The electricity price level is affected by several factors. In the short term, precipitation levels affect the price, due to the large hydroelectric power element in Sweden.
Access to nuclear-power generated electricity has a similar price effect. In a short-term perspective, weather conditions and outdoor temperatures also exert an influence, together with the prevailing industrial cycles and the price development for coal and natural gas.
A wind turbine has an economic life of 20-25 years, so that for investments in new electricity production the factors affecting prices in the long term are decisive. With a longer time frame, political decisions also have a greater impact. The electricity price is also affected by the scale of the expansion of new power production compared to demand, and the technology used.
Impact of the electricity price
To a great extent, the long-term profitability of wind power is governed by the price of electricity and electricity certificates. As from 2011, the spot price on Nordpool has been low and in 2015, the lowest level since 2000 was recorded. One of the main drivers of the low electricity price is Sweden's electricity surplus during this period. As from the beginning of March 2016, spot prices have seen a relatively strong upswing. Forward prices have also increased, although not to the same extent as spot prices.
Since 2008, the electricity certificate price has fallen by 58%. The background to this development is that the ratio of electricity-certificate-eligible production has exceeded the forecasts, which in 2015 resulted in a surplus of 13.5 million electricity certificates. Since the mandatory quota curve governing the demand for electricity certificates was adjusted upwards in January 2016, the surplus of electricity certificates has begun to diminish. After the energy agreement's decision to extend the system, prices stabilised and as from July 2016 a positive trend and increased turnover in the market could be noted.
Factors in favour of an increasing electricity price
Several factors indicate that the low electricity price is not sustainable in the long term, and that the price upswing in the electricity market in 2016 will continue in coming years:
- Increased exports due to better infrastructure and higher electricity prices abroad. During the past five years Sweden has been a net exporter of electricity. This trend is expected to continue in the future as the electricity transmission infrastructure is gradually improved, together with generally higher electricity prices abroad. Increased exports would thus entail a reduction of the electricity surplus in Sweden, as well as higher remuneration of electricity producers.
- Phasing out nuclear power Swedish nuclear power station owners have decided to close down four of Sweden's ten nuclear power reactors by 2020. Continued phasing-out of nuclear power will contribute to rising prices by reducing the electricity surplus.
- Limited hydroelectric power expansion For many years the development of hydroelectric power has been slowing down, and today there is no expansion with major new hydroelectric power stations in Sweden.
- Reduced surplus of electricity certificates The adjusted mandatory quota curve and the decision to extend the system are expected to lead to continuously increasing electricity certificate prices.