Ownership and district heating prices : The case of an unregulated natural monopoly

The price of district heating in Sweden is unregulated and differs substantially among different networks. This paper investigates if the price variation can partly be explained by ownership status, i.e., whether the network companies are privately- or municipally-owned. The empirical analysis is based on data on district heating prices, ownership status, and network characteristics for the period 2012-2017. The results show that prices are higher in privately-owned district heating networks than in municipally-owned networks, especially in the fixed component of the price. It is argued that municipal and private companies’ divergent objectives may be part of the explanation for these differences. Finally, district heating prices are positively correlated with the market prices for heat pumps, regardless of ownership, which suggests a general price-setting strategy based on the price of substitutes.JEL Classification: Q41, L11, L33, L43, L95, D42