The European Commission has adopted the Action Plan for Affordable Energy, a strategy designed to lower energy costs for industries, businesses, and households while shielding the EU-27 from future crises.
The Affordable Energy Action Plan Aims to Save €260 Billion Annually by 2040
Providing a swift and decisive response to reduce energy prices in the short term while making the energy system future proof, these are the core objectives of the Action Plan for Affordable Energy. The plan, unveiled today by the European Commission alongside the much-anticipated Clean Industrial Deal, lays out four key pillars of the EU strategy:
- Lowering energy costs.
- Completing the Energy Union.
- Attracting investments.
- Preparing for future energy crises.
The ultimate goal is to achieve estimated savings of €45 billion by 2025, increasing to €130 billion annually by 2030 and reaching €260 billion per year by 2040.
“Today’s challenges demand bold and ambitious actions to lower energy prices and safeguard our security,” said Dan Jørgensen, European Commissioner for Energy and Housing. “The answer lies in a cleaner, more affordable, more efficient, and interconnected Energy Union. That’s why we won’t step back from the green transition but rather move forward with determination and urgency.”
Cutting Energy Costs: The Core of the Action Plan
The plan introduces several measures to address energy prices, which surged again at the end of last year and remain well above pre-crisis levels. Currently, electricity costs three times more than gas in many European countries. Retail electricity prices for industries are nearly double those of early 2021.
This situation is hitting over 40 million Europeans already classified as energy-poor while directly undermining industrial competitiveness and security.
The plan’s four main strategies for reducing costs include:
1. Lowering Electricity Bills
The first step is reducing electricity bills by addressing network charges and taxes:
- By Q2 2025, the Commission will propose new tariff methodologies to promote flexibility while maintaining incentives for network investment.
- If needed, it will follow up with legislation to make these proposals legally binding.
- The Council is expected to finalize the Energy Taxation Directive (ETD), aligning energy taxation with EU energy and climate policies. Member states can already use state funds to reduce energy-related taxes.
- By Q3 2025, the EU will propose a Citizen Energy Package, helping consumers save money, switch providers, and modify contracts, while also addressing energy poverty through community energy initiatives (CERs).
2. Cutting Electricity Supply Costs
The Commission aims to decouple retail electricity prices from volatile gas prices. To achieve this, by Q2 2025, the EU will:
- Launch a €500 million pilot program with the European Investment Bank (EIB) to provide counter-guarantees for corporate Power Purchase Agreements (PPAs).
- Offer guidance on designing effective Contracts for Difference (CfDs) and combining them with PPAs.
- Introduce new rules to enhance European forward markets and risk-hedging opportunities.
- Accelerate permitting procedures for grids, storage, and renewables through legislative proposals under the European Grids Package.
- Assess simplifying licensing for new nuclear energy technologies, with a Small Modular Reactor (SMR) communication planned for 2026.
Additionally, by April 2025, the EU will release granular data on offshore wind and solar photovoltaic potential through the Energy and Industry Geography Lab.
3. Strengthening the Power Grid
By Q1 2026, the Commission will present the European Grids Package, which will:
- Simplify TEN-E regulations.
- Improve grid planning, including cross-border interconnectors.
- Promote grid digitalization and innovation.
- Increase transparency regarding production supply chain needs.
Simultaneously, the EIB will offer at least €1.5 billion in counter-guarantees to support grid component manufacturers.
4. Enhancing Flexibility
The EU will promote energy system flexibility through storage and demand-response mechanisms. Member states must remove national barriers to these segments immediately, while the Commission will:
- Adopt new demand-response rules to ensure consumers benefit financially from flexible electricity consumption by Q1 2026.
- Clarify state aid requirements for non-fossil flexibility schemes in the updated State Aid Framework by Q2 2025.
- Publish guidance on remunerating flexibility in retail contracts by Q4 2025.
Managing the Fossil Gas Market
The plan extends beyond renewables, introducing new strategies for fossil gas markets. Earlier this month, the Commission launched a Gas Market Task Force to analyze EU natural gas markets and address potential pricing distortions.
Additionally, the EU will:
- Engage reliable LNG suppliers to secure cost-competitive imports.
- Propose joint procurement of LNG processing contracts for European companies.
- Consider long-term LNG supply agreements, similar to Japan’s strategy of acquiring stakes in foreign LNG projects for stable, preferentially priced access.
Boosting Energy Efficiency
To enhance efficiency, the EU will collaborate with the EIB to create a guarantee scheme aimed at doubling energy efficiency services for small and medium-sized enterprises (SMEs) by Q4 2025. A pilot initiative may be launched under InvestEU and LIFE CET by 2026.
The EU will also immediately update energy labeling and eco-design standards and encourage consumer incentives for replacing old appliances with high-efficiency alternatives.
Preventing Future Energy Crises
One of the core objectives is preventing a repeat of the 2021–2022 energy crisis. To this end, the EU has outlined three key actions:
- New energy security regulations: A proposal to revise the EU’s energy security framework will be presented in early 2026 to improve preparedness for supply disruptions.
- Peak demand management: The Commission will provide guidance for member states to develop peak demand reduction programs and incentivize consumers to shift usage times.
- Cross-border capacity coordination: The EU will collaborate with Transmission System Operators (TSOs) and national regulators to increase temporary cross-border transmission capacity when necessary.
Industry Associations’ Demands for the Action Plan
Industry groups have submitted various requests regarding the action plan. WindEurope, representing the wind sector, has urged the Commission to prioritize:
- Aligning energy taxation with climate goals.
- Increasing grid investment and demand-response solutions.
- Expanding renewable energy supply with long-term contracts and investment incentives.
- Supporting local communities hosting renewable projects.
- Creating financial mechanisms to support industrial electrification.
Meanwhile, CAN Europe emphasized avoiding new fossil gas infrastructure and extending LNG imports. Their priorities include:
- Accelerating renewable energy deployment.
- Increasing energy savings and efficiency.
- Reducing gas demand, making 2022’s mandatory savings regulation permanent.
- Expanding grid investments while simplifying public funding.
- Protecting vulnerable consumers through optimized Contracts for Difference (CfDs) and fair revenue distribution.
- Reforming energy taxation to align with environmental costs.
