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:

SE1 (Luleå)     ██████████ Large surplus — hydropower, growing wind
SE2 (Sundsvall)  ████████  Surplus — hydropower, wind, forest industry
                    │ ← transmission bottleneck (intersections 1–2)
SE3 (Stockholm)  ██ Deficit — largest population/consumption, some nuclear
                    │ ← transmission bottleneck (intersection 4)
SE4 (Malmö)         Deficit — imports from north + interconnectors

• SE1–SE2: surplus areas with 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: deficit area that 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):

• Intersection 1: between SE1 and SE2
• Intersection 2: between SE2 and SE3
• Intersection 4: between SE3 and SE4

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.

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)

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 took 28 months against a 12-month mandate, primarily because the BID3 simulation model required substantial Nordic adaptation.

Nordic BZRR proposal (unanimously approved): 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 only minor welfare changes vs. the status quo. 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 buildout, industrial electrification, and data center loads substantially underrepresented. 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 — approximately 4× historical 2023 Nordic remedial action volumes — 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.

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 formal EU-law document that initiates the binding 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). By embedding this report in the current assignment, the government builds the formal process trigger directly into Svk’s deliverable rather than treating it as a separate later step.

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.

The extended deadline of 29 January 2027 reflects the broader scope rather than simply deferring the original work.

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 SE1 prices converging toward SE2 in several modeled years. The traditional SE1 price discount — reflecting surplus hydro and wind production with insufficient export capacity — is narrowing as new industrial loads in Norrbotten and Västernorrland begin consuming local generation. Projects including LKAB green steel, H2 Green Steel, and SSAB electrification are the primary drivers. 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

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
• Content of Svk’s November 2025 webinar PPT on analysis methodology — available at svk.se webinar page but not ingested
• Whether the “export zone” concept has an existing EU legal basis under CACM or requires new regulation