Do separate bidding zones within countries create imbalances in PV uptake? Evidence from Sweden

This paper estimates how electricity price divergence within Sweden has affected incentives to invest in photovoltaic (PV) generation between 2016 and 2022 based on a synthetic control approach. Sweden is chosen as the research subject since it is the only member of the European Union with multiple bidding zones (BZ) that faces dramatic price divergence between low-tariff BZ in Northern and high-tariff BZ in Southern Sweden since 2020. The results indicate that PV uptake in municipalities located north of the BZ border is reduced by 40.9%–48% compared to their Southern counterparts, reinforcing existing imbalances in PV uptake and impeding renewable energy investments in the low-tariff BZ. While this is less of a concern in Northern Sweden were additional potential for PV generation is limited and most electricity is sourced from hydropower, these findings have important implication for countries with pre-existing imbalances or low shares of renewables in their electricity mix such as Germany and the Czech Republic. Since investments are channeled to high-tariff BZ, capacities in low-tariff areas are underutilized which might hinder a successful transition towards renewable generation. Hence, unused potential fore renewable generation should be carefully considered when designing bidding zone borders.