Bidding Areas

Sweden is divided into four electricity bidding areas (elområden): SE1 (Luleå), SE2 (Sundsvall), SE3 (Stockholm), and SE4 (Malmö). These define the price zones for the day-ahead electricity market on Nord Pool. When transmission capacity between areas is insufficient to equalize supply and demand, prices diverge — and they frequently do.

The north-south imbalance

The bidding area structure reflects the fundamental physical reality of the Swedish grid — surplus in the north, deficit in the south, with transmission bottlenecks (“snitt”) between each area:

• SE1–SE2: large hydropower reserves and rapidly growing wind generation, but relatively low consumption (historically industrial — now attracting data centers and green steel/hydrogen)
• SE3: Sweden’s largest consumption area (Stockholm region, central industry), historically supplemented by nuclear power (reduced after closures of Ringhals 1–2, Oskarshamn 1–2)
• SE4: imports from the north and via HVDC interconnectors to Denmark, Germany, Poland, Lithuania

The price spread between SE1/SE2 and SE3/SE4 can be substantial, sometimes differing by a factor of 2–3× during constrained periods. This creates strong economic incentives for both grid expansion and Flexibility.

Why bidding areas matter for flexibility

1. Price signals: bidding area price differences are the primary market signal for Demand Response — high SE4 prices encourage consumption reduction or shift to off-peak
2. Congestion management: the transmission bottlenecks between areas are exactly where Svenska kraftnät needs flexibility to manage flows until physical reinforcement (NordSyd) is complete
3. Locational value: flexibility resources in SE3–SE4 are more valuable for congestion relief than resources in SE1–SE2, which shapes where flexibility markets and Villkorade Avtal are most relevant
4. Industrial location decisions: the surplus/deficit geography is driving new energy-intensive industry (hydrogen, data centers) to locate in SE1–SE2, which in turn changes the demand balance

Intersection capacity

The key transmission bottlenecks are called “intersections” (snitt) — snitt 1 (SE1–SE2), snitt 2 (SE2–SE3), snitt 4 (SE3–SE4), shown above. Svenska kraftnät‘s NordSyd initiative primarily targets intersections 2 and 4. Available capacity is now calculated using Flow-Based Capacity Calculation (since October 2024) rather than the simpler NTC method.

Svk’s June 2026 regional NUP for Mellansverige (Gävleborg, Örebro, Dalarna, Värmland, Västmanland, Uppsala) frames snitt 2 as the region’s defining constraint — predominantly north–south transfer from SE2 to SE3, increasingly crossed by east–west flows (Finnish nuclear in, Norway→UK export out). The plan names flexibility as a fit in every one of its six connection sub-areas, and the only use named as suitable in three (A, D, E) — a transmission-level siting signal for where flexible resources can usefully connect. (Source - Svk Regional NUP Mellansverige (2026))

Price-coupling regimes — how sensitive an area’s price is to local supply

Within a single bidding area, price sensitivity to local generation or demand changes isn’t constant — it depends hour by hour on whether the area’s interconnectors to neighbouring areas are saturated. A 2026 Energiforsk/Profu empirical study of SE4 identifies three such regimes: coupled to a larger market (SE4↔continent, low sensitivity — SE4 is a price-taker), isolated (a binding export constraint decouples SE4 from the continent, high sensitivity — SE4’s own balance sets the price), and coupled to a neighbouring area (SE4↔SE3, intermediate sensitivity). More local weather-dependent generation shifts more hours into the isolated regime, which is why the price effect of added wind or solar in SE4 scales nonlinearly with volume rather than following one fixed merit-order curve. Full mechanism and the SE4 empirical results at Merit-Order Price Suppression from Weather-Dependent Generation. (Source - Energiforsk Elprispåverkan Vindkraft Skåne SE4 (2026))

Connection to EU market design

Sweden’s bidding areas are part of the broader Nordic-European market coupling. The introduction of Flow-Based Capacity Calculation aligns Sweden with the method already used in Central Western Europe, enabling more efficient cross-border trading and more accurate capacity allocation.

The Clean Energy Package directly governs bidding zone design. The Electricity Market Regulation Art. 14 requires bidding zones to be based on long-term, structural congestions and mandates periodic reviews by ENTSO-E. If structural congestion is identified, the Member State must either adopt an action plan (Art. 15) or reconfigure zones. Sweden’s approach has been the action plan route — investing in NordSyd rather than splitting or merging bidding areas.

CACM Regulation (EU) 2015/1222 Art. 32 is the specific legal basis for the bidding zone review process: it requires ENTSO-E to conduct periodic reviews of bidding zone configurations, assessing price divergence, cross-zonal capacity utilization, economic welfare effects, and physical congestion within zones. Sweden’s four bidding areas (SE1–SE4) were established and maintained under this framework — the persistent SE1–SE4 price differences reflect exactly the structural north-south congestion that NordSyd is designed to address. (Source - CACM Regulation (EU) 2015-1222)

Art. 16(8) — the 70% rule — requires that at least 70% of critical network element capacity be available for cross-zonal trade. This constrains how much Svk can limit cross-border flows to manage internal congestion, reinforcing the need for both physical grid expansion and Flexibility to manage the remaining constraints.

(Source - Svk Network Development Plan 2026-2035)

Nodal pricing as a theoretical benchmark — SOU 2025:47 analysis

The Elmarknadsutredningen conducted a detailed analysis of nodal pricing as an alternative to the current zone-based price system. The conclusion is that nodal pricing should not be implemented in Sweden but is useful as a theoretical reference standard.

The theoretical case: Nodal pricing (locational marginal pricing, used in parts of the US) assigns each grid node its own electricity price based on the balance between supply and demand plus congestion at that node. This provides the most precise possible signal for where to locate flexible resources, batteries, and new generation.

Why the committee rejected it:

• Liquidity: many small markets, each with few participants → low competition, higher prices, potential market power abuse
• Financial hedging difficulty: no liquid forward market at node level → increases investment risk for generators and industrial customers; Svk’s EPAD Auctions supply zone-spread hedging contracts for SE2–SE4
• Investment uncertainty: congestion is dynamic; a node-specific price can change as grid topology evolves, making long-term investment calculations unstable
• Complexity: requires advanced real-time calculation systems; difficult for market participants to navigate

Recommended use: The Flow-Based Capacity Calculation method active since October 2024 in the Nordics can partially serve as a nodal pricing benchmark — it incorporates detailed grid topology data and allows modeling of the value of reducing specific network constraints. This makes it useful for evaluating whether current price signals in a given area are appropriately reflecting congestion costs.

2025 Nordic Bidding Zone Review (BZRR)

In April 2025, ENTSO-E published the Nordic section of the EU-wide Bidding Zone Review of the 2025 Target Year — a process initiated by ACER Decision 11/2022 (8 August 2022) under CACM Art. 32. Svenska kraftnät and the other Nordic TSOs (Statnett, Fingrid, Energinet) jointly participated as co-authors and jointly approved the proposal. The study ran longer than the twelve-month process foreseen in IME Regulation Art. 14(6), which the report attributes to the new model developments (BID3) needed alongside the study.

Nordic BZRR proposal (approved by the participating TSOs): maintain the current SE1–SE4 configuration.

Four alternatives assessed — all Sweden only

No structural congestion warranting reconfiguration was found in Norway, Finland, or DK2. All four alternatives introduce a “central east area” carved from SE3 to handle east-west flows (Finnish imports, Danish/Norwegian exports transiting central Sweden):

Svk’s modifications (Configs 9 and 11) were based on empirical operational knowledge rather than derived purely from the LMP model — making them less sensitive to model errors discovered mid-study.

Economic efficiency — all four rejected

Socio-economic welfare change vs. status quo, average over three climate years (1989/1995/2009):

Under the BZRR Methodology, negative economic efficiency at Step 1 terminates the process — no further assessment is conducted. Configs 8/9 involve large consumer surplus losses (higher prices in northern BZs) partly offset by producer surplus gains. Configs 10/11 show minor changes in consumer and producer surplus. The central east area has lower prices than current SE3 in all configs.

Why the results should be read with caution

The Nordic TSOs acknowledge five material limitations:

• Outdated scenario data: input from 2019 (MAF 2020 / National Trends 2025). Renewable growth has been faster than expected, and fuel and CO₂ prices are lower than markets now expect. Earliest implementation would be 2027/2028 (Svk operational monitoring system transition) — data even more outdated by then.
• Two LMP Study errors corrected mid-study: reactance input per-km rather than per-element (inflated overloads); Stockholm 220 kV CNEC with artificially low capacity (generated extreme shadow prices). Both fixed in the BZ Study. These errors could have affected which configurations ACER originally proposed (Configs 8 and 10). Svk’s Configs 9 and 11 less affected as they were grounded in operational practice.
• Hydrological modelling: three climate years in parallel from identical starting conditions — not the 30+ sequential years standard in Nordic grid analysis.
• Non-costly remedial actions excluded: Svk’s ability to bypass series compensators on 400 kV SE2-SE3 lines during east-west flow conditions was not modelled — understates system flexibility and overstates apparent congestion costs.
• 70% rule effect: the minimum cross-zonal capacity requirement drives 1.5–1.9 TWh/year of simulated overloads — described as much higher than seen historically, with simulated remedial-action costs around four times 2023 levels — amplifying RAO costs in the SEW calculation.

(Source - ENTSO-E BZRR Nordic 2025)

Consequence: Swedish government assignment

Svk stated it would “continue to investigate whether there is a need for a new assessment of BZ configurations in Sweden.” In May 2025, the Swedish Government formally tasked Svk with such an analysis — the study described in the section below. (Source - Ei R2025-19 Sweden Electricity and Gas Market 2024 (2025))

Svk’s Swedish-specific bidding zone analysis (assigned May 2025, amended May 2026)

Svk’s analysis — originally due 29 May 2026, extended to 29 January 2027 — covers three specific configurations: (Source - Svk Analys av Elområden 2026)

Additionally, Svk is analyzing special export zones (särskilda elområden för export) — a novel concept that could allow export-designated production to operate under different zone conditions than domestic supply.

The analysis uses Svk’s LMA scenarios (Source - Svk LMA2024 Långsiktig Marknadsanalys) as the analytical baseline, with particular focus on 2035 — the first horizon where large-scale green steel and hydrogen loads are substantially in place. Evaluation criteria include operational security, security of supply, cross-zone capacity calculation, market efficiency, and zone stability. The report will also quantify price impacts on Swedish/Nordic markets, congestion revenues, and the financial electricity market.

This is a decision-basis document, not a proposal — a formal zone reconfiguration would require more extensive follow-on analyses.

What Svk said at the 5 November 2025 webinar

Svk’s stakeholder webinar and written Q&A give the working detail behind the three alternatives (Source - Svk Aktörsmöte Elområdesanalys (2025-11-05)):

• Alternative 3 is four zones resembling Config 11 but adapted to frequent bottlenecks: a new snitt 3 (the recurring east–west limit in SE3) replaces the “eastern Svealand area”; snitt 1 and snitt 2 stay for north–south flows; and Svk tests whether snitt 4, a bottleneck only in specific operating situations (mainly summer outages in the south), can be handled without a zone border.
• Method: Svk’s Samnett model with flow-based capacity calculation, hydro-focused, Nordic system only (neighbouring countries’ prices fixed from simulations with today’s division), day-ahead only. 2030 is one scenario, 2035 the focus with variants (including 1,500 MW of new nuclear at Ringhals), 2040 qualitative. V2G and grid-reinforcement benefits are not modelled; stand-alone batteries and demand flexibility are.
• Not a formal review: Svk saw no room to start a formal review under Art. 14(7) of Regulation 2019/943 or Art. 32.1(d) of CACM alongside the assignment, and said it would give no recommendation. Both points were overtaken by the May 2026 amendment below.
• Timing: new zones before 2030 are unlikely; implementation needs at least 18 months, so a decision in the first half of 2028 would be needed for the start of 2030.
• Export zones: Svk sees legal challenges (the 2011 introduction of several zones was partly a response to competition-law concerns about reducing exports to manage internal congestion) and studies them quantitatively first, legally second.

Assignment amended — 28 May 2026

On 28 May 2026 (Regeringsbeslut I:9, KN2026/01206) — one day before the original deadline — the government amended the assignment with three additions: (Source - Ändring Uppdraget Svk Elområdesindelning (2026))

1. Art. 14.7 structural congestion report added: Svk must now also prepare a rapport om strukturell överbelastning under Article 14.7 of Regulation (EU) 2019/943 — the report the decision says can later be used to formally start the zone change process. If the report finds structural congestion and Ei approves it, Sweden must decide on a zone change within 6 months, with a final decision in the following 6 months (requires agreement with all affected member states). The report must take its starting point in the assignment’s other analyses.

2. Holistic 5–10 year recommendation: Svk must conclude with a view on which elområdesindelning is most suitable for Sweden over the coming 5–10 years, assessed against the original criteria plus expected structural congestion prevalence.

3. Action plan toward 2 areas: If the recommended structure has more than 2 areas, Svk must also deliver a concrete, timed handlingsplan showing how a 2-area division could be realized. The Tidöavtalet commitment is explicitly cited — Sweden should “på sikt och efter utredning” (over time, after investigation) become a samlat elprisområde (single price area). The government’s rationale for fewer areas: reduced congestion income, lower household and industry costs, higher market liquidity (also easing electrification). Svk must also consider alternative ways to manage congestion so that fewer zones become possible.

The extended deadline of 29 January 2027 accompanies the broader scope.

SE1 price trajectory — from cheapest to most expensive

Two Svk analyses document a fundamental ongoing shift in SE1 price dynamics, moving from the historical cheapest zone to potentially the most expensive.

Near-term: SE1 converging toward SE2 (KMA2025)

KMA2025 (2026–2030 outlook) projects north-south price equalisation: SE1 prices rise fastest and exceed SE2 weekly prices for several weeks of the period, driven by higher demand shrinking the SE1 surplus (mean balance falls from +14 TWh in 2026 to −1 TWh in 2030, i.e. SE1 turns net importer). KMA2025 does not itself name Norrbotten or specific industrial projects. The traditional SE1 price discount is narrowing. Over the longer term, LMA2024/2026 attributes the same dynamic to massive new industrial loads in Norrbotten and Västernorrland specifically (LKAB, H2 Green Steel, SSAB green conversion). This is a near-term phenomenon: SE1 is not yet the most expensive zone, but the structural surplus is eroding.

Long-term: SE1 becomes the most expensive zone (LMA2024)

LMA2024 (long-term analysis to 2050) extends this trajectory to a full reversal: in the high-electrification scenarios (EP and EF, ~340 TWh/year demand by 2045), SE1 becomes the most expensive Swedish bidding zone by 2040–2045. The mechanism is the same but more advanced — massive new industrial loads absorb all local generation before it can be exported south, and SE1 shifts from structural surplus to structural deficit.

This reversal has implications for:

• Investment siting: projects assuming SE1 price discounts face different economics post-2035
• NordSyd economics: in high-demand scenarios, SE1 may need to import, reversing the dominant flow direction
• Interconnector value: Aurora Line 2 takes on new importance as an import route, changing its cost-benefit framing
• Flexibility siting: SE1 industrial flexibility may serve local adequacy rather than contributing to south-bound congestion relief

LMA2026 update: Svk’s fifth long-term analysis (June 2026) reaffirms this picture at somewhat lower demand. The 2050 Swedish demand range is revised down to 192–333 TWh (from 209–365 in LMA2024), but the qualitative result holds: the north–south price gradient flattens, and in the highest-demand scenarios (HP/HF) the SE1 price rises above the other bidding zones. Prices across Sweden and toward neighbours tend to converge in annual average yet become more volatile and more production-driven, with a rising share of hours of northbound flow. (Source - Svk LMA2026 Långsiktig Marknadsanalys, Long-Term Market Analysis)

Data gaps

• Results of Svk’s Swedish-specific bidding zone analysis — extended deadline 29 January 2027 (Regeringsbeslut KN2026/01206, 2026-05-28); original deadline 29 May 2026 missed; scope now includes: three zone configurations (single / two zones at Snitt 2 / ACER alternatives), export zone concept, Art. 14.7 structural congestion report, holistic 5–10 year recommendation, and action plan toward 2 areas if more than 2 are proposed
• Whether the “export zone” concept has an existing EU legal basis under CACM or requires new regulation — Svk saw “legal challenges” in November 2025; the legal analysis follows the quantitative step and is part of the assignment reported by 29 January 2027