Between 2021 and 2023, the EU saw a significant increase in electricity prices, mainly driven by the increase in fossil fuel prices, in particular gas, which is often used to produce electricity.
Wholesale electricity and gas prices have largely stabilised since, although at a level higher than their historical averages. On the other hand, the drop in wholesale prices has not had the same effect at retail level, which are still higher for households and enterprises than before 2021.
In this context, the affordability of energy for households, businesses and industry is one of the Commission’s key priorities.
Reducing the gap between electricity and fossil energy costs
Electricity prices for households and industry are in many cases significantly higher than for fossil fuels. When electricity costs much more than gas, the economic case to switch to heat pumps, or other electric processes, diminishes significantly.
The Electrification Action Plan, presented on 17 July 2026, provides a pathway to reduce this gap by 2030 so that electricity prices are not more than 2.5 times higher than gas for households and not more than 2 times higher than gas for industry. To achieve this, the plan focuses on
- reducing electricity system costs through network charges, flexibility and storage
- addressing the gap in taxation between electricity and gas
- making electricity cheaper and increasing the share of clean affordable, homegrown energy
How do EU electricity markets work?
Through European grids and market coupling, the EU electricity market is integrated across countries, so that electricity can flow more efficiently from where it is produced to where it is most needed.
This integration is designed to improve competition between market participants, reduce price disparities between EU countries, promote the uptake of renewable and low carbon electricity and support security of supply.
Electricity market participants include electricity producers, industrial consumers, demand response aggregators, energy suppliers and traders. They buy and sell electricity in the wholesale market for delivery at different times: from 1 or 2 years ahead, or a few days before in the longer-term forward markets, to the day before the delivery of the electricity (day ahead market) or even the same day (intraday market).
What makes electricity prices vary?
Wholesale and retail electricity prices are not the same everywhere, or at all times, due to a range of factors.
Wholesale electricity prices
Each EU country determines its own energy mix, in compliance with internal market rules and our shared climate ambition. They use a variety of energy sources such as wind, solar, nuclear, hydropower gas or coal and the choice of energy sources affects the electricity price on the market. The price of building a power plant varies depending on the technology used, with wind and solar being the cheapest options to generate electricity. There are also costs related to running the power plant. Electricity from gas or coal power plants tends to be more expensive than electricity produced from nuclear or renewable energy. This is because they have high and volatile operational costs related to the import of the fossil fuels used to produce the electricity. They also come with an additional price to pay for the greenhouse gases they emit.
The extent of interconnectivity between EU countries also influences wholesale prices. Well-connected countries can import and export electricity more easily and efficiently, ensuring that the cheaper – and cleaner - resources are used first. Better interconnections also help to keep electricity prices more stable.
Competition between producers can drive prices down, particularly in markets with lots of renewable energy sources, where costs and prices tend to be lower. ‘Demand response’ can also play a key role by allowing consumers to adjust their use of electricity during times of significant demand, thereby reducing overall electricity demand and further contributing to lower market prices. Additionally, competition encourages efficiency and innovation among producers, leading to cost reductions which can be passed on to consumers.
Weather and seasonal patterns, such as cold spells and heatwaves increase demand for electricity for heating and cooling. On the other hand, abundant wind, rainfall, or sun can push electricity prices down if such renewable energy sources they are used to produce electricity.
Retail electricity prices
At retail level, the amount households and businesses pay on their electricity bills includes 3 main components, but the cost of the electricity itself is the biggest part of the bill, averaging nearly 49% in Europe in 2024.
Taxes and levies, are mostly the responsibility of national governments, who can apply different VAT rates and levels of EU excise duties to electricity, including reducing them, within the limits of commonly agreed EU rules. National taxes, levies or charges are also often added to electricity bills, including taxes and levies with no connection to energy, for example, charges related to public broadcasting. Thes are not harmonised across the EU.
Network charges are applied by the companies that manage the electricity grids, under the supervision of the national energy regulatory authorities. Grids transport electricity from where it is produced to where it is consumed. Network charges contribute to the cost of expanding, maintaining, upgrading and managing the grids.
Competition between energy suppliers can also influence retail electricity prices. Each supplier has its own strategy for purchasing electricity in the wholesale electricity market - some buy it in advance, while others buy it closer to real time. This affects how well they can manage sudden changes in wholesale electricity prices. As a result, consumers may have access to a wider range of price offers and can choose the contract that best suits their needs and preferences.
Shaping EU policy on electricity markets
Understanding how the EU’s policy on electricity markets is decided helps further explain why prices differ between EU countries and how policy developments can influence them.
The European Union sets the overall legal and policy energy framework, including legislation on electricity markets. This framework is determined through directives and regulations that apply across EU countries.
The European Commission proposes energy legislation, including on electricity markets, monitors market developments, supports the implementation of the legal and policy framework and enforces EU rules.
EU countries decide national energy policies, including their energy mix and specific aspects such as taxes, subsidies and support schemes for different energy sources. They retain significant autonomy in these areas, leading to differences in price structures across the EU.
The Agency for the Cooperation of Energy Regulators (ACER) coordinates national energy regulators, monitors wholesale energy markets, supports cross-border market integration and helps ensure fair and transparent practices.
National regulatory authorities in each country oversee electricity markets, fix or approve network charges (or their methodologies) applied by system operators, and implement and enforce EU and national energy policies and regulations.