IEA Calls for Further Clarification of Swedish Nuclear Policy, Recommends Greater Receptiveness to Natural Gas

Robert Priddle, the Executive Director of the International Energy Agency, released today the Agency’s report on the energy policies of Sweden, Energy Policies of IEA Countries - Sweden, 2000 Review.

“The international energy community knows that Sweden is planning to phase out nuclear power.” Mr Priddle said, “Policy decided by Parliament in 1997 requires sufficient progress to be made in developing renewable energy sources and in improving energy efficiency before further reactor closures take place.”

Mr Priddle noted that the criteria set out by Parliament for further closures are perhaps less widely known. The implementation of the phase-out policy started with the closure of Barsebäck 1 in 1999. The conditions for the closure of the second Barsebäck reactor are expected to be decided by Parliament by the end of this year. In the meantime, Sweden has in place an energy policy programme to reduce electricity consumption and to promote electricity generation from renewable sources, as well as an extensive programme of research and development and measures to promote energy efficiency.

The report looks at the feasibility of Sweden’s plans using Sweden’s own criteria.

Renewable energy sources are considered by Sweden to be the main alternative to nuclear. Substitution of nuclear by natural gas and coal would lead to increased greenhouse gas emissions, and new hydro capacity is limited by a decision of Parliament. The IEA considers that the central issue in Swedish energy policy is the future of renewables, rather than of nuclear. Two examples show the scale of the task that Sweden has set itself:

• The nation’s current capacity for biofuelled power generation would have to be tripled to replace a single reactor.
• Great improvements in energy efficiency have been achieved, and clear progress has been made on reducing the correlation between economic growth and electricity consumption. There are, however, indications that progress on energy efficiency has slowed down to an almost negligible rate since 1988.

The report concludes that no further nuclear plant closures (beyond the Barsebäck reactors) are likely before 2010, in view of the challenge of meeting Parliament’s criteria for further closures.

The report challenges the Swedish policy approach to natural gas, concluding that gas deserves greater consideration, whether or not the nuclear phase out continues.

General Energy Policy
Two overriding concerns are evident in Swedish energy policies: to keep down electricity prices in order to maintain industrial competitiveness and economic growth, and to achieve Sweden’s target for greenhouse gas emissions. Energy taxation has been designed to support both objectives. The successful development of the Nordic electricity market has been important in maintaining low electricity prices through competition.

The IEA report makes three central recommendations on the broad approach to energy policy:

• Energy tax reform should seek to establish a stable system balancing economic and environmental goals.
• Independent regulation will continue to be necessary and could be strengthened.
• Consider the influence of ownership on the development of competition in the energy sector.

Energy-Environment
In the EU burden-sharing agreement arising from the Kyoto climate-change commitments, Sweden negotiated a 4% increase in greenhouse gas emissions. Sweden’s per capita carbon dioxide emissions are among the lowest of all OECD countries.

There are two very positive points in Sweden’s energy-environment policy:

• Sweden was one of the first countries to introduce taxes on carbon dioxide to limit the growth in emissions.
• Through its project on Environmentally Adapted Energy Systems, Sweden has been a leader in “Activities Implemented Jointly” (AIJ) undertaken in the Baltic States.

The report makes several recommendations including the following:

• Natural gas. While natural gas produces greenhouse gas emissions, unlike nuclear power, its potential contribution to the achievement of economic and environmental objectives in the Swedish context should not be dismissed.
• Sinks. Sinks could play an important role. It will be important to monitor, for example, the balance of forest growth and removals.

Energy Efficiency
Sweden wishes to improve energy efficiency as a means of securing economic growth while lowering greenhouse gas emissions, and to reduce electricity consumption to permit phasing out nuclear power.

A combination of economic measures, regulations, voluntary measures and information has been effective in bringing about considerable improvement in energy efficiency in the industry and residential/commercial sectors. As in other IEA countries, making progress in transport has been more difficult.

Measures to reduce electricity consumption would have to be robust to further reduce the correlation between economic growth and electricity demand growth. District heating and cooling systems have high potential for energy savings in individual applications, and conversion to district heating is seen by Sweden as a key measure to reduce electricity consumption for heating. However, it is worth noting that such a shift generally introduces elements of monopoly in a potentially competitive space heating market.

Electricity
The intensity of electricity use in Sweden is among the highest in the world, and electricity prices are low. As noted above, electricity consumption and economic growth are closely linked. To keep Swedish electricity prices competitive, the cost of renewable generation would have to drop significantly, and the replacement of nuclear power would have to be gradual. Natural gas could replace nuclear while maintaining competitiveness, but would lead to a higher level of carbon dioxide emissions.

The Swedish electricity supply industry faces other challenges posed by the need to adapt the regulatory and institutional framework to an increasingly open electricity market, and to achieve environmental objectives within this framework. The Nordic and Swedish electricity market is among the most advanced in Europe with a high degree of competition and a 100% market opening. Despite this, further improvements may be considered concerning:

• the vertical integration of gas and electricity, which could raise a barrier to the development of gas-fired electricity generation (and gas-fired heat production) in Sweden,
• transmission and system operation issues, i.e., further harmonisation of transmission tariffs between the Nordic countries and management of congestion in certain areas, and
• some distribution issues, for example, distribution tariffs are not always fully cost-reflective and structural changes are needed to make distribution activities less fragmented in certain areas.

Nuclear
The Parliamentary decision of 1997 established criteria for closing down reactors, but further clarification is necessary. In particular, economic criteria are not set out.

It will not be possible to ensure that nuclear power is replaced by renewable sources unless the replacement sources of power are genuinely competitive. In the competitive electricity market, electricity to replace nuclear power could come from imported sources, including greenhouse gas emitting coal-fired stations or, indeed, foreign nuclear generation.

Greater attention should be paid to the market situation in deciding the pace of the phase-out (and in identifying the reactors to be phased out). This would help in reducing the cost of replacing nuclear power. A market-oriented approach need not conflict with the political decision to phase out nuclear, but could help to implement the phase-out in a cost-effective way and thus ensure that Parliament’s ultimate goal – the encouragement of renewables – is achieved.

Gas
In areas presently supplied in Sweden, natural gas is meeting 20% to 25% of energy demand. This is higher than in many European countries. Expansion of the Swedish gas network, together with new pipelines to and through Swedish territory, could bring energy security, and environmental and economic benefits to the region, although it could lead to increases in greenhouse gas emissions.

Two issues would need to be addressed to help gas grow:

• The gas market in Sweden is currently dominated by two players. The gas transportation agreement may also impede the development of competition.
• Government policy is to leave gas development to the market (within the framework of existing regulations), but the investment climate for gas is unfavourable.