Swedish electricity prices hit three-month high

Despite a brief dip over the weekend, electricity prices hit their highest level since March on June 20th, and prices look set to stay high for the rest of the year.

Swedish electricity prices hit three-month high
Photo: Anders Wiklund/TT

On Monday June 20th, prices hit a high of 2:37 kronor in south Götaland (electricity zone 4), with prices in north Götaland and Svealand (electricity zone 3) following close behind.

That was the highest daily rate in zone 4 since March 15th, and the highest for zone 3 since March 9th, according to power market Nordpool.

In Norrland, the increase was noticeably lower, rising to a rate of just 39 öre/kWh.

During some hours of the morning, where usage is highest, electricity prices on June 20th were over 5 kronor/kWh in southern Sweden, and even higher in Germany.

Heatwave using power

The increase is partly due to a lack of wind causing low production from wind power, and rising gas prices pushing up costs in Germany, which affects electricity prices in southern Sweden.

“The heatwave in large areas of Europe is keeping electricity use at a high level, now that air conditioning is on full blast,” said Björn Björnson, electricity analyst at electricity company Godel.

On Monday morning, wind power produced just two percent of Swedish electricity, compared to an average of 20 percent.

And now coal prices are also rising, since the German government announced this weekend that coal-powered power plants should increase production to compensate for the lack of Russian gas. On Monday alone, coal prices rose by between 7 and 8 percent, energy analyst Johan Sigvardsson from energy trading company Bixia told TT newswire.

Expensive for the rest of the year

According to Sigvardsson, Swedish consumers should get used to high prices – at least from now until the end of the year. Trading for future electricity contracts stands at around one krona per kWh between July and August, with this increasing to 1:44 kronor in the fourth quarter this year – and these prices cover the whole of the Nordic region, which usually means prices will be noticeably higher in southern Sweden.

Lower water levels in southern Norway are also making a difference, as it hasn’t been possible for hydroelectric power plants to generate as much electricity as usual.

During the past weekend, the situation was conpletely different. On Saturday, the average price of electricity was 10 öre per kWh in all four of Sweden’s electricity zones – the lowest in Europe, with the exception of northern Norway.

Windy weather kept the wind turbines going, which contributed towards lower prices. At the same time, electricity almost always costs less on weekends, when usage is lower.

The final price of electricity for the consumer consists of the base price of electricity on the Nordpool power market, plus energy company fees, tax, VAT and electricity grid fees.

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Why is Sweden seeing ‘biggest drop in house prices since Lehman’?

Housing prices in Sweden are dropping much faster than most experts predicted, with one analyst calling it "the biggest drop since the Lehman crash". How long prices continue to fall for and how should buyers and sellers react?

Why is Sweden seeing 'biggest drop in house prices since Lehman'?

How fast have house prices in Sweden been falling? 

Property prices have been dropping considerably faster than most analysts expected.

“We are on the way to having an extremely dramatic half year,” Nordea’s analyst, Gustav Helgesson, told TT. “It was expected that they would go down, but this is still very dramatic. In one month, we’ve had the biggest fall since the Lehman crash.” 

Stockholm is where the falling trend has hit the hardest, with property prices dropping around 8 percent over the last three months.

Historically, prices are lower and more volatile during the summer months and if you take this into account, the drop is only 2.2 percent. 

What’s driving the fall in prices? 

House buyers in Sweden have just witnessed “one of the biggest increase in interest rates for households in modern times”, Helgesson pointed out, adding that his bank did not expect interest rates to drop anytime soon. Their forecast is instead that the policy rate will be at 2 percent by the end of year, a substantial increase from today’s 0.75 percent.

Nordea now believes that the drop in property prices will continue, and that towards the end of next year, prices could drop by 10 percent, more even than in March. 

According to Robert Bergqvist, senior economist at Swedish bank SEB, the price drop is bigger than analysts originally anticipated: “Obviously the interest rate hikes have had a very big effect,” he said. “People believe this is the end of low interest rates, and then there’s also a continuing worry over inflation”. 

According to an indicator published by Sweden’s SEB bank, only 31 percent of those interviewed believed that prices would continue to rise in the coming year, an 11 percent decrease on last month. Around half of those interviewed believed instead that prices would fall.

“We are heading towards a very dramatic six months, or at least until the end of the year. Housing prices are depressed, interest rates have a lot of power and in the short term, rates have not increased as much as they are going to”, Helgesson said. 

So could the falls be permanent, or at least take years to recover? 

Prices are unlikely to stay this low for very many years, Bergqvist said, pointing to the continuing housing shortage in Sweden. 

In SEB’s survey, 204 out of 290 reported that there was shortage in the housing market in May. This could lead to price increases in the future unless new housing is built, he predicted. 

“It is not necessarily positive: if there are no building developments, there is also a loss of growth and people can’t move into places where jobs are available. Our demographics show that we must continue building, otherwise prices will stay high”, he said.

How should buyers and sellers react to the falling market? 

Bergqvist underlined that people still tended to have a different perception of market, depending on which side of the property sale they stood. Sellers tended to still have a lot of optimism, while buyers were more pessimistic.

This, he said, was creating an unbalance in the market, which Berqvist predicted would slow down the housing market in the coming months, and then lead to continuing declines, as sellers slowly accepted lower prices. 

Bergqvist advised sellers who have already bought a new house to be as flexible as possible on the price they get for their old one. 

“The most important thing to try to get out of the place you are trying to sell as fast as you can,” he said. “It’s not the time to look back and have too high expectations. It’s best not have two properties”.

He also underlined the importance of having a margin when selling, warning that it is always hard to hit the highest or lowest price possible when negotiating the sale of a property.

“But if you wish to have your property in the long run, then it’s not too important what happens with house prices in the short term perspective,” he said.