Sweden and Flow-Based Capacity Calculation: A New Electricity Market Model and Its Future

Sweden recently adopted a new model for capacity calculation within the Nordic electricity grid, known as flow-based capacity calculation. The decision aims to optimize electricity transmission between countries but has sparked widespread criticism. Many argue that it increases electricity prices for Swedish consumers while benefiting export markets like Norway and Germany with cheap Swedish electricity. This in-depth report examines what is happening, why it is happening, the current state of affairs, and what must be done for a better future.

What Is Happening Right Now?

On November 28, 2024, the flow-based capacity calculation method was introduced as the new system for managing electricity flows in the Nordic grid. Previously, the NTC (Net Transfer Capacity) model was used, which pre-determined transfer capacities between areas. The new method considers technical grid limitations in real-time, enabling a more dynamic and precise distribution of electricity.

Purpose of the Change:

• Efficiency: To maximize the utilization of existing infrastructure without immediately needing to expand it.
• EU Integration: To align with the EU’s common electricity market, where similar methods are already in place.

How Does This Impact Sweden Today?

1. Electricity Prices for Consumers

A significant portion of the criticism centers on rising electricity prices in Sweden. The new model allows for more electricity to be exported at higher prices to other countries, increasing competition for Swedish electricity and driving up prices for Swedish households and businesses, especially in southern Sweden (electricity areas SE3 and SE4), where capacity shortages are most severe.

2. Swedish Export Benefits – or Drawbacks?

Sweden is already a major electricity exporter, contributing to stability in European electricity systems. However, many consumers question why Swedish-produced electricity, often generated from nuclear and hydropower, is sold cheaply abroad while Swedish residents face higher costs.

Statistics:

• In 2023, Sweden exported 52 TWh of electricity, primarily to Finland, Germany, and Denmark.
• Meanwhile, electricity prices for Swedish households increased by approximately 15% compared to the previous year.

3. Capacity Shortages and Infrastructure

A critical issue is Sweden’s electricity grid’s capacity to transport electricity from northern Sweden (SE1 and SE2), where most hydropower is produced, to southern Sweden, where consumption is highest. The lack of capacity creates bottlenecks, contributing to higher prices.

What Is Needed for the Future?

To address these issues, several actions are required:

1. Expanding the Electricity Grid

A well-developed electricity grid is essential to reduce bottlenecks and enable efficient electricity transport. Swedish consumers have already paid significant amounts through grid fees to finance this, but progress has been slow.

• Need: Investments in new transmission lines between northern and southern Sweden.
• Cost: Estimated investments of over 100 billion SEK by 2040.

2. Political Governance and Regulation

The Swedish government must act to ensure that the new methods do not unfairly disadvantage domestic consumers. This may involve:

• Stricter requirements for energy companies to reinvest profits in infrastructure.
• Introducing national price compensation mechanisms to protect consumers.

3. Diversifying Energy Production

Increasing investments in renewable energy sources, such as solar and wind, can reduce dependence on electricity transmission. Local production facilities in southern Sweden could relieve grid strain and lower costs for consumers.

Goals by 2030:

• Increase wind power production by 50%.
• Install 10 GW of solar power nationwide.

4. The Role of Consumers

While consumers have little influence over electricity prices directly, changing consumption patterns can help reduce costs. More Swedes are encouraged to install solar panels and battery systems to become more self-sufficient.

Who Needs to Act – Sweden or Other Countries?

Sweden:

Swedish politicians, energy companies, and grid operators have significant responsibilities to improve infrastructure and protect domestic consumers from unreasonable costs. Transparency about electricity pricing and how revenues are used is also crucial.

EU and Neighboring Countries:

As part of a shared European electricity market, cooperation is required to address common challenges. Countries benefiting from Swedish electricity should also contribute to funding infrastructure expansion.

Summary and Conclusion

The flow-based capacity calculation is a step toward a more integrated and efficient electricity market, but it has also led to higher electricity prices and frustration among Swedish consumers. To ensure a sustainable and fair future, significant investments in the electricity grid, political reforms, and increased international cooperation are needed.

With the right actions, Sweden can balance its roles as a reliable electricity producer for Europe and a fair supplier for its own citizens. The future lies in our hands – and it requires action today.