Debate over scrapping Sweden's bidding zones intensifies. Critics say they have failed to achieve their purpose

Debate has reopened in Sweden over the future of electricity price zones. While some in the energy sector argue that dividing the country into four bidding zones has neither removed transmission constraints nor stimulated electricity generation in the south, others warn that scrapping them could harm the emerging green hydrogen industry in the north. The Swedish government has already asked the transmission system operator to assess possible changes to the current system.

Sweden has been divided into four so-called bidding zones (SE1 to SE4) since 2011. They are intended to reflect the limited transmission capacity between the north and south of the country. The aim was to use different electricity prices to encourage the construction of new generation sources in southern Sweden and motivate energy-intensive businesses to relocate to northern regions, which have a surplus of electricity generation and therefore lower prices.

After fifteen years, however, voices are growing louder that dividing Sweden into four bidding zones has failed to achieve its purpose. At the Almedalen conference on the island of Gotland, Johan Mornstam, head of E.ON's Swedish subsidiary, called for the bidding zones to be scrapped as soon as possible. He said that both the shortage of electricity generation in the south and the limited transmission capacity between the north and south—the reasons the bidding zones were originally introduced—persist.

Price differences between the zones have been substantial in recent years. The northern zones SE1 and SE2, thanks to their high share of hydropower and growing wind power generation, often record some of the lowest wholesale electricity prices in Europe. By contrast, the southern areas SE3 and, in particular, SE4 regularly face significantly higher prices, influenced by limited transmission capacity and stronger interconnection with continental Europe. This trend intensified especially after several nuclear units in southern Sweden were shut down.

Not all participants in the debate support scrapping the bidding zones. Renewable energy project developer RES warns that a uniform electricity price would push prices up in the north of the country, undermining the economics of planned green hydrogen production projects.

The argument is also linked to European legislation. From 2028, stricter rules on renewable hydrogen production under the delegated acts to the RED III Directive will apply. Producers will have to demonstrate that they use newly built renewable electricity sources unless they operate in a bidding zone where more than 90% of electricity generation comes from renewable energy sources.

The northern Swedish bidding zones SE1 and SE2 currently meet this condition. Merging them with the rest of the country would remove this advantage, which developers say could complicate the development of hydrogen projects.

Bidding zones were reviewed across Europe last year

Last year, the European Network of Transmission System Operators for Electricity (ENTSO-E) published a report reviewing bidding zones. In Sweden's case, four alternative configurations were analysed: two with three bidding zones and two with four. None of the options improved economic efficiency compared with the current arrangement, and the study therefore recommended no change.

However, Swedish Energy Minister Ebba Busch tasked the country's transmission system operator, Svenska kraftnät, with a new analysis of whether the number of bidding zones should be reduced. Compared with the European review, the new analysis is to be based on more accurate input data.

The ACER agency has long stressed that bidding zones should reflect actual bottlenecks in the transmission grid. If differences between regions persist, European rules provide for either strengthening transmission infrastructure or adjusting the configuration of bidding zones.