Powering Europe

Despite some recent falls, European electricity remains expensive, both compared to recent history and to the process available in other large economies.

According to the International Energy Agency, electricity prices fell relatively quickly in most major markets in 2024, and yet, outside of the United States, remain elevated:

Wholesale electricity prices declined further in many countries in 2024, following the sharp contractions in 2023. This downward trajectory largely tracked the fall in global energy commodity prices, but in some regions local market issues dictated diverging trends. The European Union, India, the United Kingdom and the United States all posted around 20% lower wholesale electricity prices on average in 2024 compared to previous year. Nevertheless, prices in these regions, with the exception of the United States, are still significantly above the pre-Covid levels. 

Whilst prices vary across Europe, they are generally higher than those found in the United States or China and sometimes by a great deal. German, British and Irish households, for example, typically paid twice as much per kilowatt as their American peers in 2024. For industrial users the price gaps can be almost as high.

Eurelectric, a European trade body for European generators, notes that – although taxes play a role in this international gap – the big factor is natural gas. Although they also argue that in the longer run current trends may help Europe close the gap:

There is no denying that Europe has higher energy prices than the US, but such generalisations fail to capture the full picture. In reality, several EU countries actually have more competitive wholesale electricity prices than the US, thanks to a combination of abundant flexibility resources and high renewables all within an open, competitive market. The correlation between gas and electricity prices is also declining in Europe, while growing stronger in the US.

In theory at least, if Europe does indeed manage to switch to electricity production to (generally cheaper) renewable sources faster than the United States then the structurally lower natural gas prices of the United States will matter less.

A recent study, published in Nature, reckoned that if, and this is a big if, European states are able to roll out their ambitious plans for expansions of renewable energy then:

The research also suggests that wholesale prices of electricity could fall by over a quarter on average across all countries in the study by decade’s end if they stick to current national renewables targets.

Again, populations in the UK and Ireland stand to gain significantly, with electricity prices predicted to fall by around 45% by 2030, compared with the current situation.

Several of the Nordic nations could see over 60% reductions in electricity costs by 2030, while in Germany the price is predicted to fall by 34%, with Belgium seeing a similar drop of 31%. The study suggests the Netherlands could see the price of electricity fall by 41%.

In the meantime, though, and over the last few years in particular, Europe’s electricity prices have been uncomfortably high.

This week, the Clark Center’s European Experts Panel looked at the economics of the debate.

Asked whether ‘The high cost of electricity for industrial users in the European Union relative to other big economies is a substantial constraint on growth’, 82% of respondents (weighted by confidence) either strongly agreed or agreed.

And whilst some noted that care needs to be exercised in over-emphasising any one factor, the majority clearly thought it was a real issue.

Energy intensive industries, such as chemicals, have been hit especially hard by the post-2021 energy cost surge and their production has fallen sharply.