Biopower, i.e. production of power using biomass, has a tremendous potential to deliver CO, neutral energy in the Nordic countries. This paper analyses the evolution of a biopower innovation system in Sweden where particular attention is given to current driving forces and obstacles to a large-scale diffusion of biopower. In the 1980s and 1990s, this innovation system went through a successful `formative phase' in which all the constituent components of the `infant' system emerged. With the introduction of green certificates and emission trading rights, incentives were created that were large enough to shift the system into a `growth phase', where the extensive district heating system and voluminous production in the paper and pulp industry can be used to produce power on a large scale in CHP plants. An investment booty is now underway and output of biopower is rapidly growing. Yet, there are still substantial obstacles to a realisation of the full potential of biopower. Three of these are outlined and an associated set of policy challenges are specified. (c) 2008 Elsevier Ltd. All rights reserved.