Affordable electricity is essential for the European Union’s electrification goals

For households and businesses across the European Union, technologies such as heat pumps and electric vehicles are not always cost-competitive at current electricity prices. Making electricity prices more affordable is therefore critical to support the uptake of electric technologies and deliver on the EU Electrification Action Plan’s objective of raising electricity’s share of final energy consumption to 32% by 2030. In some parts of the EU, reducing electricity supply costs alone would be enough to make these technologies more cost-competitive than other sources of energy – but in most countries, a broader combination of policy measures will be needed.

This commentary is the third and final in a series examining the case for increased electrification in the EU. The previous instalments explored the cost-competitiveness of electric technologies and where new electricity demand is expected to emerge across end-use sectors, highlighting the challenges and opportunities that come with an expansion of electrification. This instalment examines the practical, policy and supply-side measures that can help lower electricity prices. When well designed, such measures can reduce electricity system costs while safeguarding reliability and supporting the EU’s long-term electrification objectives.

Increasing the share of renewables such as wind and solar power in the electricity mix, while also ensuring that new generation investments are optimised for system needs, can help lower electricity prices for consumers. Moreover, strengthening grids and expanding storage capacity to help ease congestion and integrate variable renewables – in addition to extending the lifetimes of existing nuclear power plants where safety, regulatory and economic conditions allow – can amplify these cost-lowering effects, particularly when combined with energy taxation reform.

Taken together, the measures outlined above could significantly reduce average consumer electricity prices in the EU. By 2030, average electricity prices could decline by around 20% for households and by more than 5% for commercial and industrial users compared with 2025 – even if natural gas prices remain, on average, at 2025 levels. Without these measures, electricity prices for all consumers would be more than 40% higher than they are today. In this counterfactual case, renewable deployment slows, more nuclear plants are permanently retired and grid congestion rises. As a result, the electricity system relies more heavily on gas-fired generation, pushing up wholesale electricity prices and, ultimately, consumer bills.

Increasing the share of renewables in the energy mix – particularly wind and solar PV – plays a central role in lowering electricity supply costs. Wind and solar PV are among the most cost‑competitive forms of new electricity generation in the EU, and a higher share of these lowers overall system costs by reducing reliance on relatively more expensive natural gas‑fired generation.

A higher share of renewables also helps to lower wholesale electricity prices. Spot electricity prices are typically set by the cost of the most expensive plant operating at any given moment – known as the marginal unit – and in the EU, these are often gas‑fired plants.  As more electricity comes from wind and solar, these plants are needed less often, thereby reducing both average wholesale prices and system exposure to swings in global gas markets, as seen during the energy crisis in 2022. This helps to reduce price volatility and shield consumers from energy price shocks. With wind and solar accounting for 30% of electricity generation in 2025, the EU is one of the global leaders in the deployment and integration of variable renewables. Meeting the bloc’s 2030 renewable energy target would means the share of wind and solar PV exceeding 50% by 2030, which would lower average end‑user electricity prices by nearly 20%, compared with the counterfactual case in which slower deployment keeps the share of wind and solar at today’s level.

Reinforcing and expanding grid infrastructure, alongside expanding storage, is essential for integrating growing volumes of variable renewable power and meeting rising electricity demand across the EU. By 2030, if the curtailment of renewables – the amount of potential renewable electricity production that is not fed into the grid – is 5 percentage points higher due to grid congestion, average consumer electricity prices across the EU would be 8% higher. Global spending on grids has risen in recent years, including an 11% increase in 2025, although this is still below the level required to keep pace with system needs. Delays in the development of grids and electricity storage – due to bottlenecks in planning, permitting or construction, for example – risk forcing more renewable energy to be curtailed, raising overall system costs. In this context, the European Commission’s recent EU Grids Package aims to address these constraints.

Nuclear lifetime extensions also have an important role to play in lowering EU electricity prices. Subject to appropriate independent safety reviews, extending the operational lifetimes of existing reactors is a highly cost‑effective way to supply low‑emissions electricity, with average generation costs of around EUR 45 per megawatt hour produced for a 20‑year extension – less than one-third the average generation cost of building a new reactor. In the EU, almost 40 gigawatts of nuclear capacity approaching the end of its licensed life has already been approved for extension and would therefore remain available in 2030. At nearly half of those reactors, the requisite works have been completed or are currently under way. Completing planned upgrades at the remaining reactors approaching the end of their licensed life would, on its own, reduce EU end-user electricity prices by around 10% in 2030 compared with the counterfactual case.

Further reductions in total system costs – and therefore in consumer prices – can come from boosting demand‑side flexibility through measures such as time‑of‑use electricity tariffs, smart digital controls and on-site battery storage, which help shift electricity demand to periods when power is cheaper and more abundant.

Taxes account for a significant share of consumer electricity prices, and electricity is often taxed more heavily than competing sources of energy. Reducing value‑added tax (VAT) and excise taxes on electricity to their legal minimum levels across the EU would lower average household electricity prices. Commercial and industrial consumers can usually pass on or reclaim VAT, so their effective VAT rate on electricity is zero. They are, however, still liable for environmental or excise taxes on the electricity they consume, and lowering these charges to the minimum permitted under EU law would reduce their electricity costs as well.

In 2025, excise taxes and VAT made up 28% of the average EU household electricity price, and around 14% for commercial and industrial users, with larger users typically facing lower rates. Electricity taxation varies widely across the EU, both in structure and magnitude. Some countries impose high shares of environmental and excise taxes on electricity, while others apply only minimal surcharges, resulting in substantial differences in end‑user prices. VAT rates also diverge significantly: although the legal minimum is 5%, several countries apply rates of over 20%, while others offer reduced electricity rates for households. In addition to differences in tax levels, some governments also provide offsets, rebates or targeted compensation schemes. These measures can significantly lower effective electricity prices for certain groups of consumers, but they also add another layer of complexity to the tax and pricing landscape.

Across most of the EU, there is scope for further cuts to electricity excise duties and VAT. In 2025, the average VAT rate on electricity was 15%, and households paid an average of EUR 38 per megawatt hour in other electricity taxes. Lowering VAT and excise taxes to their legal minimums could materially reduce household electricity prices. Doing so across the EU would have reduced average electricity prices by more than 16% in 2025, and could reduce them by almost 15% in 2030 compared with the counterfactual case. The fiscal impact of any tax reduction requires careful consideration for each EU country, balanced against other priorities and spending needs. In countries with excise taxes or VAT well above the legal minimum, measures to compensate for lost government revenues are especially important.  

A key determinant of electricity costs is the prevailing price of natural gas. Natural gas remains an important part of the EU electricity mix, with a share of 17% in 2025, and gas‑fired plants frequently set the marginal price in many of the region’s wholesale electricity markets. Across the EU, gas, coal or oil set the price in roughly 50% of all hours in 2025. EU gas markets have experienced multiple supply shocks in recent years, with prices reaching record highs in 2022 and remaining elevated in 2025 and 2026, illustrating their exposure to geopolitical events.

However, several factors could lower natural gas prices in the EU by 2030. A large wave of new LNG export capacity is projected to enter the global market over the next five years, led by projects in the United States and Qatar. If this increase in export capacity outpaces demand growth, it could put downward pressure on prices. For example, if natural gas prices fell to around USD 6/MMBtu by 2030, it could reduce overall electricity production costs by around 10%, while average end-user electricity prices could fall by another 15% to 20% when combined with the supply-side and tax measures outlined above.

Lower gas prices could also potentially weaken the incentives for electrification. All else being equal, falling natural gas prices would increase the electricity‑to‑gas price ratio, reducing the competitiveness of some technologies like heat pumps. In other words, even if electricity prices decline, gas prices would also decline and reduce the incentive for consumers to switch away from gas in end-use applications such as heating. Additional measures to lower the price of electricity – such as the supply side actions and tax reductions outlined above – therefore remain critical to reducing electricity prices and accelerating electrification in line with the EU’s stated goals.

Lowering electricity prices in the EU hinges on a coordinated approach that combines supply-side measures with energy taxation reform. Expanding low-cost, low-emissions generation, strengthening grids and flexibility and maintaining existing nuclear capacity can materially reduce prices, while aligning energy taxation with electrification goals ensures these gains are passed through to consumers. At the same time, evolving gas market conditions could provide some price relief, although their impact remains uncertain and depends on external factors. Taken together, these measures can make electric technologies more affordable and attractive, strengthen energy security and resilience, and support a cost-effective path towards a more electrified and sustainable energy system in line with the EU’s energy and climate objectives.