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Sweden’s biggest cities face power shortage after fuel-tax hike

[STOCKHOLM] Sweden's introduction on Thursday of a tax aimed at phasing out the nation's last remaining coal and gas plants to curb global warming comes with an unintended consequence for some of its biggest cities.

Hiking a threefold  levy on fossil fuels used at local power plants will make such facilities unprofitable and utilities from Stockholm Exergi AB to EON SE have said they will halt or cut power production.

The move means that grids in the capital and Malmo won't be able to hook up new facilities including homes, transport links and factories. While Sweden doesn't have a shortage of power, there's not enough cables to ship it to the biggest cities.

"We don't have a problem with generating enough power in Sweden, we have a problem with getting it to where its needed," Magnus Hall, chief executive officer of state-owned utility Vattenfall AB, said in an interview. "This law was added with short notice and I am not sure a proper analysis of it was made."

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The tax was introduced in January in a budget deal between the Center Party, Liberals, Social Democrats and the Greens after record long 18 weeks of negotiations. As only one of 73 points hashed out between the political fractions to reach a compromise, time for thorough analysis was probably slim.

The tax, aimed at spurring the shift to renewable energy, comes on top of carbon-emission pollution rights that tripled last year and have gained another 18 per cent this year to their highest level since 2006.

Power output from Stockholm Exergi's Vartaverket, EON's Heleneholmverket and Goteborg Energi AB's Ryaverket will stop or be heavily cut as soon as the law is introduced, although operators said they will still be used for district heating.

Sweden gets most of its electricity from hydro, nuclear and wind power and exported 11 per cent of the output last year. About 10 per cent is still generated in combined heat and power plants that mostly uses biofuels, but some older facilities still burns coal or gas.

Because of the urbanization, demand for electricity in many Swedish cities is starting to outgrow capacity and some have already been forced to refuse new connections to avoid black outs.

"Combined heat and power plants must carry their own cost to the environment, even if they have an important role to play for the supply of energy," Anders Ygeman, minister for energy and digitalization, said in an emailed statement. "The tax will contribute to the ongoing away shift from fossil fuels."

Ygeman said it is still too early to say what impact the new tax will have, but there are already examples of its impact. Some new daycare centers have to wait for months to be connected to the grid in Stockholm. A bread factory in Malmo was denied a license to expand because it would consume too much power.

Ulf Kristersson, the moderate party opposition leader, said the capacity crisis fazing Swedish cities is enough reason to renegotiate a current five-party energy agreement to slow down the phaseout of nuclear and local plants burning fossil fuels. Without a solution, both Moderate and Christian Democrats are threatening to abandon the pact agreed in 2016.

"We need a new agreement that solves the situation we have now," Ulf kristersson said in an interview at the end of June. "I think when we approach autumn that issue needs to come to some kind of conclusion."

BLOOMBERG