Introduction

In an international comparison the price level of electricity (net of taxes) is very low in Scandinavia, in particular in Norway and Sweden. One obvious reason is the large share of hydro power in all countries except Denmark. This is not the only reason, however. Well-functioning electricity markets are, in my view, another one.

The most important features of the Scandinavian model of the electricity supply industry are the following. Although the share of public ownership is large, the share of private ownership is also substantial. The formal, government-enforced regulations have historically been fairly weak. Instead, the industry is to a large extent characterised by publicly owned dominant firm leadership, self-enforced club-regulation, and yardstick competition. The Scandinavian countries are highly cooperative societies, and the development of the electric power sector is mainly the result of negotiations, cooperation, coordination, and self-enforced regulation among the major market agents. This holds, for example, for power exchange, transmission services, reserve capacity, and the like. In particular, there has been a close coordination of planning for long-term capacity expansion among the main power companies and at the same time an established pattern of “gentlemanly competition” for market shares in the short run. An important objective of this study is to explain the functioning and performance of this type of club-regulated market.

A decade of regulatory evolution in public utilities all over the world has not passed without impact on electricity market policy in Scandinavia. The countries are in different stages of a deregulation process, with the same ultimate objective to achieve a competitive electricity market.