Economic Theory and the Failure of Electricty Deregulation in Sweden

Abstract

The deregulation of electricity has failed in Sweden. Since the beginning of the deregulation ‘experiment’, the trend price of electricity has increased much faster than the consumer price index, especially during recent years. More importantly, because of (1) the lack of investment in domestic generating (and perhaps transmission) facilities by Swedish power companies, (2) the questionable strategy employed by these firms to manage hydroelectric reserves, (3) increased and to some extent irrational energy taxes, and (4) the beginning of nuclear ‘disengagement’, households and businesses are vulnerable to a prolonged ‘spike’ in electricity prices. Everything considered, the recent history of the Swedish electricity sector – and particularly that of the overpraised Nordic Electric Exchange (i.e. Nord Pool) – should be considered a wake-up call instead of an example.