When winter cold hits Sweden hard, so do the electricity prices—but how hard depends on which part—or “electricity area”—of the country you live in.
“The electricity market is starting to resemble a very failed joke,” wrote Andreas Cervenka, economy writer for Swedish daily Aftonbladet, last week:
An electricity price that is 18,000 percent higher in southern Sweden than in the middle of the country. Because it’s not windy in Germany.
Anyone living in Malmö … can expect to pay just over 31 kronor [€2.70], including VAT, for a ten-minute shower …. A showerer in Sundsvall [985 km north], who turns on the tap at the same time … will have a total cost of just over 17 öre [€0.015].
Energy expert Arvid Hallén of conservative think tank Oikos told The European Conservative that Swedish electricity prices are still among the lowest in Europe, even if the country does see tremendous price spikes.
The Swedish government blames Germany for the mid-December price increase, calling for the country to reform its power market to make it less dependent on imported electricity. Last week, Energy Minister Ebba Busch (Christian Democrats) told state broadcaster SVT she was “furious” with the Germans, both for dismantling their nuclear power plants and for “ignoring the introduction of electricity price zones in Germany” which means “we are much more affected by the irresponsible energy policy in Germany.”
Electricity zones create separate markets
In Europe, electricity is traded in ‘bidding zones,’ which are basically regions where prices are the same within the zone, simplifying trading within each area. Because of limitations on how much electricity can be transmitted between zones, prices can vary significantly from one zone to another.
Each bidding zone functions like its own separate electricity market, with prices set by local supply and demand. Although electricity can be traded between zones, the amount that can be moved is limited by the capacity of interconnectors—high-voltage cables that connect national grids. The available capacity of these interconnectors plays a key role in determining the price of cross-border electricity transactions.
Germany—despite being a large country—has only one bidding zone, which means electricity prices are averaged across the whole country, even though supply and demand can be very different in different areas. More electricity zones in Germany would help reduce price swings and keep the grid more stable, Sweden argues. If one area has a surplus of energy, prices could be lower there, while regions with higher demand (or less supply) would see higher prices. This would create stronger incentives for electricity to flow to where it’s needed and help keep the grid more stable overall.
For Sweden, this would make trading electricity with Germany more predictable. Sweden could export power to specific regions in Germany where there’s more demand (or less local supply), helping balance the grid better and possibly getting better prices for those exports.
Since the European electrical system is interconnected, many factors are in play. The price of natural gas and coal has a large impact on production prices in German coal and natural gas plants. Outside temperatures also affect energy consumption. And the green transition hasn’t exactly helped matters.
Nuclear power and the green transition
After dismantling all its nuclear power plants, Germany depends heavily on wind and solar power—’green’ energy sources that are inherently incapable of consistently and predictably generating electricity. This has led to high price volatility in the European electricity market, Oilprice.com points out, with “periods of overproduction followed by periods of almost no production” leading to “wild swings” in prices.
Simply put, when the wind decides not to blow, Germany relies on imported energy, increasing the prices for areas in Sweden where producers sell electricity to the German market.
Norway’s government warned last week that it might cut its interconnectors with Germany and other European countries because too much electricity exports there, too, have pushed domestic prices to unsustainable levels. Busch described this possibility as “a complete disaster” that would “have a knock-on effect on the entire energy system in Europe”—but said the fact Norway is discussing this is a clear sign that the European electricity market is not working.
She said Sweden would only consider building a discussed new power cable to Germany if the country “were to open up to introducing a price zone in northern Germany.” In June, Busch vetoed the construction of the cable, saying “We can’t connect southern Sweden, which has a large deficit in electricity production, with Germany, where the electricity market today does not function efficiently.”
Busch has also accused Germany of preventing EU funds from being used to construct new nuclear power plants in the bloc.
“Meeting after meeting, Germany has blocked the possibility of financing the construction of new fossil-free baseload power in the EU,” she told Swedish news agency TT. “It’s one thing for the Germans not to want nuclear power themselves, but it’s another to prevent other countries from accessing funds. It’s hypocrisy,” Busch said to Swedish TV4.
PM Ulf Kristersson (center-right Moderates) last week talked about the power prices as a “historic debt,” referring to the fact that between 2019 and 2020, the Swedish Social Democrat coalition with the Greens shut down several nuclear reactors as part of a move to rely more on renewable energy.
I understand that no one is happy when I say that ‘if we hadn’t shut down half of the nuclear power plants, we wouldn’t have these problems.’ But it’s true, and it needs to be said.
Busch had hoped to have a facedown with her German counterpart in Brussels this week, but Robert Habeck chose to stay at home, given the Monday Bundestag confidence vote for the German government.
There are, however, steps Sweden itself could take to improve its situation, Arvid Hallén points out. Additional wind turbines would not help, since the price spikes happen when the wind isn’t blowing. Instead, he told The European Conservative, one solution he would recommend is building nuclear reactors to increase production in the south. How many, and of what size, would largely depend on if the country’s ambitious ‘green transition’ projects, including the power-hogging ‘green steel’ ones, happen on schedule, or at all.
Did German market manipulation contribute to higher prices?
On December 12th, electricity prices in Germany—and, consequently, Sweden—spiked suddenly because wind and solar power were barely contributing to power production. German grid regulator BNetzA found that one factor behind the price jump was that coal and natural gas backup plants, which are supposed to step in during energy shortfalls, weren’t used as much as BNetzA expected. The agency reported that operators did not deploy backup power plants, even when wholesale prices topped €300/MWh. While price spikes during an event like this are normal, regulators and power exchange officials will investigate whether collusion contributed to the mid-December surge. “Provided that there are related leads, we will initiate further investigations,” BNetzA said.
