Electricity distribution network prices have increased more in Sweden than in our Nordic neighbors. In these countries, there are also stricter requirements in terms of distribution system operators (DSOs) making continuous efficiency improvements. Hence, there are signs that Swedish electricity network regulations do not work satisfactorily, according to researchers Erik Lundin and Magnus Söderberg in a new SNS report.
During the period 2010–2020, Swedish electricity network tariffs increased by an average of 37 percent. At the same time, the corresponding prices remained more or less the same in Norway and Denmark. Prices also increased significantly in Finland during the same period, but not as much as in Sweden. Unlike Sweden, however, it is also clear that the increase in Finland was due to greater investments in raising the level of quality, write Erik Lundin and Magnus Söderberg in the SNS report Analyzing Prices and Regulations in the Swedish Electricity Network Market: What Can We Learn from Our Neighboring countries?
“We have compared international data, and the Swedish price increases stand out, not only among the Nordic countries but also in the EU. The fact that the expansion of wind power has been greater in Sweden than in other countries only explains some of the price differences. This may be a sign of shortcomings in Swedish electricity grid regulations. Well-functioning regulations are characterized by the fact that network prices do not clearly increase more than they do in other, comparable countries,” says Erik Lundin, researcher in economics at the Research Institute of Industrial Economics (IFN).
Lundin and Söderberg also highlight that the Swedish Energy Markets Inspectorate’s specific efficiency requirements for DSOs do not seem to have worked out as intended.
“This is particularly troubling as the electricity networks are facing a period of considerable upgrading. Prior to such a phase, it is particularly important that only necessary investments are encouraged. We also see that Sweden presents lower requirements regarding efficiency improvements than other Nordic countries,” says Magnus Söderberg, professor of business administration at Halmstad University.
In Norway and Finland, DSOs are also allowed to raise the so-called revenue cap – which determines the amount of revenue they may receive from customers during a certain period – to finance research and development. This should be the case in Sweden as well, argue Lundin and Söderberg. They also call for a stricter definition of the efficiency requirement for DSOs and for improving the calculations used as the basis for setting the level of requirements.
about the authors
Erik Lundin is a researcher in economics at the Research Institute of Industrial Economics (IFN).
Magnus Söderberg is a professor of business administration at the University of Halmstad.