Re-regulating district heating in Sweden

Abstract

The electricity market reform in Sweden has had great, but little discussed, consequences for the district heating industry. Formerly regulated municipal district heating companies are now obliged to operate in a commercial manner and pricing, previously regulated by the Local Authority Act, is now free. The Swedish Competition Authority has on several occasions mentioned to the Government that a price regulation ought to be reinstated, since district heating is (?) a natural monopoly and in many cases in a dominant market position on local heating markets. The Competition Authority also believes that cross-subsidies occur in multi service utilities, i.e. between monopolistic district heating and competitive electricity production and sales. Municipal district heating is often organised together with electricity sales and production in a municipally owned limited company. Many municipalities have recently sold their energy utilities to private or state owned commercial actors, thus creating private monopolies exempt from price regulations. In 1999 the National Energy Administration (STEM) was given the task to monitor the district heating market and to suggest means to come to terms with these issues. STEM does not favour a price regulation as the first measure. STEM also has an operative goal of increasing the use of district heating as a means of reducing electricity dependence in the heating of premises. Here, an interesting conflict of interest exists between the two government authorities. We argue that the differences in opinion go beyond the actual tasks given to the authorities, but rather depend on perspectives: economics and consumer perspective versus an engineering, environmental and production perspective. We would also like to encourage a broad discussion about the state of district heating and its regulatory condition and that neither economical models nor energy models are taken for granted.