How the Electricity Market Works

As an electricity customer, you can choose your electricity supplier freely, but the actual transmission of the electricity takes place via the electricity network company that owns the electricity network where you live or operate. This means that all electricity users are customers of two companies in the electricity market – an electricity trading company that buys electricity and an electricity network company that distributes the electricity to the customer's home. Sometimes these can be part of the same group, but they are always two different companies.

Ellevio's role as an electricity network company

Ellevio AB owns, operates and develops regional and local networks in eight counties; Halland, Värmland, Örebro, Västra Götaland, Dalarna, Norrbotten, Gävleborg and Stockholm. We are therefore responsible for transferring electricity to customers in these areas. In order for customers to have electricity around the clock, all year round, secure and well-equipped grids are required that also meet the new conditions of the future in the electricity market.

The electricity grid consists of three types of networks that connect the entire country:

  1. Main grids are the lines that transport electricity from power plants to regional grids. The electricity is transported a long way and the voltage is high – 200–400 kilovolts. The main grid is owned and operated by the state through Svenska kraftnät.
  2. Regional grids are the lines that hold the main grid and local grids together. The voltage in the regional grids is 40–220 kilovolts. The regional grids are owned by electricity network companies, such as Ellevio.
  3. Local networks are the lines that take the electricity the last bit to customers, i.e. to companies and households and others. Here, the voltage is 40 kilovolts or lower. The local grids, just like the regional grids, are owned by electricity network companies such as Ellevio. About 84 percent of Ellevio's local network is buried.

The Swedish Energy Markets Inspectorate (Ei) monitors, reviews and regulates the energy market and its actors.

Electricity network companies own, operate and develop regional and local grids and transport electricity from the production site to the customer. Customers are connected to the electricity grid where they live.

Electricity generation companies produce electricity through hydropower, nuclear power, wind power, biopower, wave power and solar power, among other things. Just over 98 percent of electricity is fossil-free in Sweden. 40 percent comes from hydropower, 23 percent from wind power and about 30 percent from nuclear power. The rest comes from biofuel plants and solar cells, according to Energiföretagen.

Private electricity producers are, for example, homeowners with solar cells on the roof.

The Nordpool electricity exchange is the trading place for electricity where the price of electricity is set.

Electricity trading companies buy from the electricity exchange and sell to end users. Competition is free and customers can choose from over 100 electricity trading companies.

Other actors include:

  • Aggregators that aggregate a number of customers' electricity use and production into larger units.
  • Service providers such as Ellevio Energy Solutions

All electricity grids are operated as geographical monopolies. In other words, there is only one electricity network owner in each geographical area. The reason for this is that it would not be socio-economically justified to build parallel electricity grids in one and the same area.

To protect the interests of customers, there is an authority, the Energy Markets Inspectorate, which controls and sets the framework for the operations of the electricity network companies. The so-called electricity network regulation steers the operations of electricity network companies so that customers pay a fair price for electricity distribution while the companies can achieve a reasonable return. The regulation will also create the conditions for a long-term sustainable electricity grid. This means that the electricity network companies must adapt their networks to the requirements for an increased share of renewable electricity, such as wind power. The electricity grid must also maintain a high quality to avoid interruptions.

Read more about electricity network regulation on the Energy Markets Inspectorate's website.

Production of electricity can take place through hydropower, nuclear power, wind power, biopower, coal power, gas power, wave power and solar power, among other things. In Sweden, wind, hydro and nuclear power account for just over 90 percent of electricity production.

Right now, a major shift is underway in electricity production. We are getting more and more renewable energy sources in the form of solar and wind power. Electricity is also increasingly produced locally. In some cases, electricity consumers are also electricity producers (so-called prosumers) by connecting, for example, solar panels or smaller wind turbines to the electricity grid, where they can output the surplus electricity.

The changed production places new demands on the electricity grid, which must become more flexible and work in both directions. On some days and at certain times, the electricity grid needs to receive locally produced surplus electricity and other days it needs to distribute additional electricity from power plants far away. Solar and wind are examples of weather-dependent energy sources that do not make it possible to plan production. The electricity grids must therefore be able to handle an uneven inflow from these energy sources.

Electricity trading means that electricity producers sell the electricity to electricity trading companies, which in turn sell it on to electricity users. Most often, trading takes place over the electricity exchange. The Nordic electricity exchange is called Nord Pool. While electricity transmission is a regulated monopoly market, trading takes place in open competition. There are about a hundred Swedish electricity trading companies.

The electricity market is also affected by the electricity systems of neighbouring countries. It is usually said that the electricity market today is Nordic and is becoming increasingly European as transmission connections are built between different countries.

Information from Ellevio AB, 

updated on 7 June 2024

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