The Swedish elections led to the formation of the minority coalition government, whereby the Sweden Democratic Party brokered a deal allowing it to shape the government’s policy despite not being a formal member of the governing coalition. The deal ensures that the party has a say over some key domestic policy areas. The Swedish far-right thus signed a coalition agreement (

) with other parties that includes proposals on energy and climate policy to be implemented over the next four years.

In Sweden, climate targets have been transposed into law: the Climate Act entered into force in January 2018 with the net-zero deadline set by 2045. This means that the 

Democrats cannot renege on Swedish climate targets, with climate transition still largely in focus

In 2020, Sweden submitted its National Energy and Climate Plan (NECP) to the European Commission, as prescribed by the Governance Regulation, which is part of the “Clean Energy for all Europeans” package. The NECP represents the direction national policymakers intend to follow in the next decade, thereby providing a credible and stable regulatory signal to the market. 

Yet, as the new coalition government alters the course of Swedish energy and climate policy, it could be expected that the next time Sweden submits an updated draft of its NECP by 30 June 2023, we could see these changes being entrenched long-term

. This means that the Social Democrats would leave their mark on climate and energy beyond their four-year mandate period, resulting in more long-lasting changes.

The major change comes in the wording of Sweden’s climate goal: setting a fossil-free target instead of 100% renewable one in the power sector by 2040, thereby embracing technological neutrality.

 In 2020, Sweden overachieved its renewable energy share target by 11% with 60% of gross final energy consumption coming from renewables (see graph below). By 2030, the country is expected to reach a 65% share of renewables, according to its indicative target. Note, that if we apply the change in terminology to current electricity mix, 92% of Swedish electricity production can be classified as “fossil-free”, whereby nuclear power 

. With Sweden already overachieving its climate targets, the country can still easily achieve its future RES targets, formally submitted to the EU, given the momentum created by the previous government and notwithstanding the new government’s temporary mandate.

Sweden’s indicative trajectory for the share of renewable energy in final energy consumption between 2020 and 2030 (line graph), and RES share in electricity mix (bars).Eurostat, Statistikmyndigheten, European Commission

Yet, it is worth pointing out that the energy targets laid out in the NECP were based on the Renewable Energy Directive (RED II) union-wide target of 32% of RES-E by 2030. 

As revised targets in RED III and IV (40% vs. 45% by 2030) will have to be agreed on during interinstitutional negotiations in 2023, Sweden, as well as other Member States, will need to revise their renewable energy targets again.

 Therefore, despite proliferation of nuclear power, the share of renewable electricity will have to increase once the new RED is adopted, and the EU allocates shares among the Member States. ­

 The policy moves away from renewables prioritisation and instead focusses on nuclear power proliferation with government support measures in the form of special credit guarantees (possibly green) amounting to SEK 400 billion (approximately EUR 36 billion), with special focus to small modular reactors, shorter permitting processes and fast-tracking procedures for new nuclear power plants, as well as removing the ban on restarting previously closed reactors.

 The coalition agreement made a U-turn on offshore wind: 

the plan to have the electricity grid collective subsidise the offshore wind power connections is halted.

 Wind power will no longer get privileges accorded to renewables as the Swedes set it to compete with other energy sources on neutral terms. 

Market players comment that this creates investors uncertainty as the coalition agreement withdraws the powers of Svenska Kraftnat (Sweden’s TSO) to commission offshore wind grid connections.

 The agreement includes a proposal for the 

creation of a unified electricity price area

 (currently, Sweden has four bidding zones), laying out new rules for the electricity market; expansion of charging infrastructure for e-vehicles and carbon capture and storage solutions. In the long run, the unification of electricity price areas 

removes the price signal for localisation of consumption

, so that electricity-intensive industry is given weakened financial incentives to place investments in areas where there is a relative surplus of electricity.

Sweden was the fourth largest GO issuer in 2021 with over 77 TWh of renewable GOs, just behind Norway, France, and Italy. Most of the GOs that Sweden issues come from hydropower (69% in 2021), followed by onshore wind (28% in 2021). Across all AIB countries, Sweden accounted for 12% of hydro GOs in 2021 and 17% of Wind GOs. With regards to offshore wind, the impact of the new measures will have a limited impact on the GO market: in fact, Sweden only issues around 0.5 TWh of such GOs per year, equal to 2% of offshore wind GOs in the AIB.

Nonetheless, as shown by the graph below, wind capacity (on and offshore) was supposed to almost double by 2030: the halt to subsidies explained previously might undoubtedly reduce this increase, therefore leading to fewer GOs issued by Sweden, as compared to the previous forecast.

SE Capacity Stats

Still, Sweden will most likely remain at the top in one technology that has been under the radar for quite some time in the GO market: Nuclear. Sweden is the second biggest issuer in terms of nuclear GOs, which received increased attention as an alternative to hydro/wind/solar GOs, where these RES-E GO prices skyrocketed in Q3/4 2022 before settling to more affordable prices. Nevertheless, nuclear GO are almost 20 times cheaper than benchmark GOs and the special credit guarantees announced by the government are likely to draw further interest to the zero-carbon product.

As shown by the graph below, Nuclear GOs are picking up this year: based on provisional data, for the first eleven months of 2022 nuclear GO issuances were already up by 56% compared to the previous year, with Sweden accounting for 1.5 of the 20 TWh increase. Coincidentally, Finland and Slovenia also commenced Nuclear GO issuance in 2022.

SE Nuclear GO Stats

Despite the potential slowdown in GO issuances for RES (hydro and more importantly wind), Sweden is gradually increasing its issuances through nuclear, and the new plan agrees with this development. However, given the relatively small volume of Nuclear and offshore Wind GO issuances, we do not expect GO supply to be dramatically altered by this Swedish U-turn on renewable subsidies.

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The Sweden Democratic Party won the parliamentary election on 11 September 2022. As the Swedish

take the helm of the Presidency of the European Council

on 1 January 2023, we take a closer look at the country’s own climate policy, which underwent significant changes. These include a 100% fossil-free target in the power sector (instead of 100% renewable by 2040), proliferation of nuclear power and a unified domestic electricity market.

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Sweden’s far-right change the course of country’s climate policy

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