Sweden’s electricity sector challenges

For years, Sweden’s low electricity prices have been a direct consequence of the operation of the country’s nuclear and hydroelectric power plants. A stable level of energy demand has made Sweden an energy exporter, but the situation may change over the next several years. Such a situation will require appropriate investment measures. Over the years, negative public attitudes toward the construction of nuclear power plants have caused Sweden to focus its efforts on developing renewables. With the change of government in 2022, there is a lively debate in Sweden about energy challenges, and nuclear technology is expected to continue to play an important role in ensuring security.

Projections for future growth in electricity demand. Sweden is known for its high electricity consumption, distributed across various sectors, such as industry, transportation and households (space heating). According to forecasts by the Swedish Energy Agency (Energimyndigheten), energy demand in the next few years could increase significantly – from 134 TWh in 2020 to 349 TWh in 2050[1]. Such an increase in consumption will be a consequence of several factors. First – the expected decline in the use of fossil fuels in both industry and transportation will force an increase in electricity consumption. This is a worldwide trend and the challenges with this process are also seen in Sweden. The increase in energy use is expected to be driven both by increased processing of specific commodities (e.g., iron in steel mills to produce steel), the emergence of new industries (e.g., battery production, construction of data centres, increased electrification of machinery), and the application of new technologies (primarily hydrogen production from electrolysers). Second – the growing household energy demand. In Sweden, the use of electricity for heating single-family residential buildings is widespread. This trend began in the 1980s-90s, and although it is now partially compensated by modern heating equipment (heat pumps), growing energy consumption in this segment is forecast. Third – the electrification of the transport fleet. An increase in the number of electric vehicles (cars, trucks) will result in an increase in energy consumption, which is a consequence of the increased availability of these vehicles and the purchase price of cars when income is taken into account. In 2022, the government ended the electric car subsidy system as vehicles eligible for subsidies accounted for almost half of all cars purchased[2]. Interestingly, the subsidy, which was still in effect in 2022, caused the number of newly registered electric vehicles to almost double from 57,500 in 2021 to 95,000 in 2022[3]. In years to come, despite the lack of government support, the number of such vehicles will increase, thus affecting electricity demand.

Lack of consensus on new generation capacity. Historically, Sweden’s electricity system is based on two primary technologies – nuclear power and hydroelectric power – which account for the vast majority of the country’s electricity generation (about 80%). The remaining amount of power generated comes from onshore wind farms and biomass. The new centre-right coalition government formed in late 2022 has revised its predecessors’ approach to new electricity generation capacity. The ongoing debate in Sweden is directed toward a return to nuclear technology. In the Tidö Agreement, which constitutes the coalition agreement, the government parties have already advocated the possibility of building new nuclear power plants. The document also identified the need to explore options to bring back to operation the reactors in southern Sweden, Ringhals 1 and 2, which were shut down in late 2020 and 2019. (“IEŚ Commentaries”, No. 723). Currently, Sweden has six reactors in operation at three power plants (Ringhals, Oskarshamn, Forsmark), with a growing energy demand that will require not only the extension of their life, but also the construction of new units.

The uncertain situation in the energy markets (including high natural gas prices in 2022) has resulted in a significant increase in electricity prices in Sweden, which is causing a lot of public resistance[4]. In addition, the ongoing Russian-Ukrainian war and the uncertainty resulting from fossil fuel import restrictions are causing the government to accelerate efforts to develop the electricity system. A key aspect will be the stability of the power system and the rapid construction of new generating capacity. However, the new strategy is to be based, according to signals coming from the government, on distributed energy, and therefore the development not only of nuclear power plants but also the expansion of generating capacity from wind farms. In Sweden, wind power plants are only located inland, often at great distances from major urban centres. In the ongoing political debate, there are discussions about building new generating capacity closer to larger population centres to reduce the cost of power transmission, but it remains to be seen definitively whether such solutions will be fully implemented. In contrast, the prospect of building wind farms in the Baltic Sea is viewed negatively by the public for environmental reasons. However, the establishment of power plants at greater distances from land is highly capital-intensive, although feasible. In addition, an important role in the new strategy is to be played by the process of energy efficiency (e.g., lowering energy consumption in businesses, insulating domestic buildings) as this has been a less visible issue in Swedish society in the past due to low electricity prices. In the scenario suggested by the Swedish Energy Agency, a key challenge will be the development of the electricity grid. In Sweden, there are two distinct features in the energy sector. Firstly, there is the transmission of energy over long distances, from the less populated north with small industrial centres to the south of the country. Secondly, the process of building the relevant connections can often be time-consuming due to the significant influence of the municipalities involved in the investment processes. Overcoming such challenges will be crucial for the country’s energy security.

Conclusions

• Based on new trends in the country’s economic development, including the changing patterns of electricity use and the transition away from fossil fuels, the Swedish government anticipates a significant increase in electricity demand. According to estimates by the Swedish Energy Agency, this increase is expected to happen as early as 2030. In view of this, it will be crucial to make full use of as many types of alternative energies to replace fossil fuels as possible. All the more so since, according to forecasts, consumption could be twice as high by 2050 as it is today, forcing the need for responsible investment measures that are spread over time. The shift away from fossil fuels is inevitable, and according to Sweden, only the speed of the country’s electrification remains uncertain.

• The public’s pro-environmental attitude is forcing Sweden’s rapid transition away from fossil fuels, and thus optimal solutions for economic development are being sought. The turn towards nuclear power is viewed positively by the public, with about 55-60% now in favour of using nuclear power or building new reactors (in 2017 it was only 30%). A big influence on this recent attitude has been the increase in electricity prices recorded in 2022 as a result of Russia’s armed attack on Ukraine, which has prompted a large part of the public to take action by implementing energy efficiency measures and changing their perspective on the low-cost energy sources that have been prevalent in Sweden for decades.

• Regardless of the expected level of electricity consumption, Sweden faces numerous challenges, arising primarily from the need to develop electricity grids. While it is still not entirely clear what energy source will dominate the country‘s energy mix (nuclear technology, renewables), it is expected that in the coming years, large investments will be directed to the development of transmission networks.

• Sweden is a country in which climate protection is of particular importance to a pro-environmentalist society, so the country’s legislation in the area of climate and, in part, energy policy is more restrictive than in other European Union countries. Thus, an important element of domestic and foreign policy is the promotion of solutions aimed at environmental protection and climate change mitigation. This type of approach, however, will generate growing demand for electricity, driven by the desire to fully transition away from fossil fuels and meet ambitious climate neutral.

[1] Energimyndighetens, Scenarier över Sveriges energisystem 2023. Med fokus på elektrifieringen 2050, Stockholm 2023, s. 5.

[2]  Interview with David Lundberg from Fossilfritt Sverige conducted on 13 June 2023.

[3] The exact list and number of electric vehicles can be found on Mobility Sweden’s website, https://mobilitysweden.se/statistik/databas-nyregistreringar

[4] In Sweden, a system of subsidies has been introduced due to high electricity prices. The country has several zones with varying prices. Statistically, the prices are highest in the south and along the Baltic coast, whereas they are lower in the north. BiznesAlert, Szacawa: Szwedzi debatują o energetyce i inflacji przed wyborami, 9.09.2022, https://biznesalert.pl/damian-szacawa-szwecja-wybory-finlandia-nato-inflacja-energetyka-atom-forsmark/ [accessed 20.06.2023].