Power policy

Sweden’s power policy is centered on decarbonization, aiming to achieve net zero in the power sector by 2040. Since 2020, the country has been coal-free in power generation. Policymakers avoid setting technology targets out of a preference for market mechanisms that allow the cheapest technologies to prevail. A key challenge for reducing emissions in Sweden are the large district heating facilities that currently burn a mixture of waste, biomass, and occasionally oil and gas. That said, Sweden’s power sector is one of the cleanest in the European Union.

Fossil fuel generators must pay for their emissions under the EU Emissions Trading Scheme, which covers all large combustion facilities in the EU.

Sweden’s scheme for tradable green certificates for renewable electricity came to an end in January 2022. The scheme no longer accepts new plants, but still supports existing beneficiaries until 2035. The annual required quota for renewable energy under the scheme will decline gradually until the 2035 end-date.

Sweden does not have a full net metering scheme to support rooftop PV, but solar PV generation fed to the grid must be compensated by a small fee paid by distribution grid operators called “the network benefit” (nätnytta). The network benefit materializes as a reduction in network fees on the power bill, covering about 10% of the typical network change per kilowatt-hour. In addition, PV owners can make contracts to sell surplus production to their utility company. Small systems of less than 500 kilowatts are freed from paying electricity tax on both these revenue streams. PV installations are also incentivized as the labor part of the solar system investment (the installation cost) is also subject to the ROT household tax deduction.

Power prices and costs

Sweden has some of the lowest wholesale power prices in the EU, with average annual prices between €11-44 /MWh over 2015-2020 (SEK 115-450). In 2021, wholesale prices rose to around €60/MWh (SEK 640) in line with wider European trends. This is still clearly below the EU 2021 average of around €105/MWh.

Once taxes and surcharges are added to power prices, Swedish retail electricity prices rise, bringing the country to the middle of the EU pack. About one-third of Swedish electricity retail prices are accounted for by energy cost, with the remainder made up of taxes, such as VAT and an energy tax, as well as grid-use charges. All major utilities offer tariffs based on wholesale prices both for households and businesses, but only 5% of households have this type of time-of-use tariff.

Power market

Sweden’s power system is fully liberalized and in line with EU standards. The country has a competitive power market, as well as an open retail market. Any licensed company is allowed to own generation assets or to sell electricity to consumers. Companies are also permitted to sign power purchase agreements directly with power producers or utilities.

The power system is dominated by hydro and nuclear capacity. Combined, these technologies account for around 70% of the country’s 2021 power generation. The country also has a large onshore wind fleet, reaching 11.5 gigawatts in 2021. Sweden’s electricity generation from burning fuels like waste also supplies the country’s district heating facilities. On very cold days, these combined heat and power plants usually supplement their fuel supply with oil to achieve a higher thermal output.

Doing business and barriers

Similar to many other EU countries, Sweden is struggling with the permitting process for renewables, particularly onshore wind. The country has tried to address the issue by creating designated areas of national interest for wind power.

EV market

Battery-electric vehicles and plug-in hybrid electric passenger vehicles made up 7% of Sweden’s total passenger vehicle fleet in 2021. Sales of these cars accounted for as much as 46% of the total, up from 31% the year before.

Some incentives promote the ownership of low-emission vehicles, such as an income tax reduction for company cars that meet the criteria, as well as a refund of up to 60,000 Swedish krone ($7,000) for zero-emission vehicles and up to 10,000 Swedish krone for vehicles with emissions below 60 grams of CO2 per kilometer. Under its “bonus-malus” scheme, Sweden also penalizes the purchase of high-emission vehicles, by way of a tax on the first three years of ownership.

EV policy

Sweden’s decarbonization philosophy is centered around achieving CO2 targets, rather than favoring specific technologies. Consequently, there is no policy explicitly in favor of electric vehicles. Instead, the country’s 70% emissions reduction target in transport by 2030, combined with a series of other mechanisms, work in favor of decarbonizing the vehicle fleet in the cheapest way possible. Incentives are open to all vehicles that meet the low- or zero-emission criteria, which in some cases includes cars that run on biofuels. The only outright support for EVs that Sweden has in place is a scheme to support charging infrastructure, which ended in 2020. Under that program, installers of residential chargers could get a rebate of 50%, or 10,000 Swedish krone (whichever was lower), toward the cost of the charger.

Despite the technology-neutral approach, Sweden had the third highest share of electric vehicle registrations in Europe in 2021 (after Norway and Iceland).

Buildings market

More than half of buildings are centrally heated in Sweden. Waste- and biomass-fired combined heat and power plants are the primary supply to district heating and industrial heating networks. The second-largest technology for heating is direct electric heating, which makes up around one-third of the total. Finally, about 12% of heating in the country is through air-source and ground-source heat pumps. Some 67% of final energy consumption in the heating and cooling sector came from renewable energy in 2020.

Buildings policy

Sweden aims to achieve net-zero heating by 2044. By 2030, the target is for renewables to account for a 69% share of the heating sector, with that proportion rising to 71% in 2040. The country’s largest heating source, district heating, is covered by the EU ETS. Sweden has also set limits on the energy use, average thermal transmittance and a building envelope’s average air leakages for new and refurbishing buildings. The specific energy use is capped at 80-90 kilowatt-hours per square meter, depending on the size and location of the building.

There are some financial incentives for energy efficiency improvement of buildings. The ROT tax deduction scheme applies to the labor part of energy efficiency improvements. In November 2022, corporations, associations and the public sector organizations can also apply for innovation support from the Swedish Energy Authority for implementing energy efficiency measures. The scheme has a budget of €1 million (SEK 10 million), with a maximum grant of up to €47,000 (SEK 500,000) per applicant. Only solutions which can reduce energy use within 12 months are eligible for support.