On April 19 2017 the government presented a bill to Parliament suggesting changes to the electricity certificate system – Sweden's primary support system for renewable energy.
Quota increases and prolongation
The system is market based, obliging electricity traders to purchase a certificate quota along with sold electricity. Producers of renewable energy receive one certificate per megawatt hour of renewable energy produced. The government is now proposing to extend the certificate system to 2045 (previously 2035) and to increase total quota obligations with an additional 18 terrawatt hours (TWh) until 2030 (compared to 2020).
The bill was expected in the sense that this extension and quota increase is in accordance with the bipartisan agreement that the government reached with three opposition parties in June 2016.
An agreement has been reached, in principle, with the Norwegian government. As the electricity certificate system is regulated by a treaty with Norway and the certificate market is bilateral, any quota amendments must be agreed with Norway. In a press statement issued on the same day as the bill, the Swedish government stated that it has agreed with the Norwegian government that Norway will not be financing any part of the quota increase and that Norway's current obligation (to fund 13.2TWh) will remain unchanged. These principles will be laid down in an amendment agreement to the treaty, which is to be submitted in the form of a second bill to the Swedish Parliament for approval later in Spring 2017.
Linear quota increase 2022 to 2030
The bill also contains previously unknown details on implementation and the outline of the quota increase curve. The government has proposed linear increases on the quota curve with 2TWh each year from 2022 until 2030 (contrary to the Energy Agency proposal, which suggested a back-loaded quota increase to delay investments). Sweden has also decided to stimulate demand by cancelling certificates at an accelerated rate from 2018.
Closing the certificate system
While Norwegian law states that no facilities taken into commercial operation after 2021 will be eligible to receive certificates, Swedish law lacks a similar closing mechanism. In the bill, the Swedish government identified the need to introduce an eligibility cut-off date or volume cap on installed capacity to avoid price collapses due to certificate surplus, stating that it will propose measures by 2020 at the latest. Certificate prices have fallen markedly in the past year, which is generally believed to be due to the fact that installed and planned capacity is sufficient to fill and exceed current TWh quotas. Whether these proposed quota increases are sufficient to restore price levels in the long term remains to be seen, but it was notable that after the first day of trading, closing prices on the market increased by more than 15%.
Provided that the bill is enacted into law by Parliament (and an agreement is reached with Norway), the amendments to the Electricity Certificate Act will enter into force on January 1 2018.
For further information on this topic please contact Maria Hanbo, Jörgen Möller or Peter Högström at Advokatfirman Lindahl KB by telephone (+46 8 527 70 800) or email ([email protected], [email protected] or [email protected]). The Advokatfirman Lindahl KB website can be accessed at www.lindahl.se.
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