Response to interpellation 2024/25:136 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
KD argues that the district heating companies are keeping price increases down to avoid losing customers and that biofuel prices due to the war in Ukraine are a significant factor 1. KD emphasizes that district heating is important for the power balance and that price regulation was previously rejected as it could lead to higher prices 1 2. KD considers that Energimarknadsinspektionen has been given a broad mandate to strengthen customer protection by analyzing forums and investigating unreasonable price developments 3. KD argues that it is an obligation to address transparency problems 3. S argues that price increases may be due to business models with high leverage and interest costs. S wants to expand the mandate to investigate transparency, interest rate increases, and pricing behavior 4. S points out that the availability of Swedish biomass has decreased 5. S intends to follow the work and awaits the first report 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! [The questioner] has asked me if I am still not unfamiliar with driving the issue of a regulation of the district heating monopoly and if I, if so, intend to provide the Energy Markets Inspectorate with an even clearer mandate to ensure that the authority does not primarily focus on information and transparency. Joakim Sandell has also asked me if I intend to accelerate the Energy Markets Inspectorate's mandate given that prices continue to rise at a much faster rate than inflation.
Following the developments in the district heating market last winter, the government tasked the Swedish Energy Agency with evaluating the District Heating Board's function (ER 2024:19). The Swedish Energy Agency analyzes, among other things, the price increases for biofuels in relation to the price increases for district heating, which is of importance in determining whether district heating companies engage in unreasonable pricing by exploiting their market dominance.
The Energy Authority's analysis clarifies that the district heating companies, which previously had price increases of around 2 percent per year, were suddenly forced in 2023 to raise district heating prices to cover the sharply increased market prices for biofuels, which is a consequence of Russia's war in Ukraine. The analysis also shows that, on a general level, the district heating companies rather keep their price increases down in order not to lose customers. Biofuels account for approximately 65 percent of district heating's fuels, which means that price increases on biofuels have a major impact on the district heating industry and its customers.
When it comes to the competitive situation in the heating market, the Swedish Energy Agency's district heating and combined heat and power strategy shows that even though not all customers have the possibility to switch to a heat pump, there is more pressure on district heating towards the year 2030 than on heat pumps. In other words, the competitiveness of heat pumps increases, all other things being equal, which should have a dampening effect on the development of district heating prices.
The price dialogue, which covers 73 percent of all district heating deliveries, also contributes to strengthening the customer's position and has also excluded members who have not been able to justify their price increases in a transparent manner.
Regarding the question of a potential regulation of district heating prices, this has been investigated previously by the Energy Markets Inspectorate and rejected, among other reasons, with the justification that a price regulation would lead to rising prices for district heating.
Introducing price regulation of the Danish model, as Joakim Sandell suggests in Sydsvenskan on October 28, would likely not lead to lower prices either, because Denmark has had a comparable price development to Sweden as a consequence of the global situation. Nor has the customer side - including Fastighetsägarna, Riksbyggen and Sveriges Allmännytta - expressed a desire to price-regulate district heating, as it could counteract its purpose and instead act as price-driving.
Against this background, it is important not to rush but to await the report of the assignment that Energimarknadsinspektionen has to analyze the need for reinforced customer protection in the district heating market. The assignment includes broadly analyzing, evaluating, and proposing measures to strengthen and develop the forums that exist for district heating companies and customers, including Prisdialogen and Fjärrvärmenämnden, as well as analyzing and evaluating alternatives to the current solutions for customer protection.
The Energy Markets Inspectorate shall, by February 26, 2025 at the latest – that is, not many months left – report on the first part of the assignment, which shall focus on customers' rights as well as measures to strengthen customers in a negotiation situation. The final report shall be submitted by December 12, 2025 at the latest.
It is only after we have reviewed which other tools we can use that it can become relevant to talk about a regulation of the district heating prices. But I stand by my word – it is therefore not excluded. Should it, for example, be the case that biofuel prices fall but district heating prices continue to rise, I am not averse to reviewing that possibility.
In conclusion, I want to emphasize that I intend to monitor the price developments for district heating closely, as well as the developments in the biofuels markets. District heating is important for today's and the future's energy supply. District heating's potential to contribute to electrification should be utilized in an effective way while keeping costs for customers down.
Joakim Sandell (S)
Mr. Speaker! Thank you to the Minister for the answer to the interpellation!
We have had debates earlier about district heating and the rate of price increases for district heating. But when I hear the answer and sometimes when I read entries from the energy companies, I will think of the statue of Karl XII in Kungsträdgården, pointing towards the east. The explanation one most often receives for the rate of price increase is that it is due to the price increase of biofuels, and it is correct that the biofuel price has risen after the Russian invasion of Ukraine. But there are also other companies, and there may be other explanations.
Of the 15 municipalities with the highest prices, 11 have the same company. Of the 30 with the highest district heating prices, 22 have one and the same company. It is Solör Bioenergi. When one reads interviews with their CEO, one gets the explanation for why they have raised prices during these years – that biofuel prices have increased by 70-100 percent. But if one looks at how Solör Bioenergi has built its operations, one sees that their long-term debts over the last two years have increased from 6.9 billion to 16.1 billion.
Sven Melander's Helge said that one must think about the percentage. I also think about the percentage development for that company's interest costs considering what has happened with the interest rates over the last year. It is not impossible to think that it is not the biofuel cost that is to be covered, but rather the business model. One has borrowed more and more to earn more and more, and then the business model has not withstood the higher interest rates. We have similar examples from the real estate industry. SBB is one of the examples that is usually mentioned in that context. The business model and the price for interest, which one has chosen for oneself, never appear in the explanatory models for why the prices have increased.
There is another part that I question a bit. I come from Malmö. Solör Bioenergi is not active in Malmö, but there we have Eon. As the Minister says in broad terms, 60-65 percent of the industry uses biofuel, but the others usually use waste. For some funny reason, the agreements between Sysav and Eon are confidential when it comes to the rate of price increases on waste. But if the rate of price increase had been as high on waste as on biofuel, it probably would have been in the newspaper. We can make the assumption that the price increase on waste has not been as large. Still, the increased margins are being taken.
I would like to have the Minister's view on this issue of business models based on increased borrowing, also for us in Malmö who are customers of a district heating company that burns waste and therefore cannot refer to the war in Russia when it comes to price developments.
Isak From (S)
Mr. Speaker! Thanks to Joakim Sandell for an important interpellation and to the Minister for Energy and Industry for the answer!
I requested the floor because I think a small addition to the answer needs to be made. It is correct that biofuel prices have been raised by Russia's war in Ukraine. It has affected all of Europe. But what is also correct is that since this government took office, the price for biofuel on Swedish forest raw materials has risen sharply, partly because imports from Russia are not possible, but also because restrictions have been introduced so that it is not possible to manage the forest in the same way.
I shall remind the Speaker and the listeners of a much-noticed letter written by the then opposition leader Ulf Kristersson before the election. He is now Prime Minister. He promised that we forest owners - I am also a forest owner - shall be able to decide over our forest and that more forest shall be cultivated. Now, less forest is being cultivated. He promised that only those who are affected shall be able to influence decisions regarding the forest. Right now, it is the case that the woodpeckers and the black grouse and various interest organizations in different ways influence Swedish forestry.
Sweden shall stand up for the forest in the EU. I think that is what is being done, and there is probably a large political consensus that we should do so. But the implementation in Sweden is going a bit worse.
The answer should be supplemented with the fact that we forest owners actually receive more payment now, which is positive – it is something that we did not succeed with. But it also means that district heating prices are rising to a considerable extent, which affects customers, the energy supply, and ordinary people's household finances. One should therefore add that the logging and the availability of Swedish biomass have fallen since this government took office.
Energi- och näringsministern Ebba Busch (KD)
Mr. Speaker! I hope that Member Joakim Sandell notes that I am trying to follow what he writes in different contexts. I think we had a very useful interpellation debate last time, which - which I was open about with the listeners - put this issue on the map even for my part. As I explained in my initial interpellation response, Mr. Speaker, we have also made quite a few decisions based on this.
As Minister for Energy, I must make decisions that concern the whole, and I therefore find it difficult to draw definitive conclusions that allow me to land on how we should change the system, based on what we have at hand now. I note that I am now, in addition to the questions that were in the interpellation itself, Mr. Speaker, receiving questions about my view on business models based on increased borrowing and on fuels for which a price increase cannot be immediately traced to the war.
It is clear that this is difficult to comment on if it is also subject to secrecy. This is a question that I will take with me when I say that we follow this carefully, which we de facto do. These are specified questions that I will take with me but which I am not, for understandable reasons, prepared to analyze ad hoc, as I do not have the underlying data for that. We can have a continued dialogue regarding this.
I also want to take the opportunity to say that district heating is incredibly important for the power balance here in the country. Many do not know what a large impact it has on Sweden's power balance because it contributes exactly more power. It helps us with the system we have today, which has very much electricity but makes it difficult to consume more today than ten years ago. This was discussed in an earlier interpellation debate here today. Should more district heating disappear from the system, the power imbalance will be noticed even much more.
This is what is great about base load or power strokes that deliver the properties that district heating delivers into the system: It becomes possible to connect even more wind power. It becomes possible for the system to handle even more solar power when we have a lot of district heating, hydropower, or nuclear power in the system. It is therefore not about protecting the technology itself, but it is the properties they provide that allow us to release the wind power that we have the possibility of accessing in the short and medium term and which we need.
I want to highlight this as a particular advantage of district heating. That is also why it is so problematic that for something that is a natural monopoly, where customers cannot simply choose something else ad hoc, there are question marks regarding whether the pricing is reasonable.
As mentioned, we will receive a partial report in February next year, and I look forward to reviewing it.
Joakim Sandell (S)
Mr. Speaker! Thank you, Minister, for the answer! The reason I raised these two examples is that, in my view, they show that one cannot simply blame the rate of price increases on the rate of increase for biofuels.
We have both used quite harsh words in the media. The Minister said at one of the previous debate occasions that there was something rotten in the industry, and I used a metaphor about how it takes just one rotten apple for the whole basket to have problems. This is what I have raised when it comes to expanding the mandate to address the problems that we, in my opinion, can see in the district heating market.
It is about nothing other than increasing transparency. The assignment is to look at the rate of interest increases, what the costs are, and how much is passed on to the customer, but also at the price difference between using waste and biofuel. The companies on the market reason in such a way that they set the same price for the entire market, regardless of whether the customer's district heating comes from biofuel or from waste specifically. One can also have a reasoning regarding the fairness in this.
Then there are other parts that I also think one could look at, linked to regulation. Sure, I mention the Danish example in the debate article, but I actually write "in a similar way." In a similar way does de facto not mean identically.
There are examples of how property owners become locked into the district heating system. I have previously mentioned examples of how property owners in Malmö have looked at the possibility of using geothermal energy. This is not feasible everywhere in Malmö; the entire foundation is not built on rock, so to speak. The district heating company in Malmö then handles the pricing in the following way. If you cannot cover 100 percent of your heating demand with the new [source], the price increases on the last [part]. If you can cover the heating demand to 80 or 90 percent with, for example, new geothermal energy, the price is not the same on the last 10 percent, but the companies then raise the price on district heating.
Then one can ask oneself how many of us private customers would have installed solar panels on the roof if we had had to pay more for the electricity that we still need when we enter darker times. This type of pricing behavior could, I believe, be given an expanded mandate to look into.
Energi- och näringsministern Ebba Busch (KD)
Mr. Speaker! Thank you, member, for further questions! I have understood that different ministers have slightly different strategies. Some talk on and take the opportunity to mention a lot of other things that the government is doing. I did not intend to do that. Others choose to keep their remarks very short. My thought is that this should serve the purpose as well as it possibly can.
I and my colleagues have noted further follow-up questions. As I see it, the Energy Markets Inspectorate has been given a very broad mandate to look specifically at how we can strengthen customer protection in the district heating market. It is a broad mandate that involves analyzing, evaluating, and proposing measures to strengthen and develop the forums that exist, but also reviewing whether there are grounds to say that we have an unreasonable price development. I am now waiting to receive their basis in order to be able to draw sharper conclusions.
I maintain what I have said earlier: It is very difficult for many to make this add up. Many customers experience a great deal of uncertainty regarding the basis for the pricing and regarding the development. Here, with something that is a natural monopoly, we have an obligation to ensure that trust is high and to rectify transparency problems.
Both the question of pricing behaviors and the question of price increases related to something other than biofuels, which are easy to point out and furthermore constitute a majority of the basis for district heating, are something we take with us. We have continuous dialogue with our authorities in standing authority dialogues, but we can also have further dialogue to ensure consensus on the assignment or the need for supplementary assignments. From that perspective, I will also take this further within the framework of the assignment I have.
Joakim Sandell (S)
Mr. Speaker! I also intend to follow the work, and it will be interesting to see what the first report in February will contain. After that, it is not entirely impossible that we will have further debates.
Energi- och näringsministern Ebba Busch (KD)
Mr. Speaker! I therefore find it appropriate that I also offer my thanks.
Let me just make one addition. I feel fairly certain that Joakim Sandell and I share the view that it is good that we receive a proper basis. It is absolutely necessary, otherwise it is not reasonable to make decisions. The problem is that it takes time, and the households are left with the costs in the meantime and, at the moment, with an obvious uncertainty. Therefore, I am glad that we receive the partial assignment already in February, for then it is delayed until December, when we are heading into the next winter season, before we get to see the whole. Accordingly, it is also sensible that we have a discussion after the first partial assignment, if there are sharper conclusions to be drawn. In that case, there is a bit of a hurry, given that time is passing for the households.
With that, I thank you for another good interpellation debate.
Source: The Swedish Parliament. The speeches come from the open data of the Riksdag, translated into English by AI, which may contain errors.