Response to interpellation 2023/24:85 on the regulation of the district heating market
Translated from Swedish by AI; the translation may contain errors. The Swedish text is the original.
Summary AI, written in advance
The debate concerns the need to regulate the district heating market due to the dominance of private companies and high prices. KD argues that the market has historically functioned well with healthy competition 1 2, but acknowledges that something is "rotten" and that the current system does not function adequately 2. KD emphasizes that Konkurrensverket is investigating Eon for abuse of a dominant position and that the government is considering regulations if the market does not regulate itself 2 3. S argues that district heating is a natural monopoly where customers are vulnerable 4. S argues that private owners result in higher prices and that the current system counteracts energy efficiency 4 5. S proposes increased transparency and regulation inspired by neighboring countries 6.
Written by AI in advance and may contain errors. The numbers lead to the speech a statement builds on; check against the text below.
Energi- och näringsministern Ebba Busch (KD)
Mr. Speaker! I have been asked if I am prepared to take the initiative to regulate the district heating market if the Competition Authority, along with several other agencies, advocates for it and if there is support in the government for such a measure. Joakim Sandell has also asked if I can imagine working to ensure that the Competition Authority is tasked with carrying out a broader analysis of the entire district heating market against the background of the private companies' broad entry into the district heating market and the consequences regarding price levels and the risk of monopoly abuse that this may lead to.
Regarding the actions of privately owned companies in the market, I can state that for decades – now it is becoming history for those who need it – there has been private ownership in all parts of the energy sector. The district heating markets have for many years had healthy competition from alternative heating sources, and the price increases have been reasonable. This has applied to markets with both publicly and privately owned district heating networks.
Both the Swedish Energy Agency and the Energy Markets Inspectorate follow the developments from their respective roles and responsibilities. The Swedish Energy Agency has been tasked with preparing a proposal for a power and district heating strategy, and the Energy Markets Inspectorate has the task of analyzing the developments in the district heating markets and working towards competitive prices.
Power and district heating have an important role in the Swedish energy system. The Government is reviewing the possibilities to develop the policy in the area.
I have now read out the response that the department has submitted and which is available in writing. We will start a bit like that, I think, and then the debate can begin. I look forward to being able to further develop the response orally in the upcoming contributions.
Joakim Sandell (S)
Mr. Speaker! I thank the Minister for the answer to the question.
We had an interpellation debate in January regarding Öresundsverket and its future. Not because I want to make this debate more colorful, but I still want to start by thanking the government for the work it has done connected to this. Social Democratic municipal councilors and Moderate regional politicians have also been involved in that work. I will therefore begin with a thank you in the debate.
The debate we had in January was also linked to the district heating market, and I want to take that as a starting point. At that time, the Minister concluded by saying: "We take these considerations with us, and by that I mean that we actually take them with us. I expect that we will have reason to discuss this again in the near future." It can certainly be debated whether this is the near future or not. However, it is not the Minister's fault, but I must take responsibility for not having submitted any interpellation until now.
However, a bit has happened since we last debated. At that time, we faced a situation where Eon in Malmö had announced increases in district heating in Malmö/Burlöv of 20 percent. Now it did not become 20 percent but 13 percent - a classic negotiation technique, I might think, that stands a bit to the side. It is a bit like threatening with a severe beating, and then one has to settle for a small slap. It is a negotiation technique that is perhaps commonly occurring in contract movements: The parties start with someone offering zero and someone demanding ten, and then they agree on something in between. Perhaps one has also used the model in politics sometimes, not least in internal political contexts when one goes to congresses and positions oneself far to one side because one is prepared to make a compromise.
But back to district heating. The reason we are here is actually that district heating is the most common form of heating in Sweden and accounts for almost half of the heating in the country. Among multi-family houses, the proportion heated through district heating is around 90 percent.
Unlike other markets, there is currently no competition in the district heating network. Someone who lives in a district heating area and wishes to use district heating as a heating method has no possibility of choosing between different actors, as the suppliers operate in a natural monopoly. This leaves district heating customers, both households and companies, in a vulnerable situation.
Regarding privatization discussions, I think like this: Ideologically, one usually makes an argument that the purpose of privatizations is to streamline a market, offer customers different options, and in some way also save money. Does it work that way on the district heating market? Well, an analysis carried out on behalf of Energimarknadsinspektionen shows that private owners mean an average of 3-6 percent higher price. It is written in the report: "Differences in pricing thus seem to mainly be due to differences in the extent to which the companies' market power is exploited, which in turn depends on the companies' willingness (type of owner) and possibility (limited by competing types of heating and demand-related factors) to exploit their monopoly situation."
Eon had a profit margin of 18 percent on district heating during 2022. With the increase that was announced during 2023, the profit margin will increase. Furthermore, additional increases have been flagged for 2024. Then, one would land on a profit margin of approximately 25 percent.
In the response, the Minister states that there have been "reasonable" price increases. The question is whether the Minister truly thinks that E.ON's price increases on district heating have been reasonable.
Energi- och näringsministern Ebba Busch (KD)
Mr. Speaker! I want to emphasize that when I refer to the fact that this has worked well historically, it is indeed historically.
I also want to thank you for the interpellation. I want, just as in January, to emphasize that in the same way as the question regarding Öresundsverket was a question of interaction between the government and the local – there was a clear mandate from the government that did not single out Öresundsverket, but there were not many others available, and which was then carried out by authorities – this is also a good example of how an individual member in Sweden's highest decision-making assembly can highlight an issue so that it actually makes a difference.
One can look at what we have done here, generally speaking.
On 1 January 2023, the tax on waste incineration was abolished. That was good. The previous government's policy cost the industry around half a billion. The tax was 125 kronor per ton of waste.
The Competition Authority is now specifically investigating the company mentioned here, Eon, regarding abuse of a dominant position.
This is what is called a natural monopoly. If you live in an area where district heating is what provides the heating for your home, you cannot choose another company; there is only one company to choose from in the entire chain in order to have a warm house. When someone then says "now we are raising it by 20 percent," it is quite difficult to do anything about it. Then one can report it to an authority.
Historically, there have been very few applications to the District Heating Board, as it is called. It has normally been between zero, that is, none at all, and two. But only since October 2022 have 200 applications arrived at the board. Potentially, one can block the entire process by overloading the board. It is already quite a high load. But here, it is clearly an indication that something is not quite right.
There is also great variation in the price increases. Some district heating operators say that they see the inflation and the economic situation and see no reason to raise prices. Others announce and give indications of increases of 60 percent. It hits the households very hard.
To answer as directly as I can to a possible assertion or a question about whether I, as Minister for Energy, think this is functioning adequately: My answer is no. I think it is obvious that there is something rotten here. Something is not functioning as it has historically done. It has been a deregulated market that has ticked and rolled along relatively well on its own.
My State Secretary and I will on November 8 meet a number of affected actors regarding the situation ahead of the winter. This will be a specific item on the agenda at that meeting, as we know that it is the heating issues that become truly significant ahead of the winter. If necessary, we will follow up that meeting by meeting a broader circle of affected actors. The invitation for November 8 has already been sent out, and we will have the question of district heating as a specific item on the agenda.
Joakim Sandell (S)
Mr. Speaker! I was initially a bit disappointed by the Minister's answer, because in the debate we had last she expressed a skepticism towards the market. But she also expresses that here in the rostrum now, and I agree with the Minister. I also think that there is something rotten in this industry.
Think about if one were to invest in a plug-in hybrid. The idea when doing that is, well, that one should be able to combine charging the car and refueling it. What if the petrol companies had reasoned that since one drives a plug-in hybrid, one has to pay more for the petrol. Who would then have invested in a plug-in hybrid?
Imagine if you were to install solar panels on your house. We know, given what it looks like with summer and autumn and winter and spring in Sweden, that production is higher during the summer half-year than during the winter half-year. Imagine if, when you had done that, you were informed by your electricity supplier that now you have to pay more for electricity when you are not producing it yourself. How many would then invest in solar panels?
When it comes to district heating, I have an example from Stena Fastigheter in Malmö. In Bellevuegården, not so far from Malmö stadion, they built geothermal heating. They drilled 50 holes. That covers a heating demand of 80 percent. For the last 20 percent, they need district heating. How did Eon reason in this case? Well, they raised the price on the last 20 percent.
This counteracts energy efficiency. We therefore have a system where an actor can counteract something that benefits the property owner, those who rent, the climate, and society at large, considering that it could also push down inflation. But Eon is allowed to do this in this manner.
This system is something that I think we should be able to agree that we must do something about. I am pleased that you are going to have a meeting with different stakeholders. I hope that you invite Fastighetsägarna Syd and that it is not only those who produce district heating who should be present at the meeting.
Energi- och näringsministern Ebba Busch (KD)
Mr. Speaker! I want to return to the question regarding the District Heating Board.
It is possible to opt out of that system and choose not to be part of it. Then it becomes a bit harder to pressure and audit that company, and it becomes a bit harder for customers to report when they have a company that has chosen to leave the system. That has made this even harder.
The specific example that Joakim Sandell raises here, where one succeeds in pressing costs at one end and takes responsibility for a reasonable electricity supply for the heating setup for their house, and then sees a radical price increase regarding district heating, is part of what is addressed in the investigation. The Competition Authority is therefore investigating one of the actors for abuse of its dominant position. That investigation, which we cannot anticipate, is in itself a serious indication that something needs to be reviewed.
This has, as I have said, worked well historically. If it does not find a way to regulate itself, I do not rule out that we will need to step in and regulate a market that has not needed to be detailed-regulated in that way previously. I certainly want the actors to be very well aware of that.
I also want to emphasize that the meeting we are holding on November 8 has a broader agenda regarding the situation ahead of the winter in general, but it will have this as a specific item on the agenda. We will also take further initiatives to meet with the district heating actors broadly. But it is somewhat connected to the Competition Authority's ongoing investigation, which means that one needs to check the pace over time.
Joakim Sandell (S)
Mr. Speaker! I will follow with interest the work that the Minister is now initiating linked to the district heating market.
There are slightly different ways to move forward. If we take Malmö as an example, one could imagine that Eon owns the grid but that Sysav, which is our waste company, could be allowed to deliver district heating - somewhat in the same way as when it concerns the electricity grids. There, we have one who owns the grid, but there is a competitive situation when it comes to who you want as a supplier.
There are other things to look at. The district heating market in our neighboring countries Denmark and Norway, but also in Lithuania, is more strictly regulated in order to achieve good pricing.
According to Fastighetsägarna Syd, there are currently 86 different pricing models for district heating. To increase transparency and openness in this market, one alternative could be to reduce the number of models to five or six.
There are, therefore, slightly different ways to proceed with this. But I am convinced that we must move forward in order to rectify this poorly functioning market. Then it is exactly as the Minister says: Within the Price Dialogue, in the District Heating Board, and in the investigations that exist, the situation up until 2019 has been examined, and at that time it actually worked relatively well. But the market could not handle the disruptions that, among other things, the war in Ukraine has led to.
Energi- och näringsministern Ebba Busch (KD)
Mr. Speaker! I would simply like to thank you for the interpellation in January and for the follow-up now in the autumn. I think we can have a dialogue again, both inside and outside the chamber, to see what further concrete steps can be taken based on this debate.
I want to once again issue an appeal to those listening at home. It makes a difference who you vote for as a representative. One should choose their elected officials carefully. This is an excellent example of how an individual Member of Parliament highlights a concrete issue that affects many Swedes, which could easily just flutter in some general media reports but gets a different momentum when the government and the Riksdag can cooperate and move issues forward. I look forward to continuing to work on this.
Source: The Swedish Parliament. The speeches come from the open data of the Riksdag, translated into English by AI, which may contain errors.