ELS #Energy - Sweden’s policy reversal harms sentiment

Last Friday, Sweden’s new three-party government and it’s supporting party, the Sweden Democrats, reached a coalition deal. The Tidö Agreement means a course direction for Sweden with regards to energy policy. Although the agreement encourages investment into new nuclear plants with SEK 400 billion in credit guarantees, it deals a serious blow to offshore wind.

The previous government’s plans to lower offshore wind farm costs, by building offshore grid connection points, is scrapped under the agreement. This flip damages Sweden’s credentials as an investment destination at a time when capital is flowing to other markets like the US, where political differences did not stop massive green subsidies. Sweden’s polarised ”nuclear vs. offshore” debate threatens investor confidence in the energy system as a whole. While both can coexist, the risk is now obvious that a change of government could upset markets by turning support systems on their head. This will deter investors from planning either sort of development, threatening Sweden’s growth and meeting EU-level targets. High power prices will force some investment in new generation capacity, but new nuclear plants will not come online before the next election cycle in 2026 and will likely become political topics then as well.

Sweden’s electricity grid operator Svenska Kraftnät (SvK) is to be included in the Swedish Maritime Agency’s investigation into exclusive seabed rights in the Swedish Exclusive Economic Zone. This could directly contravene EU laws allowing free markets if SvK can influence offshore wind permitting to favour farms intending to connect, for example, to Sweden and not other countries.

The Tidö agreement also drops emission reduction obligations to the EU’s minimum level, which make it unlikely to reach 2030’s climate goals. This reduces the incentives for both biofuels and green e-fuels derived from hydrogen. Putting a damper on the hydrogen economy risks Sweden missing the chance to capitalise on one of its biggest opportunities for the future energy trade in Europe. While still within the limits of EU law, this is certainly not in line with the bloc’s climate ambitions.

ELS Analysis will be monitoring industry’s response to the Tidö agreement and expects significant pushback, prompting some rethinking of the policy approach.

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