The energy crisis creates even stronger impetus for EU electrification

Electrification is central to meeting the European Union’s goals on energy security, competitiveness, affordability, and emissions reductions. The closure of the Strait of Hormuz has highlighted the risks of over-dependence on imported fuels and concentrated supply routes, making the case for electrification even stronger.

In the EU, around 70% of electricity generation is already supplied from domestic, low-emissions sources. And yet end-users (industry, buildings and transport sectors), source less than one quarter of their energy consumption from electricity. Today, around two-thirds of end-use energy consumption relies on fossil fuels, of which the EU imports more than 80%.

This commentary is the first in a series examining the case for electrification in the EU, identifying cost competitiveness and areas where targeted policies could catalyse change.

To make electrification cost-competitive, electricity prices need to fall below a threshold ratio relative to the price of fossil fuels. Because most electrification options are several times more efficient than conventional alternatives, they can be cheaper to operate than conventional fuel-based technologies even when electricity costs more per unit of energy than the fuel they replace – i.e. a ratio greater than one.

EU countries today face very different price ratios. These differences are driven by historical choices in energy system design, energy taxation, and natural resources. They differ not only between countries, but also within them, as subsidies, taxes, and grid connection fees can vary substantially between industrial and household consumers. Averaging across these users, countries with lower price ratios typically see higher rates of electrification and per capita electricity demand.

There is no single energy price ratio at which electrification technologies become cost competitive. The breakeven point depends on the end-use application, as well as a host of other regional factors, including local climates, consumer behaviour, finance costs, and baseline energy prices. Countries with higher heating requirements and higher vehicle mileages see electrical technologies become competitive at higher price ratios, because the upfront costs of electrical technologies are offset by their lower operating costs if they have higher utilisation rates. Electric vehicles and high-temperature industrial heat need lower price ratios (usually between 1 and 2) to become cost-competitive compared with buildings and low-temperature industrial heat (usually between 2 and 3.5).

Achieving cost parity alone is insufficient to drive uptake of electrical technologies. High upfront costs discourage investment in electrification across all sectors. Buildings and industries may need modifications to accommodate heat pumps; new enabling equipment (like grids and EV chargers) needs to be rolled out; and consumers and business may be uncertain about switching to electric technologies. In 2025, Japan had a higher share of end-use electrification than any EU country, even though ten EU countries had lower average price ratios than Japan.This shows the need to complement favourable fuel price ratios with policies that address upfront costs and other non-financial barriers to adoption of electric technologies.

Heat pumps are the most cost-effective technology for electrification of most low-temperature industrial heat1. Based on 2025 prices, heat pumps have lower lifetime costs than gas boilers in 17 countries representing 40% of low-temperature thermal energy demand in the EU. A further 35% of low-temperature thermal demand is in countries where the cost of heat from a heat pump is within 5% of the equivalent from a gas boiler. Even in markets where heat pumps are cost competitive, installations remain low, and policy support is needed. Some plants require adaptation of infrastructure to integrate new equipment. Not all smaller facilities have the technical capacities or capital budgets to upgrade their heating sources, and they typically pay more per MWh for electricity than larger consumers. Long grid connection queues for medium-sized users may also delay uptake even where there is a financial incentive to electrify. The guidance on efficient and timely grid connections in the Grids Package provides policy options to reduce this barrier.

Low-temperature heat represents about 15% of industrial energy demand, which could be served almost exclusively by heat pumps. They can also be used at higher temperatures if waste heat is available, but in general other technologies like electric boilers, resistance heating, and arc furnaces are needed to extend electrification to higher temperatures. However, these technologies do not offer the same efficiency advantages as heat pumps and therefore are generally not competitive with gas today for baseload heat. However, because electric boilers have low upfront costs, some hybrid configurations which exploit off-peak electricity pricing could be competitive, for instance by coupling with flexible gas boilers or thermal storage.

Industrial consumers would benefit from tariff structures which pass through low-prices from day-ahead or intraday markets to flexible power consumers (without requiring consumers to act as electricity traders). In some EU countries, the end-user price of electricity is prohibitively high compared to gas even when the wholesale price is below 0, because of flat-fee network charges. Lower grid fees for flexible users, which are being implemented in Denmark, Germany and the Netherlands, could help reward flexibility to make some modes of electrification more competitive. Careful design of these policy solutions can steer consumers towards flexible demand that benefits the entire electricity system by shifting demand to more favourable periods.

Heat pumps are three-to-five times more efficient than conventional technologies, but adoption is highly uneven across the EU. The technology is the preferred distributed heating equipment across the Nordics, and accounts for around half of the equipment sales in Portugal, France and Austria, but remains marginal in other countries.

Across the heating equipment lifetime, residential heat pumps are competitive against gas boilers in 16 countries, representing around one-third of the EU’s residential space heating demand. These countries all benefit from a favourable energy price environment, ranking within the 17 countries with the lowest electricity-to-gas price ratio. Beyond the Nordics, owning a heat pump is 15%-30% cheaper than a gas boiler in the Netherlands, Portugal or Bulgaria.

Over their lifecycle, in 2025 prices, heat pumps are equally or more expensive to own than a gas boiler in the other 11 countries, including major heating markets such as Germany, Poland and France, totalling two-thirds of EU’s heating demand. However, in all but five of these countries, the ownership cost difference is below 5%, and upfront cost subsidies or an improved electricity-to-gas price ratio could shift the balance in favour of heat pumps.

Heat pumps are cheaper to operate than gas boilers in almost all EU countries, with annual energy savings up to EUR 800. With appropriate installation and operation, heat pumps also last longer, improve thermal comfort, and increase property values, while reducing exposure to fossil-fuel price volatility and local air pollution. Air-to-air units also improve indoor air quality and boost productivity and wellbeing in the summer months.

However, upfront gas boiler costs are several thousand euros less than a heat pump. Gas boiler installations are also less likely to require adjacent works and provide consumers with greater certainty on execution and final price. The disruptive nature of heating system replacement also favours incumbent technologies – heating systems are most likely to break down during the coldest period of the year, when disruption is most harmful, which puts pressure on consumers to stick with incumbent technologies rather than engage in long-term financial planning. To shift the household heating market in favour of longer-term investments, policy makers must provide long-term policy certainty, low-to-zero interest financing, and project management support for major renovation projects.

EVs sold today use four to five times less energy per kilometre than new Internal Combustion Engines (ICEs). Comparing the most sold ICE car model with an equivalent battery electric option in each EU country – without accounting for financial subsidies – EVs have a payback period of less than 8 years in 11 out of 27 countries (based on 2025 prices). In the largest markets, such as Germany and France, financial support (available at around EUR 4 000) halves the typical 7 to 10 year payback period to a range of 3-5 years.

The competitiveness of battery electric cars is expected to continue improving as more affordable EVs are launched and battery prices decline further. Today, the average price gap between battery electric cars and ICE cars in the EU is around EUR 10 000. In 2025, around 10 affordable EV models were available in the EU with starting prices of around EUR 25 000. In addition, the new Automotive Package will further support the rollout of small EVs, providing “super-credits” for automakers for their production, making it easier to reach the CO2 standards. However, many EU markets still require fiscal support and a greater availability of affordable electric models to incentivise EV uptake by narrowing the purchase price gap between electric and ICE cars.

The oil crises of the 1970s ushered in a period of rapid change in global energy systems. Between 1975 and 1985, the EU added 80 GW of nuclear power generation, and the efficiency of a new vehicle sold in France increased by 20%. Because of the 2022 gas crisis, the EU is now in a position to remove all Russian gas from its energy system by 2027 – a significant feat given Russia was the largest supplier by a significant margin in 2021.

The current crisis is already improving the competitiveness of electric technologies: in April, the cost-savings associated with driving an EV in the EU grew 35% compared to those in 2025. Preliminary trends towards electrification have already been observed in the EU. Electric car sales in the region increased by around 30% during the first four months of 2026; and residential heat pump sales across 11 key European markets, including France, Germany and Poland, were up 17% in the first quarter of 2026. Supporting the electrification of end-use demand is an opportunity to protect consumers from the long tail of the current energy crisis, while making energy systems more resilient to future shocks.