Bloomberg News

Swedish Government to Limit Regional Power Price Differences

January 10, 2013

Sweden’s government is considering steps to narrow the gap between power prices for the Stockholm area and for the south of the country where higher costs put industry at a disadvantage.

The government may urge grid company Svenska Kraftnaet to sell at least 4,000 megawatts of transmission capacity between the Stockholm area and southern Sweden to the market, and sell so-called contracts for difference to help traders hedge exposure to differences between the local area price and the Nordic system price, according to a study published yesterday.

The separation of the country’s electricity market into four areas in November 2011 increased the risk of grid bottlenecks that may limit transmission between regions and cause price differences. This is unfair for consumers and industries, and reducing power price spreads would boost industrial development in the south, Anna-Karin Hatt, Swedish minister for information technology and energy, said yesterday at a news conference in Stockholm that was broadcast on the government’s website.

“Power consumers in southern Sweden are frustrated and ask why they should pay more,” Hatt said. “My ambition is for the whole of Sweden to get cheap electricity, which is key for energy-intensive industries.”

Since November 2011, the average differential between the Malmoe area in southern Sweden and the Stockholm area has been 2.50 euros a megawatt-hour, according to a study, commissioned by the government and published on its website, presented yesterday by consultant Bjoern Hagman.

‘Limit Risks’

Contracts for difference, which reflect the differences in the local area price and the average Nordic price, indicate that electricity may cost 4 euros more in southern Sweden than in the Stockholm area next year, according to data from the Nasdaq OMX Group Inc.’s energy exchange in Oslo.

Auctioning capacity and introducing contracts for difference would “limit risks for extreme prices” in the south, Hagman, former chief executive officer of the Nord Pool Spot AS exchange, said yesterday at the government news conference.

The government will next hold a public consultation based on Hagman’s proposals, followed by an open hearing in two months, Hatt said.

To contact the reporter on this story: Torsten Fagerholm in Helsinki at tfagerholm@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net


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