Regional electricity price effect on industry location - Sweden’s 2011 electricity market split

Abstract: In November 2011, a reform split the Swedish electricity market into four price zones and made it possible for different parts of the country to have different electricity prices. For industries where electricity constitutes a large share of production costs, it may be preferred to be located in a zone where electricity prices are lower. The purpose of this thesis is to investigate if splitting the country into four electricity price zones has resulted in new patterns for where electricity-intensive industries are located. We expect the reform to have a negative impact on the number of companies in the southern, more expensive price zones relative to the northern zones. The difference-in-differences method is used to find the effects in four industries: the chemical, steel- and metalworks, metal goods, and rubber- and plastic goods industries. Few results are significant, but those that are, show negative effects in the southern parts of Sweden relative to the north. There are significant effects found in the steel/metal industry in zone 3 and the metal goods industry in zone 4. We consider the results to not provide enough evidence to prove that the reform had a general effect on where firms locate. One of the discussed possible explanations is that firms may value other factors higher than electricity price when deciding location, such as natural resources, labour and infrastructure.