Reverse auctions - key to energy efficiency in Sweden?

Energy use has remained at roughly the same level since the 1970s and electricity use has not increased in Sweden since the mid-1980s, according to statistics from the Swedish Energy Agency. The explanation lies in the continuous development of new solutions.

– People are finding new ways to make things more efficient, through new technology and better processes. This spirit of innovation means that there are almost always 10-20 per cent more efficiency improvements to be made, says Sara Bargi, Project Manager at RISE.

These are often measures that create more positive effects for society than "just" more efficient energy use. For example, an updated ventilation system can provide better indoor air, and new machinery can mean a less noisy environment.

– However, the payback period is longer than companies might wish. Instead of three years, it's five, for example. This is part of the explanation why this type of investment is not being made on the scale that is possible, says Sara Bargi.

A necessary investment

But soon it will not be a matter of will, but of must. EU Member States have agreed to make annual energy savings, and the rate of savings is set to increase towards the end of the 2020s through the Energy Efficiency Directive. In a report from 2024, the Swedish Energy Agency stated that Sweden must release an additional 36 TWh (accumulated) by 2030, or face fines. To put the amount in context, annual energy use in Skåne amounts to around 34 TWh, according to Region Skåne*.

– It will require stimulus and instruments to achieve this, it will not happen by itself, says Sara Bargi.

RISE has built up both deep and broad expertise in energy efficiency, both in the industrial and property sectors.

– Energy efficiency in buildings is often standardised, but in core industrial processes it is extremely different. A paper mill and a coffee roastery are completely different things. RISE has researchers looking at the energy efficiency of many different industries, but there is a huge opportunity for more companies to explore their processes.

In collaboration with Göteborg Energi and others, RISE is now testing a possible solution to the new requirements. The plan is to explore how reverse auctions can be used in a Swedish context.

– Reverse auctions can be described as 'grants with a competition component'. The idea is that companies can submit bids, for example to replace the lighting in their machine shop. The company indicates how much energy efficiency improvement it would achieve and what grant per kilowatt-hour saved it would like to receive to implement the proposal. The cheapest proposal that fulfils the basic requirements wins financial support, explains Sara Bargi.

The lab will result in better policies

The technology is tested through workshops and realistic "games" in a "policy lab", where a policy or policy instrument is treated as an innovation object. This could involve, for example, a public authority testing, rejecting and improving prototypes together with the group affected by a new policy.

– Like the tech industry, we talk about "fail fast". If a proposal for a new policy instrument is a bad idea, you want to know about it early in the process, before a lot of money has been spent to launch it. Our hope is that the project will eventually lead to a successful implementation in Västra Götaland, where the test is being carried out, and preferably in other regions, says Sara Bargi.

Lars Holmquist, Head of Regulatory Affairs at Göteborg Energi, explains the energy company's approach to the collaborative project.

– We need more power in the system, which Svenska kraftnät won't be able to provide as the needs grow. We have a whole arsenal of measures to meet this, and energy efficiency is one of them. We are particularly interested in streamlining in a way that benefits the whole system, says Lars Holmquist and continues:

– Göteborg Energi is very much the energy system perspective in the project group, others have more knowledge about the individual actors that can participate in reverse auctions. For us, a lot is about learning what can be implemented in practice.

Lessons learnt from Switzerland

Inspiration is drawn from Switzerland, where the ProKilowatt auctioning programme has been running since 2010. The programme offers financial support of up to 30% of investment costs to stimulate energy efficiency improvements.

– There is an amusing example of an interest group tendering for the replacement of energy-wasting heat lamps on pig farms. In this case, it was not the farmers themselves who drove the initiative, but a third party who acted as a driving intermediary, says Sara Bargi.

What's also interesting about the Swiss programme is the pace, she says. Here, calls for proposals are issued every week. In Sweden, you often have to wait six months before a new application period for government grants begins.

– The fast pace means that stakeholders can submit applications on an ongoing basis when it suits them, rather than waiting for an authority to do so. It is not certain that we will test weekly calls in this project, but we believe it could be a game changer in the long run, says Sara Bargi.

It's all about lowering thresholds to unlock potential.

– We hope to contribute to a system that helps our customers and makes it easy and cost-effective to improve energy efficiency, says Lars Holmquist.

*Source: Region Skånes website