The power grid companies have been criticised for charging excessive fees, but the networks need investment. Decreased investment in the power grids will affect lives in the countryside negatively, writes PA electricity grid expert Oskar Almén.
The electricity networks in Sweden are old and in great need of investment. Nevertheless, the reinvestment rate among the country's 160 grid companies is far from sufficient.
If the electricity companies don’t use the opportunities for investment, it can be hard for municipalities. They own large parts of the electricity grid companies and face the choice of increasing their investments or selling the business. But those who risk losing most are people who live and work outside the big cities.
In the electricity proposition recently presented, the parliament is in danger of undermining the necessary electricity grid investments. If the Energy Market Inspectorate's proposal, which the bill is based on, becomes reality, it would mean drastically reduced space for investment in power grids. This is because the companies themselves will no longer have the right to decide when and how much of the investment space – they have previously been allocated by the Energy Market Inspectorate – can be used for future investments.
Such a scenario would damage rural communities where a modernised power grid is the basis for functioning services, thriving businesses and a robust infrastructure, not least now that digitalisation is progressing quickly.
However, by letting electricity companies transfer capital from previous years, the situation could be significantly improved. Investments could then be made without the consumer being affected by higher prices. But the government has chosen to prevent this instead.
Administrative law has previously decided what is a reasonable return on the capital required to power and reinvest in the electricity grids. That judgment also gave electricity grid companies the right to move investments ahead and decide when to use the money.
But as long as the electricity companies fail to charge increased fees for renewing their power grids, the industry faces crucial issues. Judging from the electricity companies' plans during the current regulatory period (2016-2019), only the largest network owners, Ellevio, Eon and Vattenfall, act in the right direction. They choose to use the capital they are entitled to – and invest it. Other smaller companies have not taken advantage of that opportunity. And now it seems to be closing – if the bill on Parliament's table becomes reality.
There are several explanations for the electricity companies' actions, but the lack of unpopular price increases dominates. With the full impact of tightened investment rules hitting in 2020, electricity companies will be pushed into a negative spiral with declining revenues. The result is missing investments in the power grids. And in the long run, the economy of the electricity grid companies may be so strained that the owners either push for more money or sell the company.
If the bill in its current form is voted in the Riksdag, we can count on a new sales wave among electricity grid companies. Negotiations for the smaller, often municipally-owned companies would be tough. They would never get back the capital that administrative law has previously given them the right to.
The situation for Sweden's companies and society at large is serious. We face a situation where extensive investment in power grids is required to meet the needs of more renewable, weather-dependent electricity when replacing nuclear power with solar and wind. In addition, the electrification of the transport sector also imposes increased demands on the electricity grids.
The Energy Market Inspectorate is responsible for monitoring the market and ensuring that it works efficiently, but here the government misses the goal. And our politicians risk voting for something that is purely counterproductive. My recommendation is, therefore, that politicians allow the grid companies to continue to use previously allocated capital for investment, at the time they consider it best. Then, the electricity companies can choose a more balanced pricing strategy and put in place long-term investment plans for the benefit of consumers. In addition, the highly-squeezed subcontractor could plan longer term and the price level would then be reduced. It would also benefit consumers, and benefit the whole country, as the quality of power grids can be ensured even outside the metropolitan regions.
Oskar Almén is an energy expert at PA Consulting Group