The EU’s electricity system is undergoing rapid decarbonisation, but it still represents under a quarter of total energy consumption. To improve the figure, the European Commission announced two related initiatives in late August: the EU Electrification Action Plan and the EU Heating and Cooling Strategy. How to go about it? Ideas abound.
The Commission’s electrification plan aims to promote the so-called green transition by addressing key barriers and identifying priority policy actions. Heating and cooling constitute around half of the EU’s energy consumption, with 70 per cent still reliant on fossil fuels, mainly gas. The Commission views energy concerns as paramount; hence the plans and strategies.
Declarations and substance
A flurry of electricity-minded publications have sprung up in connection to the legislative activity. Some are declaratory, e.g., that by the Danish green lobby group Concito. It published an article titled Electrification can improve European security, competitiveness and cost-of-living, in which it repeats what the European Commission has said and, in turn, urges the Commission to do what it is doing.
Some are rather predictable, like The New Industrial Age by Eurelectric/Accenture, which delves into the transformative impact of electrification on industries worldwide. It discusses how electrification is reshaping manufacturing, transportation, and energy sectors while highlighting the associated costs and challenges. “Electrifying Europe’s industrial sectors is essential to unlocking economic opportunities, cutting emissions, and strengthening the continent’s role as a global innovation leader,“ Eurelectric’s chief Kristian Ruby observes.
Others, however, are substantive. A thorough study Powering European Industry 2.0 by Dansk Industri, a confederation of Danish industry, came out less than a week before Copenhagen assumed the presidency of the Council of the European Union on 1 July. Among other things, it features ten electrification policy recommendations on what it terms critical reforms.
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The voice of Denmark’s industry
First things first. To the Danish industrialists, this means embedding the 32 per cent electrification target into National Energy and Climate Plans (NECPs). The Commission’s Clean Industrial Deal sets a benchmark, but “political direction and ambition” require codification under the Governance Regulation to ensure member states report progress. Without binding targets, electrification risks slipping off the agenda when “political spotlights are off”.
Second, lowering electricity taxes is non-negotiable. Member states must slash levies to the EU minimum—€0.5/MWh for businesses—and apply reduced VAT rates of five per cent. The Energy Taxation Directive remains “outdated and ineffective”; closing the tax disparity between fossil fuels and electricity demands urgent Council action. The Commission’s assessment that taxes could be “at least halved” must be realised to tilt incentives toward electrification.
Electrifying Europe’s industrial sectors is essential to unlocking economic opportunities, cutting emissions, and strengthening the continent’s role as a global innovation leader. — Kristian Ruby, Secretary General of Eurelectric
Third, sustainability policy must balance ambition with pragmatism. While green standards drive market demand for renewables, the “too complex and burdensome” reporting rules under the Omnibus package need simplification. Policymakers must retain the “heart and purpose” of legislation—transparency and comparability—while easing administrative strain, particularly for SMEs.
Urgent upgrades
Fourth, internal energy markets require urgent upgrades. A 2024 report by Agency for the Cooperation of Energy Regulators (ACER) , reveals “7,000 hours with prices below €5/MWh”—a fivefold increase since 2019—with “27 per cent of operational rules” facing implementation delays. Market responsiveness hinges on enforcing existing EU directives swiftly.
Fifth, financing electrification demands bold mechanisms. Electrifying Europe’s industries demands both colossal capital and smart derisking. The proposed Industrial Decarbonisation Bank sits at the core of this effort. Designed as an auction-based mechanism, it would channel funds toward projects that slash emissions through electrification, energy efficiency, or flexibility solutions.
Crucially, grants should be conditional: recipients must invest in flexibility measures like onsite backup batteries or data platforms. These additions not only aid grid stability but, as the text notes, “lower the payback period of the investment in electrification” by enabling participation in energy markets. The bank’s success hinges on scope; excluding flexibility would squander a chance to “benefit the electricity system” while decarbonising factories.
Financing the flux
Power Purchase Agreements (PPAs) remain underutilised due to offtaker credit risks. The European Investment Bank’s pilot guarantee scheme—lauded as a “positive signal”—is deemed “by far not big enough”. Scaling it nationally, alongside EU-backed schemes, could unlock private capital. PPAs let industries “document that (their) consumption is based on renewable energy”, marrying sustainability with price predictability. Yet without robust guarantees, lenders shy from long-term contracts. It is a bottleneck the text urges policymakers to unclog.
Support schemes must not undermine the efficient, competitive and liquid functioning of the electricity markets. — Powering European Industry 2.0 by Dansk Industri
Energy efficiency faces its own headwinds. Heat-pump sales plunged by 21 per cent in 2024 across 14 countries. This presents a sort of crisis the Commission’s Action Plan for Affordable Energy aims to reverse. Expanding financing via Energy Service Companies (ESCOs) is touted as a fix, leveraging third-party capital to offset upfront costs. The Innovation Fund, meanwhile, must evolve. While its focus on “breakthrough projects” is laudable, the text insists it should also back “mature and cost-effective technologies”, particularly in transport sectors that will be covered by ETS2. Revenues from road-transport emissions trading should be “earmarked for electrification”, while aviation/shipping funds prioritise alternative fuels.
Grid technology’s ambiguous status under the Net-Zero Industry Act (NZIA) risks stalling progress. The study demands clarity. “Strategic net zero technologies, hereunder grid technologies” must fall under “clean tech” definitions to access financing. Without this, grid upgrades—critical for handling renewable influx—will lag.
Avoiding market distortions
State interventions, while necessary, risk market distortion. Two-sided contracts for difference (CfDs) are endorsed, provided they align with the revised electricity market regulation’s recital 44: support schemes must not “undermine the efficient, competitive and liquid functioning of the electricity markets”. Producers must retain incentives to halt generation when prices dip below costs; consumers should still feel price signals to curb usage. For e-fuels, the H2 Global model—a “market-based concept”—is proposed, ensuring subsidies don’t skew competition.
Regional collaboration is key for strategic projects. Where infrastructure benefits multiple member states (e.g., cross-border hydrogen pipelines), the text advocates cost-sharing. The model has been through tests in offshore wind consortia. This avoids fiscal free-riding while accelerating “strategic projects of overriding public interest”.
Sixth, permitting delays strangle progress. Grid projects face lead times of “8–10 years for distribution, up to 17 for transmission”. Fast-tracking critical infrastructure—mirroring REDIII’s renewables acceleration—requires exempting PCI/TEN-T projects from environmental assessments and overriding public-interest barriers like the Habitats Directive. (In plain English, PCI stands for Projects of Common Interest, meaning cross-border energy infrastructure projects deemed critical for EU integration. TEN-T stands for Trans-European Transport Network, a policy framework for EU-wide transport infrastructure such as railways or ports.)
Bridging the gap
Seventh, EU funding must plug gaps. The Commission’s €584bn infrastructure investment target dwarfs the Connecting Europe Facility’s €5.84bn budget. The next MFF must prioritise grid modernisation.
The heart and purpose of the legislation needs to be kept, even as pragmatism tempers idealism. — Powering European Industry 2.0 by Dansk Industri
Eighth, grid expansions demand standardised fees and “transparent tariff regulations” to enable flexibility incentives. Ninth, derisking clean energy via two-sided contracts for difference should avoid market distortions. As per recital 44 of the revised electricity market regulation, support schemes must not “undermine…liquid functioning” or block PPAs. A regional cost-sharing model for strategic projects—akin to H2 Global’s hydrogen framework—would balance competitiveness.
Tenth, industrial energy communities offer untapped potential. The revised Buildings Directive’s rooftop solar obligations could fuel local energy-sharing networks, reusing waste heat and slashing electrification costs.
Ambition, derisking, enforcement
The path is clear: ambition, derisking, and enforcement. As the study notes, “the heart and purpose of the legislation needs to be kept”, even as pragmatism tempers idealism.
Of course, it remains to be seen how much of the recommended policy portfolio finds its way through the maze of Brussels‘ corridors of power into European practice. The calls for evidence and the public consultations will continue until 20 November 2025. The feedback received will feed into the Commission’s work on these initiatives, planned for publication in the first quarter of 2026.
