. The development of a data hub will help to realise this potential, simplify consumer participation and facilitate the emergence of aggregators for demand-side response capacity. According to the SEMI, households have a potential of 5 GW for demand-side flexibility (in winter), which is considerable and should be utilised.
The data hub is also a critical element of regional retail market integration. In general, the efforts to develop a Nordic retail market should be intensified. Creating a common balancing market, which is work in progress, is an important step in this process.
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7. ELECTRICITY
Increasing renewable electricity supply
Since 2003, Sweden has relied on the electricity certificate system to increase renewable electricity supply. The system has delivered the expected volumes and proved relatively cost-efficient, particularly compared to countries that have used feed-in tariffs as the support mechanism.
The target for renewable electricity in 2020 was revised since the start of the certificate system. In 2009, a target of an additional 25 TWh to 2020 compared to 2002 was defined to support meeting the 50% renewable goal by 2020. When Norway entered the system in 2012, a common goal for 2020 was set to increase the renewable electricity production in the certificates system with 16.4 TWh, a goal raised in 2015 to 28.4 TWh. Although Norway will not support an increased renewable electricity production in the certificate system after 2020, Sweden has decided to add another 18 TWh of renewable electricity from 2021 to 2030. The wind power industry sees that this share might be achieved by 2022 with new wind power alone.
The electricity certificate system was one of the first technology-neutral mechanisms to promote renewable electricity and has served as an important learning case for other countries. At the same time, as electricity demand in Sweden is growing only slowly, increasing the generation under the system has led to increasing electricity exports and thus the system is effectively subsidising electricity use in other countries.
As renewable electricity is becoming market competitive, always the long-term aim of support policies, the system will eventually have to be closed. The question is how exactly to do that (for example by a predefined date or a production goal reached). Also, what, if any, support mechanisms will be needed to reach the 2040 goal of an allrenewable electricity system? Although certificate prices were higher in the past decade, recent technological progress has reduced the production costs substantially which, in turn, has directly reduced the certificate prices. The first movers that invested in the previous decade did not anticipate such a drastic decrease in certificate prices and are today struggling to cover their total costs. The closing mechanism of the system is yet to be decided, and this should be done without undue delay, as the closing mechanism will have an impact on the price of the certificates.
Apart from the certificate system, there are further technology-specific incentives for the promotion of renewable electricity production. For example, an investment subsidy is granted for solar PV and the power generated is eligible for participating in the certificate system. The mix of incentives is problematic, especially in the case of small PV installations. Certificates are also granted to electricity from biogas, and manure-based biogas benefits from production subsidies of up to SEK 400/MWh.
Initially, biomass was the most popular technology in the certificate system. It had the lowest production costs, thanks to opportunities for simple fuel switching at existing cogeneration plants. Since 2010, however, as demand for heat became increasingly met, wind power has been the fastest expanding technology and has grown from 3.5 TWh in 2010 to 17 TWh in 2017. Today, it seems that almost all the necessary new RES-E to reach the 2040 goal will come from wind power. In addition, the current expectations for future electricity prices seem to be sufficient to support investment in new wind turbines.
Around half of the capacity of the wind turbines that are installed or under construction is in the northern price areas SE1 and SE2. In addition, most new capacity is expected to be built in those areas as the vast space and lack of opposition facilitate the licensing.
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