EU Action Plan on Affordable Energy: how can we avoid high prices?

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High energy costs are putting a strain on both European citizens and industries. The gap in energy prices between the EU and its main global competitors continues to widen, increasing the risk that new investments will be directed outside Europe. Additionally, existing industries may relocate, potentially leading to a drain of critical industries from the EU. In response, the European Commission's Action Plan on Affordable Energy, presented on 26 February 2025, outlines measures to lower energy bills in the short-term while implementing cost-saving structural reforms to mitigate future price shocks.

Addressing Structural Challenges

The EU faces deep-rooted energy challenges, including its dependence on fossil fuel imports and the need for significant investments in new infrastructure to facilitate the transition to renewable energy sources. Currently, 28.9% of the EU’s electricity generation mix relies on fossil fuels, and transportation remains largely powered by oil products. These dependencies drive up energy costs for consumers. However, tackling high energy prices is complex due to national competencies in defining energy mixes and taxation policies, leading to significant disparities in energy costs across the EU.

Reducing energy prices requires addressing three key cost components:

  1. Network and system costs:  enhancing grid infrastructure and efficiency.
  2. Taxation: reducing excessive levies and energy-related taxes.
  3. Supply costs: increasing competition and ensuring diverse energy sources.

Deeper Energy Market Integration

A more integrated European energy market could generate economic benefits of up to EUR 40-43 billion per year by 2030. To achieve this, the EU must:

  • Accelerate the construction of cross-border interconnections to ensure electricity flows efficiently from producers to consumers.
  • Simplify and speed up permitting processes for new energy sources, removing unnecessary bureaucratic obstacles that slow down development.
  • Address the inefficiency of network tariffs and prevent speculation.

Ensuring Price Stability Through Long-Term PPAs

Long-term Power Purchase Agreements (PPAs) can stabilise electricity prices for businesses and households, provided that they are implemented in a technologically neutral manner. EU guidelines should ensure that all low-carbon energy sources are included in these contracts. Furthermore, the EU must recognise technologically neutral PPAs within its sustainable finance taxonomy, eliminating barriers to their broader adoption.

Tax Reforms and Emissions Market Regulation

Reducing energy costs also requires:

  • Lowering electricity taxation and removing non-energy cost components from bills. Currently, energy pricing varies significantly across Member States, impacting competitiveness between industries in different countries.
  • Introducing price corridors for emission allowances to prevent extreme price fluctuations. The regulation of the emissions trading market is critical, as unpredictable prices negatively affect industries and households alike. A fundamental revision of the EU ETS system is necessary, requiring consensus among Member States on stabilisation mechanisms.

To combat high energy prices, the EU must take a comprehensive and coordinated approach, balancing short-term relief with long-term structural solutions. By fostering deeper market integration, improving grid infrastructure, implementing regulatory reforms, and stabilising emissions markets, Europe can secure an affordable and competitive energy future for its citizens and industries.*

 

Author: Alena Mastantuono, Member of the EESC Employers Group

 

 

*This article is the author´s point of view.