Uniper has decided to mothball the Karlshamn-2 unit, a 335 MW heavy fuel oil power plant located in southern Sweden, following the failure of the strategic reserve procurement for winter 2025/26. Transmission system operator Svenska kraftnät (Svk) was unable to award any contracts, leaving SE3 and SE4 zones without winter backup capacity. The move ends any availability-based remuneration for Karlshamn-2, calling into question the unit’s economic viability without a centralised mechanism.
A mechanism approved by Brussels but hindered by its constraints
The European Commission approved a strategic reserve scheme in July 2025 worth approximately €300mn, aimed at securing non-merchant backup capacity. However, offers received by Svk were deemed incompatible with price ceilings imposed by EU State aid rules. The failed tender highlights a growing gap between rising standby costs — including fuel, maintenance and staffing — and regulatory constraints set at the EU level.
SE3 and SE4 zones, structurally short on generation, rely heavily on north-south internal transfers and imports from Norway, Denmark and Poland through the SwePol interconnector. A regional cold snap could limit import availability, increasing the risk of imbalance and reliance on expensive balancing tools such as manual Frequency Restoration Reserve (mFRR).
A warning signal for market design
The closure of Karlshamn-2 reopens Sweden’s debate on whether to maintain a strategic reserve model or shift towards a general capacity remuneration mechanism (CRM). Svenska kraftnät is already reviewing a CRM framework post-2025, seen as more suited to growing adequacy risks stemming from northern renewable growth and reduced dispatchable capacity in the south.
Producers and flexibility providers view the situation as a potential opportunity, provided regulatory visibility improves. The withdrawal of Karlshamn-2 reinforces interest in battery storage, demand response and fast-start thermal assets, if supported by capacity payments compatible with EU State aid rules.
Impacts on the market, Uniper and regional energy security
The deactivation of Karlshamn-2 increases price volatility in southern zones, especially during winter peaks. Day-ahead prices are likely to reflect a higher risk premium, and industrial actors will need to consider stronger hedging strategies. Flexibility products such as reserve options and mFRR services are becoming more strategic, while regulatory uncertainty continues to weigh on investment decisions.
For Uniper, the loss of strategic reserve contracts removes a source of fixed income but lowers variable costs associated with the unit. The status of Karlshamn-3, still in operation but lacking long-term certainty, remains unresolved. Without a new framework, Uniper could consider mothballing this second 335 MW unit in the medium term.
Regionally, increased reliance on imports and coordination between Nordic TSOs (Statnett, Energinet, PSE) raises exposure to grid stress during synchronised cold periods. The Karlshamn-2 case illustrates rising tensions between supply security goals and regulatory compliance in a context of misaligned energy transition dynamics.
