Flex›Strategisk Reserv

Strategisk Reserv

Sweden’s national capacity mechanism, established by Lag 2025:50 (om finansiering av en kapacitetsmekanism för elmarknaden) and operationalized by Förordning 2025:835. It replaced the old effektreserv (ended March 2025) and provides a ring-fenced backstop volume of dispatchable capacity held outside the market and activated only during extreme scarcity.

Lag 2025:50 is the primary legislation; Förordning 2025:835 entered into force October 1, 2025. Svenska kraftnät procures reserve capacity for winter peak periods through competitive auctions.

Key design parameters:

  • Technology-neutral: production units and demand-side resources (load-shedding) are eligible
  • Minimum requirements: ≥1 MW, ≥2 hours endurance
  • Contract types: annual contracts and multi-year contracts; multi-year contracts must be fossil-free
  • Large production bids (>300 MW): subject to a financing deficit test to prevent overcompensation
  • BSP/BRP overlap prohibited: strategic reserve suppliers cannot simultaneously offer bids into the mFRR market during reserve activation periods — prevents double-counting
  • Geographic scope: applies only in SE3 and SE4, reflecting that capacity risk is concentrated in Sweden’s southern consumption zones
  • Activation price: when activated, sets the imbalance price at VoLL or 1 EUR above the intraday technical price cap — whichever is higher; this signals true scarcity to the market
  • Funding: BRPs in SE3/SE4 pay a cost levy; the balansansvarsavtalet was amended to replace “effektreserv” with “strategisk reserv” and to limit the levy to southern bidding areas

EU state aid approval was granted in July 2025. (Source - Svk Kraftbalansen Höst 2025)

Transition from effektreserv

The effektreserv was Sweden’s previous standby capacity mechanism — primarily fossil-fueled units contracted by Svk as an emergency backstop. It had operated for approximately two decades. The mechanism was terminated in March 2025 following the EU Commission’s state aid assessment timeline and the introduction of the new Lag 2025:50 framework.

Överbelastningsreserv as bridge (January 2025): before the strategisk reserv framework was fully operational, Svk procured a new instrument — överbelastningsreserv — through an open procurement in November 2024 when existing störningsreserv contracts expired. The instrument was broader than the old störningsreserv: both production and consumption resources participated, and the capability systemdriftskompensation was included. Contracts began January 2025. This was a separate instrument from the strategisk reserv and was designed to address grid-level capacity shortfalls (overloads) rather than system-wide scarcity. (Source - Elmarknadsrådet Meetings 3 and 4 2024 (Sep-Nov))

The transition left a gap in winter 2025/2026 readiness: EU approval came in July 2025, procurement was conducted autumn 2025, and the first auction failed entirely (see below). Sweden entered winter 2025/2026 without a contracted strategic reserve.

Procurement history

First procurement (autumn 2025) — FAILED

  • Target: 800 MW for winter 2025/2026
  • Bids received: 713 MW total
  • Result: no capacity contracted — every submitted bid exceeded Svk’s CONE price cap
  • Why: the Swedish CONE (Cost of New Entry) was benchmarked to household demand response — the cheapest theoretical new-entry resource. The resources that actually submitted bids were production-side units (generators, diesel, gas) with substantially higher true entry costs. All production bids exceeded the household-DR-based cap, so nothing cleared. (Source - Svk Kraftbalansen Höst 2025)

Svk reviewed two options after the failure: (1) reinterpret the CONE methodology to allow different reference technologies; (2) procure smaller volumes at lower cost-effectiveness thresholds. (Source - Elmarknadsrådet Meetings 3 and 4 2025 (Sep-Nov))

Winter 2025/2026 without reserve: Svk judged that the ~1,000 MW normal-winter surplus margin meant no immediate adequacy threat. The system held — through high nuclear output and Nordic interconnection, not through demand flexibility or a strategic reserve.

Second procurement (winter 2025/2026) — SUCCEEDED

  • Volume contracted: 350 MW
  • Suppliers: Sydkraft Termisk Kraft (Karlshamnsverket, SE4) — 330 MW; Mälarenergi Kraftvärme (Aros G4, Västerås, SE3) — 20 MW
  • Active period: 15 January 2026 – 15 March 2026
  • Activation: the reserve maintained 100% availability and was never activated — the market balanced without it despite an unusually cold spell in January 2026 (peak load 24,800 MWh/h on 12 January, the highest in years)
  • LOLE impact: from 1.6h → 1.2h (Source - Elmarknadsrådet Meeting 1 February 2026)

The procurement model was redesigned between the first and second attempt to link payment more directly to LOLE reduction (LOLE-based willingness-to-pay methodology).

The CONE paradox

The first procurement failure is analytically significant beyond the operational setback. The Swedish CONE was calibrated to household demand response — the cheapest category of potential new-entry resource. This created an internal contradiction:

  • The mechanism’s design implicitly assumed that price-elastic demand response would be the marginal bidder
  • In practice, household demand response did not participate in the auction
  • Production-side resources did participate but faced a price cap below their actual costs
  • The cap, intended to prevent overcompensation, instead prevented any contracting at all

The failure is therefore a measurement of Sweden’s demand-response underdevelopment: if cheap demand-side flexibility existed in the quantity and form assumed by the CONE calculation, the auction would have cleared. It did not. See Capacity Adequacy and Flexibility as the Missing Reserve for the broader adequacy implications.

Ei’s CONE/VoLL review (with results expected autumn 2026) is specifically tasked with re-evaluating whether the reference technology remains appropriate and whether VoLL is correctly calibrated. A revised CONE would be the most direct fix for making the mechanism functional across procurement cycles.

Adequacy context

The strategisk reserv is a small mechanism relative to Sweden’s adequacy gap. ERAA 2025 (the EU-wide European Resource Adequacy Assessment) shows Sweden’s LOLE significantly exceeding the 1 h/year adequacy norm through 2035:

YearLOLE (h/year)vs. 1 h/year norm
20286.56.5×
2030~5~5×
2035>10>10×

The volume needed to meet the 1h norm is 750–1,100 MW; the strategisk reserv can realistically procure ~350 MW — leaving a residual gap of 400–750 MW. If Ei’s autumn 2026 norm review relaxes the adequacy standard to ~3h LOLE (a plausible outcome), the gap largely disappears, and 350 MW procurement suffices. The Ei norm review is therefore the single most consequential near-term decision for whether the strategisk reserv is structurally adequate.

See Capacity Adequacy and Flexibility as the Missing Reserve for the full adequacy analysis, including why nuclear maintenance scheduling, Aurora Line, and demand flexibility — not the reserve itself — determine Sweden’s actual security of supply.

Regulatory milestones

Key dates tracked in Regulatory Calendar:

  • March 2025 — effektreserv terminated
  • July 2025 — EU Commission state aid approval
  • October 1, 2025 — Förordning 2025:835 in force
  • October 2025 — first procurement closed (failed)
  • January 8, 2026 — second procurement contracted (350 MW)
  • Autumn 2026 — Ei CONE/VoLL review result expected

Data gaps

  • Revised CONE methodology — whether Ei/Svk proposes a new reference technology after the 2025 failure (Ei CONE/VoLL review due autumn 2026)
  • Third procurement — target volume, price cap design, and result for winter 2026/2027
  • Demand-side participation — whether household demand response or industrial load-shedding has submitted bids in any procurement round, and on what terms