  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 together with Italy the only EU country with multiple
bidding zones and is facing dramatic divergence in electricity prices between
low-tariff bidding zones in Northern and high-tariff bidding zones in Southern
Sweden since 2020. The results indicate that PV uptake in municipalities
located north of the bidding zone border is reduced by 40.9-48% compared to
their Southern counterparts. Based on these results, the creation of separate
bidding zones within countries poses a threat to the expansion of PV generation
and other renewables since it disincentivizes investment in areas with low
electricity prices.
