Soaring energy prices are taking a heavy toll on the economy and consumers in the EU. On 26 February 2025 the European Commission will be unveiling its Action Plan for Affordable Energy and its Clean Industrial Deal, in which it will outline how it intends to counter the risks of an exodus of critical industries, deindustrialisation, and energy poverty.
The Action Plan aims to lower energy costs in order to reduce the electricity price advantage of the EU’s primary competitors and maintain its competitiveness as a place to do business. The plan’s four pillars are the reduction of energy prices in the short term, fast-tracking structural reforms and decarbonisation, and strengthening Member States’ energy systems – all with the goal of mitigating future price shocks and paving the way for the implementation of the Clean Industrial Deal.
I. Why are energy prices in the EU so high?
The Action Plan identifies three key factors driving up energy costs in the EU, namely reliance on imported fossil fuels, inefficiencies and increasing system costs. The EU is dependent on fossil fuels, with 90% of fossil fuel demand met by imports, which means greater price volatility and high delivery costs. It also makes the European energy market more vulnerable to external pressure – something that has become very clear during the Ukraine conflict. According to the Action Plan, inefficiencies and the lack of full integration in the European electricity grid are to be tackled via improvements to grid infrastructure, interconnections, energy system integration and system flexibility, as well as shorter permitting procedures for renewables and grid projects. The third key factor – increasing system costs – is directly linked to high energy prices through network charges, taxes and levies.
II. Four pillars of the Action Plan
The Action Plan outlines four pillars for achieving the goal of more affordable energy: lowering energy costs, completing the Energy Union, being ready for potential energy crises and attracting investments.
1. Lowering energy costs
The first pillar involves four measures aimed at lowering energy costs and making energy more affordable in the EU.
Efficient network charges that incentivise greater system efficiencies and the use of lower-cost clean electricity are to rapidly reduce the costs of operating the overall grid. The need for grid investment is also to be reduced, ultimately leading to a drop in the network charges component of energy prices. To this end, the Commission will propose a tariff methodology for network charges that incentivises grid investment and the use of flexibility and maintains the level playing field. If necessary, a legislative proposal is to be submitted for this purpose and/or the Member States will contribute to this via subsidies from their State budgets.
The proposed revision of the Energy Taxation Directive (Directive 2003/96/EC) is to be concluded in order to align the taxation of energy products with EU energy and climate policies. Various tax exemptions and reduced tax rates for the use of fossil fuels are to be abolished. In Germany, for example, such exemptions and reductions apply to the aviation and maritime transport sector pursuant to section 52 Energy Tax Act (Energiesteuergesetz, “EnergieStG”), as well as to energy-intensive industries pursuant to sections 54 and 55 EnergieStG.
At the same time, Member States are to use the tax reduction options for electricity – especially for energy-intensive industries – provided for in the Energy Taxation Directive, with the aim of making electricity considerably cheaper than fossil fuels. Germany already introduced measures to reduce tax on electricity in section 9b Electricity Tax Act (Stromsteuergesetz) and significantly expanded these in 2024.
The Commission also intends to develop guidance on how Member States can remove market barriers that make it difficult for consumers to switch energy suppliers and save costs. Energy communities are to be enhanced, enabling consumers and municipalities to produce, use and sell renewable energy on their own terms.
The second measure aims to reduce energy supply costs. Long-term contracts between suppliers and purchasers are to allow consumers and businesses to benefit from favourable conditions in the long term. To this end, a pilot programme for power purchase agreements (PPAs) will be launched, along with guidance to facilitate combining PPAs and contracts for difference (CfDs).
Permitting procedures for renewable energies are to be significantly shortened, and in order to achieve this, the Action Plan calls for additional staffing and financial resources at the permitting authorities. The Commission also intends to support Member States by providing guidance on innovative forms of renewables deployment as well as grids and storage. To this end, it will submit legislative proposals, which will also look at the possibility of shortening deadlines for environmental assessments. The streamlining of permitting and licensing practices for nuclear technologies is to be assessed as well. The measure seeks to shorten the length of permitting procedures to less than six months for simpler projects or to under two years for complex projects, such as offshore wind farms, in renewable acceleration areas.
The Commission also intends to present a European Grid Package to accelerate the expansion, modernisation and digitalisation of the grids.
System flexibility is to be improved through the increased deployment of storage and demand response. Improved rules on demand response are to ensure that flexibility is financially beneficial for consumers, who could, for example, be further encouraged to use cheap electricity during periods of lower demand. This calls for the improved implementation and execution of mechanisms provided for in the Directive governing the internal market for electricity (Directive (EU) 2019/944), such as dynamic electricity contracts or the use of smart meters. In Germany, these requirements are enshrined in section 41a Energy Industry Act (Energiewirtschaftsgesetz) and section 21(1) Metering Point Operation Act (Messstellenbetriebsgesetz).
- The third measure seeks to improve gas markets so as to ensure fair pricing and thus competitiveness. The Action Plan provides for the establishment of a task force that will conduct a thorough review of EU natural gas markets and take action against market abuse where necessary. The EU is also to use its purchasing power to negotiate better terms for imported natural gas, with proposed measures including aggregating demand from EU companies and exploring the option of longer-term contractual engagements with LNG suppliers.
The fourth measure concerns energy efficiency. By simplifying access to capital and offering financial incentives such as a guarantee scheme, the EU aims to help market players offer energy efficiency solutions for businesses. A further goal is to give consumers access to more efficient appliances and products with longer lifetimes. Here, energy labelling and ecodesign regulations are to be modified to prevent losses from non-compliant products sold.
2. Completing the Energy Union
The Commission intends to advance full integration of the Energy Union by setting up an Energy Union Task Force, issuing a white paper on deeper integration of the electricity market (containing non-binding proposals for specific EU measures in certain areas), revising the Governance Regulation, and drawing up an investment strategy for clean energy.
3. Attracting investments
The third pillar of the Action Plan calls for a tripartite contract for affordable energy between public institutions (including financial institutions), clean energy producers and energy-consuming industries. This will create a favourable investment climate for the energy sector. The aim is to offer reliability and predictability for energy producers by ensuring that they have secure off-takers, while increasing the attractiveness for energy purchasers, who can benefit from an affordable and stable energy supply.
The energy sector will be able to invest and grow thanks to the additional support provided by the Commission, the European Investment Bank (EIB) and the Member States under the tripartite contract. This will also include contracts for certain sectors – for example hydrogen, batteries, synthetic fuels, offshore wind, solar and grids. These can be concluded between institutional and economic actors in the respective sector to promote investment, market access and technical developments specifically in these sectors. Creating certainty of demand will also incentivise manufacturers in the relevant supply chains to invest in new production capacities that will allow them to offer lower prices. For energy-intensive industries, the contract is intended to create long-term transparency with regard to energy supply and prices, which will also lead to investment in production processes – for example in their electrification.
4. Being ready for potential energy crises
The Commission seeks to ensure better availability of energy supplies at all times and better preparedness for periods of system stress by putting forward a legislative proposal for a revised EU energy security regulatory framework. Energy demand at peak demand hours is also to be lowered and cross-border electricity trading maximised in crisis situations to mitigate local price spikes.
III. Outlook
The Commission’s Action Plan is due to be officially published on 26 February 2025 and will likely contain measures at multiple levels to reduce energy costs for businesses and consumers in both the short and long term. This also includes legislative proposals in various areas, which is why increased energy-related regulations sector in the broadest sense can be expected. It remains to be seen whether this will result in the intended relief for energy producers and price reductions for businesses and consumers and how the European Commission’s plans will actually be implemented.
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