Sweden
A near-zero-carbon system of hydro, nuclear and wind, split into four bidding zones by a north-to-south transmission constraint. Fuel cost barely matters here; zonal basis is everything.
Overview
Sweden runs one of the cleanest large power systems in Europe: hydro, nuclear and a fast-growing wind fleet, with fossil fuel a rounding error. The commercial question is almost never what fuel costs. It is where in the country the megawatt-hour is delivered.
Ember puts 99% of Swedish electricity generation in 2025 on low-carbon sources, the highest share of any EU member state, with fossil fuels at roughly 1.2%. Over the twelve months to May 2026 Low Carbon Power shows hydro at about 42% of output, nuclear at about 26% and wind at about 23%. That is a system with almost no fuel-cost merit order in the conventional sense.
Geography and scarcity do the work that fuel cost does elsewhere. Sweden is long and thin. The hydro reservoirs and the best wind sites sit in the sparsely populated north; the industrial load, the cities and the interconnectors to continental Europe sit in the south. The grid between them is finite, so the country is split into four bidding zones, SE1 to SE4, and those zones price separately whenever the north–south corridors fill up. In 2024 the day-ahead average in SE4 was EUR 53.6/MWh against roughly EUR 27/MWh in SE1 and SE2, per the Swedish Energy Markets Inspectorate's Sweden's electricity and natural gas market 2024. Same country, same hour, materially different price.
The split widened structurally rather than cyclically. Barsebäck, on the southern coast, closed in 1999 and 2005; Ringhals 2 shut at the end of 2019 and Ringhals 1 at the end of 2020, per the World Nuclear Association. Roughly 2,500 MW of firm southern capacity came out of the system. The southern zones have been structurally short ever since.
In Sweden, the fuel risk is small and the basis risk is large. Anyone hedging Swedish power hedges the Nordic system price first and then, separately and more painfully, the zone.
Market structure
A Nordic wholesale market layered on a national grid, with a state transmission operator in the middle and a financial market that has just changed venue.
Who does what
| Function | Body | Role |
|---|---|---|
| Transmission and system operation | Svenska kraftnät | State-owned TSO; sets bidding zones, runs balancing and reserve markets |
| Day-ahead and intraday | Nord Pool | Nordic and Baltic auction and continuous trading |
| Regulator | Energimarknadsinspektionen (Ei) | Network revenue frameworks, market supervision, consumer rules |
| Financial hedging | Euronext / Nord Pool futures | System-price futures and EPADs, post-2026 migration |
| Policy | Government and the Swedish Energy Agency | Energy policy, nuclear support scheme, security of supply |
Four zones, one country
The split into SE1 (Luleå), SE2 (Sundsvall), SE3 (Stockholm) and SE4 (Malmö) came in 2011, after a European complaint that Sweden was managing internal congestion by curtailing exports rather than pricing it at home. The boundaries follow the transmission cuts. The Riksbank gives the corridor capacities as roughly 3,300 MW from SE1 to SE2, 7,300 MW from SE2 to SE3 and 5,600 MW from SE3 to SE4 — the last of which is the binding constraint most of the time.
The venue change
The financial layer moved. Nasdaq confirmed that as of 30 April 2026 its Oslo exchange and clearing house had ceased Nordic commodities trading and clearing, with open interest migrating to the Euronext-operated Nord Pool futures market. The economics of the instruments are unchanged: Nordic system-price futures plus zonal basis contracts. Counterparty, margining and membership arrangements are not. Any hedge book carried across that date now sits with a different clearing house than it did before.
A Swedish generator selling at the system price is not hedged. It is short the difference between the system price and its own zone, and in recent years that spread has been worth more than the outright.
Infrastructure — power and gas
A north-to-south transmission problem, with a very small gas system bolted on to one corner of the country.
Power
Hydro in the north
The Lule, Ume, Ångerman and Indals river systems carry the bulk of Swedish reservoir capacity. They are the country's storage as well as its cheapest energy.
Nuclear in the south
Six reactors at Forsmark, Oskarshamn and Ringhals, some 7,011 MWe, supplying about 30% of electricity — 50.4 TWh in 2024 per the World Nuclear Association. All sit in SE3.
The SE3–SE4 cut
Around 5,600 MW of transfer capacity into the southernmost zone (Riksbank). When it fills, SE4 prices off imports and its own scarce plant.
Outward interconnection is dense: HVDC and AC links run to Norway, Finland, Denmark, Germany, Poland and Lithuania. Net exports ran at 33.4 TWh in 2024 against 135.9 TWh of domestic consumption (Ei, Sweden's electricity and natural gas market 2024). Continental price events therefore reach southern Sweden far faster than northern surplus does.
Schematic — system topology, not a geographic map. Four bidding zones and the indicative north-to-south transfer capacities. Corridor figures from Riksbank.
Gas
The gas system is small and regional. A 601 km transmission pipeline and about 3,546 km of distribution serving roughly 37,000 customers, entered from Dragør in Denmark, and amounting to about 2% of Swedish energy use (Ei). Nordion Energi operates it along the west coast from Dragør to Stenungsund, supplying 33 municipalities, with 37.5% of gas traded on the network in 2022 already biogas. Consumption on the western network was 6.5 TWh in 2023 (CEER). There is no Swedish gas hub of consequence and no gas-set power price.
Demand and supply
Flat consumption, a near-zero-carbon mix, and a supply stack whose output depends on rainfall and wind rather than on fuel prices.
Demand
Swedish electricity consumption barely moves. The Riksbank puts the range at 136–150 TWh over thirty-five years. Consumption was 135.9 TWh in 2024 against 162 TWh of production, leaving net exports of 33.4 TWh (Ei). The forward question is whether new industrial load — electrified steel, batteries, data centres — lands in the north, where the surplus is, or in the south, where the constraint is.
Supply
| Indicator | Direction | Comment |
|---|---|---|
| Consumption | Flat | 135.9 TWh in 2024; electrification offset by efficiency |
| Hydro | Stable, weather-driven | ~42% of output; the system's storage as well as its energy |
| Nuclear | Stable, policy-supported | Six reactors, 7,011 MWe, 50.4 TWh in 2024 |
| Wind | Rising | 40.8 TWh in 2024; increasingly the marginal price-setter in windy hours |
| Fossil | Negligible | ~1.2% of generation in 2025 |
Shares for the twelve months to May 2026. Source: Low Carbon Power, corroborated by Ember, which puts low-carbon generation at 99% of the 2025 total.
With no fuel cost to speak of, the swing variables are hydrological balance, wind output and reactor availability. An unplanned outage at Ringhals or Forsmark takes firm capacity out of the short zone, and southern prices then react in a way no fuel-cost model would predict.
Price setting mechanism
A marginal-cost auction with almost no marginal fuel cost — so the price is set by scarcity, by the interconnector, and above all by which side of a congested corridor you sit on.
The day-ahead auction
Generators and suppliers bid into the Nord Pool day-ahead auction for hourly delivery across the Nordic and Baltic zones. The algorithm clears bids against available transmission capacity and produces an unconstrained system price plus a set of area prices. When corridors are uncongested, the zones converge; when they bind, the surplus zone clears low and the deficit zone clears high.
Hydro and nuclear have near-zero short-run marginal cost, so the Swedish price in a given hour is usually set by one of three things. The opportunity cost of water, meaning a reservoir owner's view on whether the megawatt-hour is worth more next month than today. The price at the far end of an export cable. Or, in the tightest hours in SE4, a genuinely expensive marginal unit.
Basis is the real exposure
The financial market prices the system price. Physical delivery happens in a zone. Bridging the two is the job of the EPAD — Electricity Price Area Differential — a contract on the spread between an area price and the system price. For a Swedish position, the EPAD is not an optional refinement; it is the hedge. A producer in SE1 selling system-price futures remains exposed to a negative basis, and a retailer supplying SE4 remains exposed to a positive one.
EPAD liquidity has historically been thin, which is why Svenska kraftnät ran EPAD auctions as a pilot to inject volume into the forward curve — an unusual case of a TSO acting to improve hedging conditions in a market it does not itself trade.
Balancing
Below the day-ahead sit the balancing markets. Svenska kraftnät procures frequency containment reserves (FCR) and both automatic and manual frequency restoration reserves (aFRR and mFRR), buying capacity ahead of delivery and then activating energy in real time. Flexible assets therefore earn twice: a capacity payment for standing ready, an energy payment for being called. For hydro, batteries and demand response in a system with 23% wind, those ancillary revenues increasingly decide whether an asset is economic. The day-ahead spread alone no longer tells the story.
Regulatory regime
A national regulator working inside an EU framework, a state-owned TSO, and a nuclear policy reversal now backed by public money.
| Body | Remit |
|---|---|
| Energimarknadsinspektionen (Ei) | Regulates electricity, gas and district heating; sets revenue frameworks for network monopolies; supervises market conduct |
| Svenska kraftnät | State-owned TSO: transmission, system operation, bidding zone configuration, reserve procurement |
| Swedish Energy Agency | Energy policy implementation, statistics, security of supply |
| Government and Riksdag | Market design legislation and the nuclear support framework |
Ei's functions, as reported to CEER, include supervising compliance, establishing revenue frameworks for grid monopolies, certifying system operators and proposing regulatory change. Regionally it works through NordREG alongside the Finnish, Norwegian, Danish and Icelandic regulators, and consultatively at EU level — a reminder that Swedish market design is substantially set in Brussels, through the network codes and the electricity market regulation, rather than in Stockholm alone.
The nuclear turn
Sweden spent four decades planning to phase nuclear out. Since 2022 it has been planning the opposite. The World Nuclear Association records a support framework of state-backed loans to cut the cost of capital, two-way contracts for difference between the state and operators, and risk-sharing that guarantees investors a minimum return. Parliament approved the state aid in May 2025, capped at roughly 5,000 MWe. The stated ambition is two large reactors operating by 2035 and the equivalent of ten reactors, including small modular units, by 2045. By mid-2026, four companies had applied for support.
For anyone taking a view on the Swedish forward curve, the mechanism matters more than the megawatts. A two-way CfD lifts merchant price exposure off new nuclear and puts it on the state, changing who carries long-dated price risk. And because the political logic of the programme is to restore firm capacity in the south, the eventual siting decisions are also decisions about the SE3–SE4 spread — the single most consequential number in Swedish power.
The government has repeatedly signalled a preference for fewer bidding zones. Any move in that direction would redistribute value between northern producers and southern consumers at a stroke, and would reprice every EPAD position outstanding.
Key links
Primary sources for this market. Figures on this page are drawn from these and from published market data.