Swedish Electricity Prices under Stress : The Role of Natural Gas in SE4 (2021-2025)

Sammanfattning

The energy crisis 2021-2023 exposed Europe's and Sweden’s vulnerability in relation to energy self-sufficiency. Understanding how different energy sources affect electricity prices is therefore important for policy design and for building a more stable energy system. The sensitivity of Swedish electricity prices to natural gas prices is examined between 2021-2025 in the southern Swedish SE4 electricity price region. This is done by estimating the elasticity between natural gas and electricity prices in a log-log regression with control variables for wind production and temperature. During market stress, i.e., when natural gas is the marginal energy source and electricity prices are high, a higher natural gas-electricity price elasticity is interpreted as greater market sensitivity in the Swedish electricity system. The findings show a positive baseline elasticity of 0.62 between natural gas and electricity prices for the whole period of 2021-2025. During the peak period in natural gas prices, the elasticity increases to 0.64 in summer 2022 and 0.67 in December 2022. In contrast, during the more normal period of 2024-2025, the elasticity becomes negative or insignificant. The results show that during periods of market stress, the elasticity increases compared to the baseline for the full period of 2021-2025. This increase in elasticity indicates that the Swedish electricity market becomes more vulnerable when exposed to market stress. In contrast, during normal periods there is no meaningful relationship between natural gas and electricity prices, reflected by a negative or insignificant elasticity. From a policy perspective, this means limiting how often the system relies on natural gas as the marginal source through increased capacity, while reducing elasticity during such periods through greater adaptability and resilience in the electricity system.