The Swedish National Audit Office examining the role of the state in the development of the electricity system in Sweden
By Helena Lindberg, Auditor General of Sweden, and Johannes Österström, Swedish National Audit Office
With various EU actions, ranging from the Energy Union to an agreement on gas price capping, the EU sets out objectives and targets and provides funding for reaching them. But most of the activities to reach the targets set for the energy transition are done by member states through transposition to national targets and measures they see most fit to reach them. Sweden has specific ambitions when it comes to the energy transition, aiming that 100 % of Sweden’s electricity must come from renewable sources by 2040. Looking back to what actually has been done in practice to actually develop the electricity system in Sweden along the energy policy lines adopted, the Swedish National Audit Office (SNAO) is doing an audit in this area. Helena Lindberg, Auditor General of Sweden since 2017 and Johannes Österström, Audit Director, provide insight on the various aspects relating to this audit.
Focus on risk
The Swedish National Audit Office (Riksrevisionen), the SNAO — see Box 1 — is part of the Swedish Parliament’s (Riksdag) parliamentary control system and independently audits activities carried out by the state. The design of our audit work is based on a risk model, according to which, we have identified three main risks at state level. The risks of deficiencies relate to:
- public finances;
- governance, follow‑up and reporting;
- organisation, responsibility and coordination.
We have designed our audit plan for the coming years based on these overall risks. Significant and current factors that have also played a major role in the audit scope are the war in Ukraine, rising inflation, the increasing cost of electricity and fuel, and problems related to energy supply.
The electricity system is less robust now than before
The electricity system accounts for a large part of Sweden’s energy supply and plays a fundamental role in society. The electricity system has been undergoing a number of major changes, and in recent years there have been indications that it is less robust now than before. We have also seen challenges with regard to combining the three pillars of Swedish energy policy: ecological sustainability, competitiveness and security of supply.
Furthermore, certain signs indicate a risk that energy policy implementation may not be efficient. Therefore, within the framework of the performance audit, the SNAO is currently conducting an audit of the state’s role in developing the electricity system in Sweden.
What do we want to know?
The aim of the audit is to decide whether the state actors have prepared and implemented measures that have an impact on the electricity system, so that the three energy policy pillars can be combined effectively.
In order to answer this, we have developed three sub‑questions:
- Have the responsible authorities, namely the Affärsverket Svenska kraftnät — the Swedish transmission system operator (TSO) and a Swedish state‑owned public utility (see below), the Swedish Energy Markets Inspectorate (Energimarknadsinspektionen) and the Swedish Energy Agency (Statens energimyndighet) been monitoring their responsibilities and reporting back to the Swedish government?
- Has the government analysed, considered, and reported the implications for the energy policy pillars before taking decisions on measures that have an impact on the electricity system?
- Have the government and Affärsverket Svenska kraftnät taken measures to deal with the consequences of decisions that have an impact on the electricity system, in addition to trends identified through the authorities’ strategic intelligence?
The Swedish electricity system and its actors
The Swedish electricity system is regulated by Swedish law (which is largely based on regulations at EU level, through EU directives) and EU regulations. The main state actors in the electricity system are Affärsverket Svenska kraftnät, the Swedish Energy Markets Inspectorate and the Swedish Energy Agency.
The Swedish Energy Agency is the managing authority for energy and its task is to contribute with facts, knowledge and analyses to promote the energy policy objectives. Affärsverket Svenska kraftnät owns, manages and develops the transmission grid. Affärsverket Svenska kraftnät is also responsible overall for balancing production and consumption, and ensuring that the electricity system is stable. The Energy Market Inspectorate is primarily responsible for supervising actors in the electricity market as well as following up and analysing the operation of the electricity markets.
The decision to conduct the audit was based on a number of identified problems:
Rising and variable electricity prices
Recent years have been characterised by volatile, and at times very high electricity prices in Sweden, at levels that we have not experienced before. Moreover, there have been significant differences between electricity prices in southern and northern Sweden. Until 2019, electricity prices were largely the same across the country, but at times in the past year, southern Sweden has seen tens of times higher electricity prices than northern Sweden.
The price differences are due to the fact that the capacity of the electricity grid is insufficient to be able to transfer the electricity produced in the north for consumption in the south. In addition to the energy crisis that was triggered in the wake of Russia’s war against Ukraine, the closure of planned electricity production in southern Sweden (namely four nuclear power reactors and one large gas power plant) increased the need for transmission from the north. At the same time, market access to transmission capacity between northern and southern Sweden decreased between 2017 and 2021, with a slight reversal of the trend in 2022.
The transition to ecologically sustainable electricity production is under threat
The transition towards a larger amount of sustainable and variable electricity production places high demands on the adaptive capacity of other parts of the electricity system, for example through grid expansion. During the periods where transmission capacity has been low, the profitability of the wind power expansion in northern Sweden has been under pressure, as the electricity price at times dropped below the cost of wind power production. Therefore, cheap fossil‑free electricity is stuck in the north, while southern Sweden suffers from higher electricity prices. It also means that the electricity produced by Sweden cannot be exported to replace power from fossil fuels elsewhere in Europe.
Risk of lower security of supply
Until the mid‑2010s, Sweden had a significant power surplus, even during more severe winters. Nowadays, also partly due to the closing of the power plants referred to earlier, we no longer have the domestic production margins to meet peaks in demand for power, and so Sweden has to rely on significant imports to cope with cold winter days on which there is no wind.
We use assessment criteria to be able to answer the audit questions. In this audit, the assessment criteria are based on the Swedish government’s vision of what should happen in this field, and on the energy policy objectives.
The Swedish parliament has decided that energy policy should aim to combine its three constituent energy policy pillars: ecological sustainability, competitiveness and security of supply. Furthermore, the Swedish parliament has decided that its energy policy should create conditions for an efficient and sustainable use of energy and a cost‑effective Swedish energy supply that has a low adverse impact on human health, the environment and the climate, and facilitate the transition to an ecologically sustainable society.
The Swedish parliament has placed particular emphasis on the need for a long‑term perspective and a stable energy policy. Long‑term decision‑making is also a prerequisite for the functioning of the electricity system, due to the fact that the system is unified and sensitive to rapid changes.
Ecological sustainability means that unwanted environmental impacts in the energy system should be low, and also means that it is important to take into account changes in the landscape’s natural and cultural environments. The Swedish parliament has also concluded that 100 % of Sweden’s electricity must come from renewable sources by 2040. While this would imply that nuclear would be phased out, there has not been a ban on nuclear power.
Security of supply is the ability to provide a safe and adequate supply of energy to all users on demand. Trusting the way in which the market operates also forms part of the security of supply, i.e. the price depends on supply and demand. At the same time, the Swedish parliament has decided that private individuals will receive financial compensation for the exceptionally high electricity prices. Moreover, prices should not vary too much domestically because the focus within the EU is to create an integrated electricity market. In its decision‑making, the government should therefore take into account possible factors that could contribute to an even greater price disparity.
Competitiveness means that a sustainable electricity system, which has safe and stable electricity supplies, is a prerequisite for many key and essential functions that are important to both society and the business community. In particular, the Swedish parliament has emphasised that the energy system should enable and contribute to a high employment rate. Smoothly functioning competition in the energy markets is considered to result in determining an efficient price formation and result in a more efficient use of resources. Competition that functions properly requires competitive neutrality in the market. Therefore, the government and the authorities will continue to pursue competitive neutrality in the measures taken with regard to Sweden’s electricity system.
Information gathering and analysis
Important evidence gathering for the audit will consist of statistics in various forms. This relates to: price developments (including electricity costs, cost of the grid and taxes), transmission capacity nationally and abroad, capacity use, variation in electricity grid frequency, the energy mix between different types of production, and consumption patterns, etc.
It will also be important to define the government’s mandate and that of Affärsverket Svenska kraftnät in relation to the legislation at EU level. This is to highlight more clearly the measures that can be taken to address problems or shortcomings, and also, for example, limitations created by EU rules on competition in the electricity market.
Publication of the audit report
We are planning to publish the audit in the autumn of 2023.
This article was first published on the 1/2023 issue of the ECA Journal. The contents of the interviews and the articles are the sole responsibility of the interviewees and authors and do not necessarily reflect the opinion of the European Court of Auditors.