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Here, the focus is on the determining factors for electricity prices and the term competitiveness. The discussion is illustrated by some empirical examples and the extensive subsidies that affect the European electricity market.
IN SWEDEN, the rich supply of minerals, forests, and water has contributed to the emergence of an export-oriented electricity-intensive industry. Both the electricity-intensive industry and the electricity producers face an array of challenges, driven by objectives for adaptation in the energy system. There is also technological developments that seems to indicate that the electricity system will become increasingly decentralised in the long run. And there is a parallel integration process, where the European electricity markets are becoming interconnected to an increasing extent. Here, the focus is on determining the factors for the electricity price and the term competitiveness. The discussion is illustrated by empirical examples and the extensive subsidies that affect the European electricity market.
COMPETITION CAN BE MEASURED BY THE SO-CALLED SPECIALISATION QUOTA, i.e. the share of the goods of the total exports of the country in relation to the world export share of the goods. An investigation shows that pulp, iron and steel etc, but also electricity production, are relatively competitive.
THE MARKETS FOR COAL, NATURAL GAS AND OIL DO NOT SEEM TO BE TURNING IN THE SHORT RUN, which indicates continuously low electricity prices. The electricity system in the rest of Europe is far more dependent on fossil fuel than in Sweden, so the electricity prices are not pressed upwards there, which might deteriorate the relative competitiveness of Sweden’s electricity intensive industry.
SUBSIDY OF ELECTRICITY PRODUCTION IN OUR COMPETITOR COUNTRIES MIGHT LEAD TO A FALL IN THE IMPORT PRICES OF ELECTRICTY. A model calculation that the import price for electricity is halved leads to an increase in real income amounting to 0.6 per cent. “The winners” are the electricity-intensive sectors. The electricity sector is on the “losing side”, which simply experiences increased competition. When there is a change in the electricity price, this has consequences for the whole economy. Competitiveness at the country level is thus not very useful.
AUTHOR Bengt Kriström, Professor, Department of Forest Economics, Swedish University of Agricultural Sciences and Director of Research, Centre for Environmental and Resource Economics (CERE). E-mail: Bengt.Kristrom@slu.se.