Sweden: electricity certificates and energy from biogas — new installations until the end of 2021, system until 2035

Sweden supports electricity from renewable sources, including biogas, not with a fixed tariff but with a certificate market: a generator receives a certificate for every megawatt-hour produced and sells it to energy suppliers, who must buy them. In autumn 2020 the government decided to shorten this system to 2035 and to close it to installations commissioned after 2021.

How the system works

The elcertificate system (elcertifikatsystemet) came into force on 1 May 2003. The obligation to buy certificates rests on suppliers and some energy users, and its size (the quota) is set each year in the electricity certificates ordinance: it rises until the end of the 2020s and then falls until 2035. Failure to meet the obligation carries a fee of 150% of the weighted average certificate price for the settlement period.

A generator receives one certificate for every MWh of energy from an eligible source. According to the description in the Clean Energy for EU Islands database, the entitlement expires 15 years after the installation is commissioned. Certificates are sold on the market, so their price depends on supply and demand, not on an official decision. Electricity from biofuels, including biogas, produced among other things in cogeneration, qualifies for the system.

Since 1 January 2012 Sweden has run a joint certificate market with Norway. The aim was to stimulate the generation of new renewable energy where it is cheapest, regardless of the border.

Targets and the 2020 change of decision

The initial target, 28.4 TWh of new renewable energy by 2020, was reached in 2019. An additional 18 TWh had been agreed earlier, giving 46.4 TWh by 2030. In autumn 2020 the government decided that the system would end in 2035 (instead of 2045) and that installations commissioned after 31 December 2021 would not be able to qualify for it. The change was presented in bill 2020/21:16.

For new biogas plants this is in practice the end of access to certificates. Installations commissioned by the end of 2021 continue to receive them for up to 15 years, and the system in its current form expires in 2035.

What this means for revenue

Revenue from 1 MWh of energy from biogas in the Swedish model consists of two parts: the market price of energy and the price of the elcertificate. Neither is guaranteed in advance. In periods when the target was reached earlier than planned and new investment arrived faster, the certificate price fell; Swedish and Norwegian institutions stressed that a low price is an expected effect of a cost-effective system. A generator should therefore plan cash flows allowing for the volatility of both components, and not a single rate as under a tariff.

Additional aid for biogas

Besides certificates, Sweden applies other instruments for biogas, mainly tax-based and oriented towards gas used in transport rather than electricity. Since 2014 there has also been pilot support for biogas from slurry (gödselgasstöd), which according to government information amounts to up to 40 öre per kWh of biogas produced, and so is settled on the gas, not on electricity.

An example revenue calculation

To illustrate: if in a given period the energy price is (hypothetically) SEK 400/MWh and the certificate price SEK 100, the generator will obtain a total of SEK 500 from one MWh. A halving of the certificate price would reduce revenue by SEK 50/MWh, regardless of the energy price. These figures are purely an illustration of the mechanism, not quotations. This calculation shows that a generator on a certificate market has two independent price risks, whereas under a fixed tariff it has none, and under a sliding premium only one.

Why the government shortened the system

According to the justification given in government documents, the quantitative target was reached much earlier than planned, and the excess capacity pushed the certificate price down to a level at which it no longer served as an investment incentive. Closing the system to installations commissioned after 2021 ends the inflow of new participants, and shortening the deadline to 2035 limits the obligation of energy consumers to buy certificates.

Conclusions

• The Swedish system is market-based: a generator has neither a fixed price nor a fixed premium.
• The window for new installations will close at the end of 2021, so biogas plants built later will need other sources of revenue.
• Installations using certificates have a limited 15-year horizon, and the whole system ends in 2035, which matters for installations commissioned in 2020–2021.