High electricity prices threaten EU green strategy, warns ECB

The European Central Bank (ECB) on Tuesday detailed how persistently high electricity prices are undermining the European Union’s central strategy for achieving net-zero emissions through widespread electrification.

The analysis highlighted that despite the launch of the Clean Industrial Deal in February 2025, electricity demand has remained largely stagnant over the last decade.

The European Commission aims to increase electricity’s share of total energy consumption from 23 per cent in 2024 to 32 per cent by 2030, yet euro area consumption actually fell by 6.3 per cent between 2015 and 2023.

“Since electricity can be more readily generated from renewable sources compared with other forms of energy, increasing its share in final energy consumption is central to achieving the targets set in the EU’s Renewable Energy Directive,” the report mentioned.

“However, reaching this consumption target could be challenging, as electricity consumption in the euro area decreased by 6.3 per cent between 2015 and 2023,” it added.

When breaking down the primary components of end-user costs, the authors of the report explained that “energy and supply costs accounted for around 50 per cent of the electricity bill for euro area households and 63 per cent for energy-intensive industries in 2024”.

What is more, the report found that households in the euro area pay approximately twice as much for electricity as energy-intensive industries, a disparity caused by higher taxes, network charges, and VAT.

In countries like Germany, Spain, and Italy, household prices are roughly 100 per cent higher than those paid by large industrial firms, whereas the gap is narrower in France and the Netherlands.

“Between 2019 and 2024 electricity prices increased by around 53 per cent for energy-intensive industries and by around 33 per cent for households,” the study explained, attributing the surge primarily to the 2021-22 energy crisis.

Total expenditure has climbed significantly for both groups, even as consumption by energy-intensive industries dropped by 14.5 per cent as firms reacted to the elevated cost environment.

The researchers found that countries relying on imported fossil fuels face much higher costs at the margin compared to those with significant nuclear or renewable energy bases.

This reliance is particularly acute for island nations like Cyprus, where the lack of electrical interconnections and a heavy dependence on heavy fuel oil and diesel for power generation expose the economy to global price volatility.

Because Cyprus lacks the stabilising effect of large-scale nuclear or varied renewable baseloads found in mainland Europe, its marginal cost of production remains high, directly inflating bills for both local households and businesses.

“France has the lowest greenhouse gas emission intensity of electricity generation, owing to its long-standing reliance on nuclear power,” the report stated, noting that high-carbon nations face additional price pressures from the Emissions Trading System.

The ECB argued that structural measures, such as the European Grids Package and the Energy Highways initiative, are now essential to modernise infrastructure and lower costs.

“Achieving the EU’s decarbonisation objectives depends on meeting its electrification targets, which can be facilitated by lower electricity prices,” the report concluded.