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Looking for an EU Energy Revolution
The European Commission is exploring ways to cut costs, secure supply, and speed up the energy transition. Europe needs it—urgently.
With energy prices threatening Europe’s competitiveness and millions of citizens struggling with high costs, the European Commission’s Action Plan for Affordable Energy sets out an ambitious roadmap to reshape the market. From structural reforms to decouple gas from electricity prices to fast-tracking renewables and expanding grid interconnections, the strategy seeks to balance affordability, security, and sustainability. However, critical challenges remain, from lengthy permitting delays to market volatility and geopolitical risks. This article examines the policy implications, potential gaps, and alternative strategies that could shape Europe’s energy future.
By Paolo Licandro
Brussels, 10 March 2025 - 4 MINUTES READ
Brussels, 10 March 2025 - 4 MINUTES READ
The European Commission’s latest Action Plan for Affordable Energy, as outlined by Commissioner Dan Jørgensen, underscores critical challenges facing Europe’s energy landscape. This initiative highlights three primary concerns: affordability, energy security, and sustainability. Addressing these issues requires a combination of accelerated policy implementation, investment in infrastructure, and financial instruments tailored to market dynamics.
Let's examine the European Commission’s approach
1. Energy Affordability and Industrial Competitiveness
Let's examine the European Commission’s approach
1. Energy Affordability and Industrial Competitiveness
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Commissioner Jørgensen’s remarks reflect an urgent need to curb energy costs, which remain significantly higher in Europe than in competing economies such as the U.S. and China. High energy prices not only burden households—47 million Europeans struggled to heat their homes in the past year—but also weaken Europe’s industrial competitiveness. The proposed action plan aims to generate savings of €45 billion in 2025, increasing to €130 billion annually by 2030 and reaching €260 billion annually by 2040. Over the next two decades, the cumulative savings could total €2.5 trillion, reinforcing the strategic importance of proactive energy policies.
Considerations and Strategic Alternatives:
2. Reducing Dependence on Russian Fossil Fuels
The European Union remains partially reliant on Russian gas, indirectly contributing to the financing of geopolitical conflicts. Since the onset of the war in Ukraine, EU fossil fuel imports from Russia have amounted to the equivalent cost of 2,400 F-35 fighter jets. This alarming statistic emphasizes the necessity of diversifying energy sources and accelerating the transition toward self-sufficiency.
Considerations and Strategic Alternatives:
Considerations and Strategic Alternatives:
- While the projected savings are substantial, Europe faces the challenge of balancing affordability with investment in cleaner energy sources. Reducing industrial energy costs requires structural reforms in electricity pricing mechanisms and incentives for energy efficiency in manufacturing.
- One alternative to achieve affordability is the expansion of nuclear energy, which remains a controversial but highly reliable source. Small Modular Reactors (SMRs) could play a role in stabilizing prices.
- Encouraging greater reliance on hydrogen and cross-border energy-sharing agreements may help mitigate price volatility.
- A coordinated EU-wide strategy to subsidize low-income households and energy-intensive industries could prevent economic disparities between member states.
2. Reducing Dependence on Russian Fossil Fuels
The European Union remains partially reliant on Russian gas, indirectly contributing to the financing of geopolitical conflicts. Since the onset of the war in Ukraine, EU fossil fuel imports from Russia have amounted to the equivalent cost of 2,400 F-35 fighter jets. This alarming statistic emphasizes the necessity of diversifying energy sources and accelerating the transition toward self-sufficiency.
Considerations and Strategic Alternatives:
- While reducing dependence on Russian energy is a priority, replacing it requires substantial investment in LNG terminals, strategic reserves, and alternative suppliers.
- Countries like Norway, Algeria, and the U.S. have emerged as key alternative gas suppliers. However, securing long-term contracts remains a challenge due to fluctuating market prices.
- Investment in biomethane and synthetic fuels could enhance Europe’s energy independence, reducing reliance on volatile gas markets.
- Member states must coordinate procurement strategies to negotiate better prices, possibly through an expanded version of the EU’s joint gas purchasing initiative.
3. Fast-Tracking Renewable Energy and Grid Expansion
A central obstacle to renewable energy expansion is prolonged permitting processes, often stretching over years or even decades. The EU aims to reduce these delays to six months for simpler projects and a maximum of two years for larger, complex initiatives. Such reforms could unlock investment opportunities, expedite clean energy deployment, and enhance energy resilience.
Moreover, despite being one of the world’s most interconnected energy regions, Europe still underutilizes its grid capacity. The Commission advocates for doubling the efficiency of existing infrastructure while also expanding interconnectors. Digitalization, artificial intelligence, and smart grid technology will play an essential role in optimizing resource allocation and reducing inefficiencies.
Considerations and Strategic Alternatives:
4. Structural Market Reforms and Financial Mechanisms
A fundamental aspect of the plan involves decoupling gas prices from electricity prices, a reform already recommended in the Draghi report. This will be achieved through financial instruments such as Power Purchase Agreements (PPAs) and Contracts for Difference (CFDs), which help stabilize market prices. Additionally, the European Investment Bank (EIB) is expected to facilitate risk mitigation and encourage private sector participation in renewable investments.
Transparency and regulation in the gas market remain priorities. Excessive volatility and inflated prices demand enhanced oversight and joint gas purchasing mechanisms, similar to Japan’s model. By leveraging the EU’s collective market power, policymakers hope to secure more favorable energy prices.
Considerations and Strategic Alternatives:
Implications for Policy and Market Actors
A central obstacle to renewable energy expansion is prolonged permitting processes, often stretching over years or even decades. The EU aims to reduce these delays to six months for simpler projects and a maximum of two years for larger, complex initiatives. Such reforms could unlock investment opportunities, expedite clean energy deployment, and enhance energy resilience.
Moreover, despite being one of the world’s most interconnected energy regions, Europe still underutilizes its grid capacity. The Commission advocates for doubling the efficiency of existing infrastructure while also expanding interconnectors. Digitalization, artificial intelligence, and smart grid technology will play an essential role in optimizing resource allocation and reducing inefficiencies.
Considerations and Strategic Alternatives:
- While reducing permitting times is crucial, ensuring environmental and social safeguards remains essential. Simplified permitting should not compromise biodiversity and community concerns.
- Large-scale battery storage systems are required to stabilize intermittent renewable energy sources. However, the cost of storage technology remains high, necessitating additional R&D funding.
- Offshore wind, particularly in the North Sea and Baltic regions, represents a major growth area. Strengthening cross-border infrastructure could ensure better integration of these resources.
- Advanced grid management using AI and predictive analytics could improve efficiency, reducing the risk of blackouts and optimizing supply-demand balance.
4. Structural Market Reforms and Financial Mechanisms
A fundamental aspect of the plan involves decoupling gas prices from electricity prices, a reform already recommended in the Draghi report. This will be achieved through financial instruments such as Power Purchase Agreements (PPAs) and Contracts for Difference (CFDs), which help stabilize market prices. Additionally, the European Investment Bank (EIB) is expected to facilitate risk mitigation and encourage private sector participation in renewable investments.
Transparency and regulation in the gas market remain priorities. Excessive volatility and inflated prices demand enhanced oversight and joint gas purchasing mechanisms, similar to Japan’s model. By leveraging the EU’s collective market power, policymakers hope to secure more favorable energy prices.
Considerations and Strategic Alternatives:
- PPAs and CFDs can provide pricing stability, but they require strong regulatory frameworks to avoid market distortions.
- The EU should establish a centralized energy trading platform to prevent speculative price spikes.
- Further development of cross-border capacity sharing could prevent price disparities between regions.
- A pan-European strategic energy reserve could mitigate sudden supply shocks, ensuring stability in times of crisis.
Implications for Policy and Market Actors
- Governments and Policymakers: National governments must accelerate the adoption and implementation of EU regulations to maximize cost reductions and increase energy security.
- Energy Investors and Developers: Shortened permitting times and financial incentives offer significant opportunities for scaling up renewable energy projects.
- Industries and Businesses: More predictable and lower energy prices could enhance competitiveness, particularly for energy-intensive sectors.
- Technology and Infrastructure Providers: The push for grid digitalization and AI-driven energy management opens avenues for innovation and new business models.
Over the past five years, Europe's energy landscape has undergone significant changes in consumption, production, and imports across various energy sources.:
EU Energy Consumption and Production
In 2021, the European Union's electricity generation totaled approximately 2,753,320 GWh, with the following breakdown:
Renewable energy sources included:
EU Energy Imports
Europe's reliance on energy imports varies by source:
EU Recent Trends
Recent developments in Europe's energy sector include:
EU Energy Consumption and Production
In 2021, the European Union's electricity generation totaled approximately 2,753,320 GWh, with the following breakdown:
- Fossil Fuels: 1,002,188 GWh
- Nuclear: 696,341 GWh
- Renewables: 1,064,830 GWh
Renewable energy sources included:
- Hydroelectric: 343,436 GWh
- Solar: 163,321 GWh
- Wind: 383,203 GWh
- Biomass and Waste: 168,191 GWh
EU Energy Imports
Europe's reliance on energy imports varies by source:
- Oil: Approximately 90% of the EU's oil consumption is met through imports.
- Natural Gas: The EU consumed about 3,966 TWh of natural gas in 2021.
- Coal: Coal consumption in the EU decreased from 5,126 TWh in 1985 to 1,624 TWh in 2020.
EU Recent Trends
Recent developments in Europe's energy sector include:
- Renewable Energy Growth: In 2024, the EU achieved a record 47% of its electricity generation from renewable sources, with solar power contributing 11% and wind power surpassing gas for the second consecutive year.
- Coal Consumption: 128 million tonnes in 2013, 42% less than in 2017
- Natural Gas Imports: Germany has increased its imports of Russian liquefied natural gas (LNG) via European ports, highlighting ongoing complexities in reducing reliance on Russian energy sources.
Conclusions
The European Commission’s Action Plan presents a roadmap for a more competitive, secure, and sustainable energy future.
However, its success cannot depend solely on EU officials. For this plan to be truly effective, it must involve all possible stakeholders—public energy authorities, energy producers, consumer organizations, industries, financial institutions, importers, and current and future EU energy partners at an international level. A multi-stakeholder approach will ensure that the strategy is not just well-designed but also realistic, inclusive, and adaptable to Europe's diverse energy needs.
Collaboration between the private and public sectors, as well as strategic partnerships with non-EU energy suppliers, will be key to implementing market-driven solutions while maintaining energy security. Transparency in decision-making and regulatory flexibility will further ensure that energy affordability and sustainability goals are met in a balanced manner.
Moreover, it is important to recognize that while energy production is a strategic responsibility of individual states—to ensure secure and affordable supply—energy itself is not bound by borders. It can be produced elsewhere and imported efficiently when it aligns with economic and security interests.
This approach has already been leveraged through LNG imports and electricity interconnectors, and further diversification of supply sources, including renewable imports from North Africa or the Middle East, could provide Europe with a broader energy mix.
In this context, the new U.S. tariffs on energy exports could present an opportunity for Europe to expand its energy imports from Canada, a country rich in oil, natural gas, hydroelectric power, and uranium. Canada has become an increasingly significant energy supplier to the European Union in recent years. Between 2017 and 2022, the EU's energy imports from Canada grew by 70%.
By diversifying energy partnerships, Europe could mitigate the risks of price volatility and geopolitical disruptions, securing a more stable and affordable supply across multiple energy sectors. Strengthening trade relations with Canada could not only offer a reliable integration or alternative to U.S. and Russian supplies but also support the EU’s long-term goals of energy diversification and market resilience.
Ultimately, only a coordinated effort involving all relevant actors can guarantee that Europe’s energy transition is economically viable, geopolitically strategic and environmentally sustainable.
It is now up to EU legislators, the EU Council and the European Parliament to draft a robust and forward-looking EU Energy Strategy.
The European Commission’s Action Plan presents a roadmap for a more competitive, secure, and sustainable energy future.
However, its success cannot depend solely on EU officials. For this plan to be truly effective, it must involve all possible stakeholders—public energy authorities, energy producers, consumer organizations, industries, financial institutions, importers, and current and future EU energy partners at an international level. A multi-stakeholder approach will ensure that the strategy is not just well-designed but also realistic, inclusive, and adaptable to Europe's diverse energy needs.
Collaboration between the private and public sectors, as well as strategic partnerships with non-EU energy suppliers, will be key to implementing market-driven solutions while maintaining energy security. Transparency in decision-making and regulatory flexibility will further ensure that energy affordability and sustainability goals are met in a balanced manner.
Moreover, it is important to recognize that while energy production is a strategic responsibility of individual states—to ensure secure and affordable supply—energy itself is not bound by borders. It can be produced elsewhere and imported efficiently when it aligns with economic and security interests.
This approach has already been leveraged through LNG imports and electricity interconnectors, and further diversification of supply sources, including renewable imports from North Africa or the Middle East, could provide Europe with a broader energy mix.
In this context, the new U.S. tariffs on energy exports could present an opportunity for Europe to expand its energy imports from Canada, a country rich in oil, natural gas, hydroelectric power, and uranium. Canada has become an increasingly significant energy supplier to the European Union in recent years. Between 2017 and 2022, the EU's energy imports from Canada grew by 70%.
By diversifying energy partnerships, Europe could mitigate the risks of price volatility and geopolitical disruptions, securing a more stable and affordable supply across multiple energy sectors. Strengthening trade relations with Canada could not only offer a reliable integration or alternative to U.S. and Russian supplies but also support the EU’s long-term goals of energy diversification and market resilience.
Ultimately, only a coordinated effort involving all relevant actors can guarantee that Europe’s energy transition is economically viable, geopolitically strategic and environmentally sustainable.
It is now up to EU legislators, the EU Council and the European Parliament to draft a robust and forward-looking EU Energy Strategy.
