Our market conditions

Electricity grids are known as natural monopolies, and network companies are regulated and monitored by the Swedish Energy Markets Inspectorate (Ei), a government authority. To ensure the system will also meet these needs in the future, it is vital for the regulations governing the electricity network to develop in line with society. The regulation should ensure that the grids maintain good quality and provide a reliable security of supply regardless of the time of day, season or weather conditions. Revenue frameworks in the regulation are to compensate network companies for reasonable costs linked to managing their business and a reasonable yield on investments made.

According to the Electricity Act, the prices that customers pay should be fair, objective and non-discriminatory. Allowed revenues for network companies are decided on for periods of four years at a time. The current revenue regulation applies to the period 2020–2023, but some 120 electricity network companies appealed the regulation for this period.

Long investment horizon

Electricity networks entail operations that require a very long planning horizon as we are responsible for infrastructure that shall deliver for many decades. Large parts of Sweden’s electricity grid have today reached end of service life and must be replaced. This is why it is important for there to be conditions for investment that are stable and predictable over a long period. Electrification of the transport sector and industry has already begun to a great extent, electricity production is continuously being reinforced with land-based wind power, while urbanisation is driving a need for new housing and new infrastructure. This transition to a fossil-free society requires a robust and smarter electricity network and thus, large investments.

Lengthy permit processes an obstacle

Time-consuming permit processes are slowing down the requisite investments in the electricity network. Lead times from decision to implemented project can become needlessly protracted, at times as long as 10 years. In August 2021, the new legislation Modern permit processes for electricity networks came into force, which comprises a number of reforms aimed at shortening the lead times for electricity grid expansion. Ellevio welcomes the new legislation but still sees a need for further measures.

Revenue regulation

The state-owned Swedish Energy Markets Inspectorate, Ei, determines what network companies may charge.

The revenues resolved by Ei comprise four different components:

Compensation for capital costs. Compensation for the electricity network assets, including systems for operation and metering electricity use, and investments in these systems. The compensation is based on the company’s electricity network assets and a reference interest rate that is meant to cover interest on loans and returns to shareholders. The reference rate for the regulatory period 2016–2019 was 5.85 percent. For the period 2020–2023, Ei lowered the reference interest rate to 2.16 percent. This was then adjusted to 2.35 percent. 120 of Sweden’s some 160 network companies appealed this regulation.

Non-controllable costs. This is costs that network companies cannot affect. This refers mainly to costs for overhead networks, which are the networks that transmit the electricity from the production site to our electricity network (such as Svenska kraftnät’s national grid), and costs for purchasing electricity that is lost in transmission (“network losses”). These costs also include public authority fees that network companies should charge customers and that are passed on to the state in full

Controllable costs. For costs that network companies can influence, such as fault repairs, staff costs, customer service, network monitoring, etc, there are efficiency requirements.

Quality incentive. Network companies are given incentives to ensure an outage-free electricity supply, meaning their permitted revenues can be decreased or increased depending on the number and length of the outages.

Sweden’s electricity network

Electricity grids are natural monopolies in Sweden as it is not socioeconomically feasible to build parallel networks. Households and companies are connected to the grid where they live and operate and are therefore customers to the local grid company. The electricity network consists of three grid types that connect the entire country.

The national grid refers to the lines that transport electricity from the power stations to the regional networks. The electricity is transported over long distances and the voltage is high – 200–400 kilovolts. The national grid is owned and managed by the state through Svenska kraftnät.

Regional grids are the lines that hold the national grid and local grids together. The voltage in the regional grids is 40–220 kilovolts. The regional grids are owned by network companies such as Ellevio.

Local grids are the lines that distribute electricity at the very last stage to customers, such as companies and households. The voltage on these grids is 40 kilovolts or lower, and the grids are owned by network companies such as Ellevio. Approximately 84 percent of Ellevio’s local grids are buried.

Operators in the electricity market

• The Swedish Energy Markets Inspectorate (Ei) – a government authority – monitors, reviews and regulates the energy market and its operators.
• Electricity network companies, like Ellevio, own, operate and develop regional and local networks and transport electricity from the production sites to the customer. Customers are connected to the electricity grid where they live.
• Electricity producers produce electricity via hydroelectric power, nuclear power, wind power, bio power, wave power and solar power, for example. The electricity produced in Sweden is around 98 percent fossil-free. 40–45 percent comes from hydro power, 15–18 percent from wind power and around 30 percent from nuclear power. The remaining comes from biofuel plants and solar panels, according to Swedenergy, 2021.
• Private electricity producers include detached home owners with solar panels on the roof, for example.
• The NordPool electricity market is the trading venue that sets the price for electricity.
• Electricity trading companies purchase electricity from the electricity market and sell it on to end users. There is free competition and customers can choose from among more than 100 electricity trading companies.
• Aggregators group multiple customers’ electricity use and production into larger units for sale, purchase or auction in the energy markets