Expert analysis
The European energy market has once again been hit by a strong external shock. The conflict in the Middle East has increased supply security risks, which quickly translated into higher gas prices and, through that, higher electricity prices. In response, EU leaders agreed on a set of measures aimed at mitigating price pressure and protecting industry in the short term.
These steps clearly show that the regulatory focus is not on directly controlling prices, but on softening their impact and stabilizing the system.
What measures are being considered
The proposal addresses price pressure from multiple angles. One of the key elements is the reduction of electricity taxes. In some countries, the tax burden on electricity is significantly higher than on gas, distorting consumption and procurement decisions. Lowering this burden could directly reduce end user costs.
In addition, the EU allows member states to expand state aid schemes. This enables governments to provide direct compensation to industrial consumers and households, while EU rules around state aid are being relaxed compared to previous frameworks.
Another important element is the targeted reduction of network charges, especially for energy intensive industries. Sectors such as chemicals and metals are particularly exposed to energy costs, making this a direct competitiveness issue.
Two directions are emerging in relation to the EU ETS. On one hand, a large-scale investment support package of around EUR 30 billion is planned, financed through the sale of emission allowances, with the aim of supporting industrial decarbonization. On the other hand, in the short term, increasing the supply of allowances is being considered to reduce price volatility, which is already triggering political debate between climate ambitions and industrial protection.
What has happened in the power market so far
This year, the European energy market has been strongly driven by developments in the gas market. The doubling of gas prices has directly fed through into electricity prices, as marginal pricing remains heavily dependent on gas.
At the same time, high carbon prices at the beginning of the year also pushed electricity prices upward. Later, however, political signals around potential ETS adjustments created downward pressure, highlighting that regulatory expectations themselves have become a key pricing factor.
What this means for procurement decisions
In the short term, high price levels and significant volatility are expected to persist. Due to the strong linkage to gas markets, electricity prices remain largely driven by external factors, increasing the importance of active risk management. While support measures can ease the burden, they also increase pressure on public budgets.
In the medium term, member states will have greater flexibility to intervene at national level, including through tax reductions and targeted subsidies. At the same time, industrial protection is becoming a more central element of EU energy policy. Adjustments to the ETS may help moderate the increase in carbon costs, although the extent remains uncertain.
In the long term, the direction is clear. Electrification, the expansion of renewable energy, and the strengthening of local production will define the evolution of the market. At the same time, grid development becomes critical, as current infrastructure often represents a bottleneck. Reducing import dependency will remain a strategic priority.
Conclusion
The current EU measures are not aimed at directly controlling prices, but at mitigating their impact. In the short term, the focus is on reducing costs and stabilizing the market, in the medium term on protecting industry, and in the long term on transforming the energy system.
Electricity prices, however, continue to be driven primarily by global supply shocks and geopolitical developments rather than regulation. In this environment, regulation plays a role in managing risk, not eliminating it.
Source: Reuters Montel News
Analysis written by: Tóth Eszter Lilla
20.03.2026.