Natural Monopoly

Concept Updated 2026-09-23

The unbundling wasn't automatic — it took a deliberate 1990s policy separation to split monopoly grid ownership from competitive generation and retail; before that, one company could do both, and "natural monopoly" by itself doesn't force a divorce between infrastructure and market activity.

Because network operators earn regulated returns rather than market profits, a DSO's economic incentive to value flexibility is structurally different from a market participant's — it's judged as a cost-efficient alternative to grid reinforcement, not a revenue opportunity, which is why "is flexibility cheaper than copper" rather than "is flexibility profitable" is the question DSOs actually ask.

Swedish market deregulation — 1996Swedish grid regulator — Ei (Energimarknadsinspektionen)DSO storage ownership — prohibited (Directive Art. 36)

Sammanfattning

Ett naturligt monopol är en bransch där den mest effektiva marknadsstrukturen är en enda leverantör eftersom infrastrukturkostnaden gör dubblering slösaktig — både transmission och distribution av el är naturliga monopol, eftersom det inte är rimligt att bygga konkurrerande elledningar till samma kunder. Denna monopolstatus är själva grunden till hela regelverket kring flexibilitet: näten separerades (unbundlades) från konkurrensutsatt produktion och handel vid 1990-talets avreglering, DSO:er måste enligt EU-direktiv agera som neutrala marknadsfacilitatorer, och de får inte äga energilagring eftersom det skulle kunna snedvrida konkurrensen på flexibilitetsmarknaden. I Sverige avreglerades elmarknaden 1996 medan näten förblev reglerade monopol under Energimarknadsinspektionens tillsyn — vilket direkt formar vem som upphandlar flexibilitet och hur.

An industry where the most efficient market structure is a single provider, because the cost of infrastructure makes duplication wasteful. Both Electric Power Transmission and Electric Power Distribution are natural monopolies — it makes no sense to build competing sets of power lines to the same customers.

Because customers cannot switch DSO, the recurring network fee they pay — unlike the electricity commodity itself — is not subject to competitive pressure at all; see Elnätsavgift — What Determines Your Bill for what actually determines that fee and why it has risen faster than inflation.

Why it matters for flexibility

The natural monopoly status of networks is what creates the regulatory architecture around Flexibility:

Regulated monopoly → unbundling — because networks are monopolies, they were separated (unbundled) from competitive activities (generation, retail) during the liberalization of electricity markets in the 1990s
DSO as neutral facilitator — the Clean Energy Package requires DSOs to act as neutral market facilitators (Directive Art. 31(5)) precisely because they are monopolies with potential conflicts of interest
Storage ownership ban — DSOs cannot own Energy Storage (Directive Art. 36) because a monopoly network operator owning flexible assets could distort competitive Flexibility Markets
Revenue regulation — network operators earn regulated returns, not market profits. This shapes how DSOs value flexibility: as a cost-efficient alternative to grid reinforcement, not as a profit opportunity

The Transmission System Operator role is similarly constrained — Svenska kraftnät is a state-owned enterprise with regulated responsibilities, not a market participant.

Swedish context

In Sweden, the electricity market was deregulated in 1996. The grid (both transmission and distribution) remained regulated monopolies under Ei (Energimarknadsinspektionen) oversight, while generation and retail became competitive. This structure directly determines who procures Flexibility and how: DSOs procure local flexibility through regulated processes (Villkorade Avtal, Flexibility Markets), while market participants compete to provide it.

(Source - Electric power distribution (Wikipedia), Source - Electric power transmission (Wikipedia))

Sources

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