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Sweden

Sweden

EARLY LESSONS OF DEREGULATION

Sweden's deregulation on January 1 secured distributors the right to buy power from any generator; now some utilities in western Sweden have signed contracts for cheap Norwegian hydro power. Net results so far have been that large industries have lowered their electricity costs by up to 30% after negotiating cheap contracts but prices for domestic consumers have risen, with marked geographical variation in price for domestic heat supply.

Four months ago power consumers in Sweden were freed to buy electricity from whichever generator they chose on a competitive and open market. At the same time the January 1 deregulation secured distributors the right to buy power from any generator, a route followed by some utilities in the west of Sweden which have signed contracts for cheap Norwegian hydro power.

The net result of these first months has been that large industries have lowered their electricity costs by up to 30% after negotiating cheap contracts. But prices for domestic consumers with electric space heating have risen. A survey by the association of householders also reveals a marked geographical variation in price for domestic heat supply, from SEK 0.51/kWh to SEK 0.80/kWh.

Sweden's deregulation forced local utilities to separate their business into two companies, one for sale of power and one for grid operation. Customers pay a fixed grid charge, rates which now vary even more than electricity prices, from SEK 2124 to SEK 9015 for the same house. The anomaly is put down to the initial impact of market forces. High fixed tariffs for small customers makes it difficult for them to swap supplier.

Preliminary estimations show that electricity prices for domestic customers have increased by 5-9% as a result of the January 1 deregulation. Yet at least some of the blame for this lies with the government which is effectively hindering free market forces. Before choosing a new supplier, customers must first install a metre which registers consumption by the hour -- equipment which costs SEK 10,000. For most the option is too expensive. Swedish energy authority Nutek is on its way to the rescue though. Copying Norway, it is planning to introduce a simple consumer profile for estimating electric consumption over a 24 hour period.

Meantime, the 124,000 members of the householders association are getting ready to test the competitive waters. The association is planning to enter the market as a giant customer shopping for the cheapest electricity available, whether this be from Sweden -- or Norway. As policeman of the grid, an alerted Nutek is now investigating if local distributors are indeed overcharging their customers. Nutek had better move fast, before Norway gets rich quick at the expense of the Swedish power industry.

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