Empirical analysis of how political ideology and ownership influence price stability in the Swedish district heating market

It is known that regulators and customers value stable prices in monopolised energy markets. The purpose of this paper is to investigate what factors influence local energy distributors to care about, and seek to implement, stable prices. Because the literature has suggested that ownership and political ideology affect monopoly pricing behaviour, we pay particular attention to ideological and ownership heterogeneity across a large number of local jurisdictions in Sweden. Specifically, this paper investigates two different pricing aspects; first, actual pricing behaviour in the unregulated Swedish district heating market and, second, survey data where the district heating firms report how important they think price stability is for their level of competitiveness. The results show that district heating firms that operate in municipalities with a left-wing government (i) implement actual prices that follow the long-term price path to a larger extent and (ii) state that smoothed prices are more important for their level of competitiveness. Results are both statistically and economically significant at conventional levels.