REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Energy prices and costs in Europe
Date: 2020-10-14
Institutions: Directorate-General for Energy, European Commission
Subjects: electrical energy, energy consumption, energy efficiency, energy supply, environmental tax, gas, petroleum, price of energy, retail price, wholesale price

EN 

  EN 

   EUROPEAN COMMISSION  Brussels, 14.10.2020  COM(2020) 951 final  REPORT FROM THE COMMISSION TO THE EUROPEAN PARLIAMENT, THE COUNCIL, THE EUROPEAN ECONOMIC AND SOCIAL COMMITTEE AND THE COMMITTEE OF THE REGIONS Energy prices and costs in Europe {SWD(2020) 951 final}  
 
 
1.  Introduction  

The  transition  to  a  decarbonised  energy  system  and  economy  is  in  motion.  The  profound 
changes entailed by the energy transition  require ample social and political support. Energy 
prices  and  energy  costs  (prices  multiplied  by  consumption)  should  drive  the  markets’ 
transformation  to  achieve  a  climate  neutral  economy  while  keeping  energy  affordable  for 
citizens and businesses. In these difficult moments created by the COVID-19 crisis, it is even 
more important to ensure a fair energy transition that complements our efforts for recovery, 
provides a level playing field for our industry and keeps energy affordable for households. A 
successful  energy  transition  towards  climate  neutrality  by  2050  as  intended  under  the 
European  Green  Deal  will  require  both  affordable  energy  and  trigger  investments  in 
technologies  needed  for  further  decarbonisation.  With  the  Clean  energy  for  all  Europeans 
package  now  under  implementation  and  several  Green  Deal  initiatives  on  energy,  taxation 
and climate policies being prepared, monitoring energy prices and costs helps to understand 
better the effects of our existing policies and provides useful insights  for the preparation of 
the forthcoming proposals. 

This report provides comprehensive information to understand the evolution of energy prices 
and  costs  in  the  EU.  It  analyses  the  energy  prices  trends  for  electricity,  gas  and  petroleum 
products, looking in detail at their market and regulatory drivers and providing international 
comparisons.  It  also  assesses  the  importance  and  impact  of  energy  costs  for  our  economy, 
businesses  and  households.  To  achieve  this,  the  report  analyses  the  evolution  of  the  EU’s 
energy  import  bill,  the  energy  cost  shares  for  more  than  40  sectors  from  manufacturing, 
agriculture  and services, and the impact  of  energy  expenditure in  household  budgets  across 
the  different  income  levels.  The  report  also  looks  at  the  importance  of  energy  taxes  as  a 
source of tax revenues and at the various taxes imposed on energy products. Finally, it maps 
the  different  realised  prices1  received  by  power  generation  technologies  and  analyses  how 
they affect profitability together with other revenues sources and costs.   

As in the 2016 and 2018 editions2, the report relies on data and analysis from a combination 
of Commission works and external studies that allow to better understand energy prices and 
costs trends in Europe in recent years. Publicly available statistical information sources have 
been privileged in the report and complemented by a series of specific data collections where 
public data is overly aggregated or non-existent. Following the exit of the UK from the EU, 
the report focus on EU-27, which makes its statistics and analyses not fully comparable with 
previous  editions.  Energy  subsidies,  which  were  covered  in  the  previous  editions  of  the 
report, are from now on addressed in an annex to the annual State of the Energy Union report. 

While  the  available  historical  data  covers  until  2018  and  in  some  cases  2019,  given  the 
COVID-19 pandemic’s severe impact on energy prices  and costs, where possible, the latest 

1 Realised electricity prices means the average annual price received by the power generator taking into account the output of the generator 
at each traded interval of the year.  

2 COM(2016) 769, COM(2019) 1 

1 

 
 
 
 
 
 
 
 
                                                           
 
figures were included in the report to provide the most recent picture. Compared to the two 
previous editions of this report, the COVID-19 pandemic has in some cases limited  reporting 
ability, in particular by industry. For some highly energy intensive sectors, this has somewhat 
reduced the scope of international comparisons and the comprehensiveness of the assessment 
of energy prices and costs’ importance.  

2.  Trends in energy prices 

2.1 Electricity prices  

In  the  electricity  market,  the  trend  of  rising  wholesale  prices,  which  began  in  2016, 
culminated  towards  the  end  of  2018,  with  wholesale  prices  falling  abruptly  in  2019  due  to 
falling  fuel  costs,  subdued  demand  and  rapidly  expanding  renewable  generation.  The 
decrease  in  prices  across  the  continent  was  uneven,  which  resulted  in  growing  price 
divergence  among  different  regional  markets.  In  the  first  half  of  2020,  compared  with  the 
same period in 2019, prices fell between 30% in some southern European regional markets 
and  up  to  70%  in  some  northern  regions.  The  uneven  decrease  could  be  explained  by 
insufficient interconnection capacities, renewable generation rising unevenly across markets, 
and a significantly strengthened CO2 price, which affected especially Member States with a 
greater presence of fossil fuels in the generation mix. This underlines the need for additional 
investments  in  grid  flexibility,  cross-border  capacities  and  renewable  generation  sources, 
particularly  in  Member  States  lagging  behind  in  these  aspects,  which  should  help  put 
wholesale prices on a more convergent trajectory. 

In 2020, COVID-19’s negative impact on economic activity caused a significant drop in the 
demand  for  electricity,  which,  together  with  rising  renewable  penetration  and  falling  gas 
prices,  has  pushed  wholesale  electricity  prices  to  very  low  levels.  In  addition,  negative 
electricity  prices  have  become  much  more  frequent  and  widespread  in  wholesale  markets. 
This  situation,  which  occurs  when  generators  have  to  pay  to  dispose  of  their  production, 
reflects insufficient interconnections and/or some generators lacking the technical flexibility 
or economic incentive to reduce production.  

Compared  internationally,  Europe’s  position  has  been  relatively  stable  over  the  last  years. 
Wholesale electricity prices in the EU27 have been lower than those in Japan, Australia and 
Brazil,  but  higher  than  in  the  US,  Canada  and  Russia.  COVID-19  has  caused  a  significant 
drop  in  global  demand  for  energy,  including  electricity.  Electricity  prices,  however,  have 
been falling at different speeds depending on regional energy mixes, weather conditions and 
the severity of COVID-19’s impact. 

2 

 
 
 
Figure 1 – Wholesale electricity prices; lowest and highest regional prices and dispersion 
Source: Platts, European Power Exchanges 
Note: The grey background represents the difference between maximum and minimum price 

Retail  electricity  prices  were  rising  over  the  last  decade.  From  2010  to  2019,  electricity 
prices  for  households  rose  on  average  at  a  rate  of  2.3%  per  year,  while  overall  consumer 
prices increased by 1.4% per year. For industry, electricity prices increased at a rate of 1.1% 
per  year,  while  prices  of  industrial  products  in  general  grew  by  1.3%  per  year.  Large 
industrial consumers’ prices evolved more favourably and decreased by 5% over the period. 
Retail prices rose almost every year, with a pause around 2015-2016.  

Retail prices increased between 2017 and 2019 due to a higher energy component (the part of 
prices made up by wholesale prices and to a lesser extent by the commercialisation costs of 
supplying  energy),  while  network  charges  and  taxes  and  levies  remained  relatively  stable. 
This  contrasts  with  previous  years  in  which  wholesale  prices  had  been  falling  steadily  and 
rises in network charges and taxes and levies, mainly the levies necessary to finance subsidies 
for  renewable  energy,  had  pushed  prices  up.  Recently,  the  falling  costs  of  renewable 
technologies  and  higher  carbon  prices  have  triggered  a  wave  of  investment  in  renewable 
capacities  that  are  capable  of  competing  with  other  participants  in  wholesale  markets  on 
commercial  terms.  Additionally,  wider  use  of  more  market-based  instruments  promoting 
renewable  energy  coupled  with  a  gradual  phase-out  of  previous  support  schemes  should 
increasingly help contain the share of renewable surcharges in retail prices. This is crucial in 
light of the more ambitious 2030 climate target, which will require a considerable expansion 
of renewable capacities across sectors and Member States. 

Taxes and levies remain by far the most important source of differences in retail prices across 
Member States, displaying a dispersion that is three times higher on average than that of the 
network  and  energy  components.  This  is  due  to  the  differences  in  Member  States’  policies 
and  fiscal  instruments  affecting  the  taxation  of  electricity  consumption.  In  2019, 
environmental  taxes  paid  by  households  ranged  from  1  €/MWh  in  Luxembourg  to  118 
€/MWh in Denmark, while applied VAT rates ranged from 5% in Malta to 27% in Hungary. 
Renewable levies range from 3 €/MWh in Sweden to 67 €/MWh in Germany. Furthermore, 
in most countries, taxes and levies as well as network charges (i.e. the two price components 

3 

0%5%10%15%20%25%30%35%40%45%0 €/MWh10 €/MWh20 €/MWh30 €/MWh40 €/MWh50 €/MWh60 €/MWh70 €/MWh80 €/MWh90 €/MWh100 €/MWh135791113579111357911135791113579111357911135791113579111357911135791113520102011201220132014201520162017201820192020European Power Benchmark (wholesale prices)Relative standard deviation of regional prices (rhs) 
 
 
determined by regulatory means), significantly exceed the energy component determined by 
market forces. 

Despite  this,  retail  prices  have  been  converging  both  for  households  and  for  industry  since 
2016,  driven  mainly  by  the  energy  components  moving  closer  to  each  other.  Continued 
market  integration  and  some  progress  in  increasing  interconnection  capacities  have 
contributed  to  this  positive  development.  The  decline  in  wholesale  electricity  prices  in  the 
first half of 2020 has already had an impact on household retail prices, which have started to 
decrease.  There  is,  however,  uncertainty  about  the  sustainability  of  this  trend  in  2021, 
especially given that wholesale prices for delivery in 2021 were only temporarily affected by 
COVID-19.  

 Figure 2 – Household prices in the EU in 2019 (DC band) 
Source: Eurostat 

2.2 Gas prices 

European  wholesale  gas  prices  fluctuated  between  10  and  40/MWh  over  the  2015-2019 
period. In 2014, crude oil prices started to fall and dragged down gas prices to lows in 2016. 
This was followed by a recovery until late 2018, when liquefied natural gas (LNG) imports 
started to ramp up, resulting in a significant price fall in 2019.  

In 2020, wholesale gas prices fell further, reaching historical lows in May 2020 (for example, 
the  Dutch  TTF  gas  hub  price  dropped  to  3.5  €/MWh).  This  was  the  result  of  falling  gas 
demand due to the abrupt halt in economic activity induced by the COVID-19 pandemic. As 
there has not been a similar drop in coal prices, the current low gas prices and high carbon 
price encourage the switch from coal to gas in power generation, helping to cut the electricity 
sector’s emissions. 

While the overall variability of gas prices trends responds to oil price indexation, price spikes 
are  seasonal  and  usually  appear  in  winter,  like  in  March  in  2013  and  2018,  when  demand 
grows for heating and the power sector (owing to low nuclear and/or renewable generation), 
or  when  supply  is  constrained  by  infrastructure  unavailability  and/or  low  storage  levels. 
Extremely  low  prices  are  rare  but  can  occur,  such  as  in  2009  and  2020,  when  demand 
plummeted in the aftermath of a severe economic slowdown. 

4 

0 €/MWh50 €/MWh100 €/MWh150 €/MWh200 €/MWh250 €/MWh300 €/MWhDKDEBEIEESITCYPTNLSEATFRLUFICZSILVSKELROEEPLHRMTLTHUBGEU27EnergyNetworkTaxes and levies 
 
 
Figure 3 - Wholesale gas prices in Europe 
Source: Platts, Germany’s Federal Office for Economic Affairs and Export Control (BAFA), 
comext 

Although oil indexation plays an important role in gas prices in Mediterranean markets, this 
price-setting  mechanism  is  losing  ground  in  Europe  as  gas  markets  are  increasingly 
integrated,  suppliers  tend  to  supply  gas  directly  from  wholesale  markets  and  long-term 
contracts  are increasingly indexed to  gas market  prices. The  growing liquidity of European 
gas hubs has been encouraged by the EU’s market liberalisation policies. The Dutch TTF gas 
hub, whose liquidity has been rapidly growing over the last few years, also helped by LNG 
imports, has become the most important price reference in Europe and its global importance 
is rising. In Europe, the share of hub priced contracts within total gas consumption rose from 
15%  in  2005  to  78%  in  2019.  In  central  Europe,  Scandinavia  and  the  Baltics,  hub  prices 
gained  importance  and  became  more  aligned  with  prices  in  the  northwest  European  hubs, 
rather than with  US  dollar oil-indexed prices.  The increased European sovereignty over the 
formation  of  its  gas  prices  reinforces  the  role  of  the  euro  in  energy  trade  in  the  EU  as  it 
reduces  the  influence  of  imported  prices  quoted  in  USD  and  the  exposure  to  the  volatile 
international energy commodity markets. 

In  the  context  of  an  increasingly  global  and  expanding  market,  LNG  has  become  a 
competitive  alternative  to  pipeline  imports  in  Europe.  Last  year,  LNG  imports  reached  a 
historical  peak  of  89  billion  cubic  metres,  roughly  25%  of  the  EU’s  total  gas  imports  and 
22%  of  its  consumption,  contributing  to  the  further  diminishing  role  of  oil  indexation  and 
enhancing  the  EU’s  security  of  supply  through  increased  diversification  of  sources.  In  the 
future,  domestic  bio-methane,  hydrogen  and  synthetic  gases  may  also  play  an  increasingly 
important role in curbing the EU’s growing gas import dependence, following the UK’s exit 
from the EU and the earlier closure of EU gas fields. 

In  international  comparisons,  European  wholesale  gas  prices  are  well  above  those  in  major 
gas  producers  like  Canada,  Russia  and  the  US,  but  lower  than  in  other  G20  countries, 
particularly  those  that  rely  on  LNG  imports  such  as  China,  Japan  and  South  Korea. 
International  wholesale  price  differences,  although  still  persistent,  have  shrunk  in  absolute 
value since 2015 alongside declining prices.  In the first  half of 2020, this convergence was 
accentuated by significant COVID-19-related price drops in Europe, the US and Asia.  

5 

 
 
 
Figure 4 – Household gas prices in the EU in 2019 (D2 band) 
Source: Eurostat 

Retail gas prices for households rose above inflation by 2.1% per year over this decade. For 
industry,  in  contrast,  prices  rose  by  only  0.1%  per  year  for  medium  energy  consumers  and 
even  fell  by  1.3%  per  year  for  large  consumers.  Prices  fluctuated  over  the  period  and  had 
been falling for some years until 2018, when industry prices stabilised within a narrow range 
before starting to rise last year. 

Gas retail prices remain largely determined by wholesale gas prices, which make up most of 
the energy component and filter into the retail price after several months. In 2019, the energy 
component ranged from 45% of the households price (which reached 68 €/MWh in 2019), to 
67% of the medium  industrial consumer price (32 €/MWh) and 78% of the large industrial 
consumer price (22 €/MWh).  

However, network charges and taxes and levies changes are becoming increasingly important 
for  explaining  gas  price  dynamics.  Between  2010  and  2019,  the  rise  of  household  prices 
(2.1% per year) was fuelled up by network charges and taxes and levies, which rose at 2.6% 
per year and 3.6% per year, respectively, while the energy component only rose at 0.8% per 
year. For medium industry consumers, the increases of network charges and taxes and levies, 
3.2%  per  year  and  7.8%  per  year,  respectively,  more  than  compensated  the  drops  in  the 
energy component (1.7% per year), resulting in minor growth of total prices (0.1% per year). 

Taxes and levies account for 32% of household prices, while only 13% and 16% of the prices 
paid  by  medium  and  large  industrial  consumers.  Environmental  taxes,  for  both  households 
and industry, account for the highest shares in non-VAT taxes.  

The  ratio  of  the  most  expensive  and  the  cheapest  retail  price  has  remained  practically 
constant  over  the  last  few  years  across  the  EU  for  households,  whereas  for  industrial 
consumers a slight price convergence could be observed. 

As  for  electricity,  international  comparisons  show  that  retail  gas  prices  for  households  are 
well above most G20 countries. In some countries, household gas prices seem to be quite low 
as compared with wholesale prices and disconnected from the evolution of wholesale prices. 

6 

 
 
 
 
 
2.3 Oil prices 

Recent years have seen new episodes of the volatility of crude oil prices. Crude oil prices fell 
in  2014-2016, rose from mid-2017 to  2018, driven by  global demand,  geopolitical  tensions 
and OPEC output cuts, before settling in 2019 (at around 60-70 USD/barrel) amid a slowing 
global economy and increasing US shale oil output. In 2020, prices plummeted amid demand 
decreases and mobility restrictions resulting from the COVID-19 pandemic, until mid-April 
2020, when major oil producers agreed to cut production. Prices have been on the rise since, 
and  may  continue  to  grow  alongside  increases  in  global  economic  activity.  However,  it  is 
expected that oil prices will not recover closer to the 2019 values before 2021. 

Figure 5 — Crude oil (Brent) and European wholesale gasoline, diesel and heating oil prices — 
Source: Platts, ECB 

Crude oil prices’ uncertainty and variability affect the energy system prices increasing risks 
and  (hedging)  costs  for  suppliers  and  consumers.  Through  oil-indexed  gas  prices  contracts, 
crude  oil  prices  influence  gas  prices,  which  in  turn,  influence  power  market  prices,  as  gas-
fired power stations are often setting wholesale prices.  This suggests that implementing the 
Green Deal and greening transport and the energy supply would reduce the volatility linked 
to crude oil prices. 

Wholesale prices for oil products were mainly driven by ups and downs in crude oil prices. 
However,  other  factors,  like  the  specific  oil  product  supply-demand  balance,  refinery 
maintenance and seasonality, had also some influence on them.  

Retail prices rose since 2016, reaching their highest levels since 2012 and 2013 in 2018 and 
2019. In the period 2016-2019, in nominal terms, gasoline prices increased by 12% (annual 
average growth of 3%), diesel by 17% (annual average growth of 4.3%), and heating oil by 
20.3%  (annual  average  growth  of  5.1%)  due  to  rising  oil/wholesale  prices  and  to  a  lesser 
extent  to  excise  taxes.  All  prices  evolved  in  a  similar  way,  fluctuating  alongside  crude  oil 
prices, but to a much lesser extent. The high share of taxes (excises plus VAT), which may 
account for up to 70% of the price, protects prices at the pump from the variability of crude 
oil prices and exchange rates as oil is still traded in US dollars only. 

Excise  duties  also  make  up  most  of  the  price  differences  of  petroleum  products  across  the 
EU. 

7 

 
 
 
 
3.  Trends in energy costs 

3.1 The EU energy import bill3  

The energy import bill is an overall macroeconomic indicator that shows the costs for the EU 
of  its  reliance  on  fossil  fuels.  This  is  because  most  fossil  fuels  are  imported  (import 
dependency on fossil fuels was 55.7% in 2018). The import bill has been rising since 2016, 
reaching  over  EUR  330 billion  annually  according  to  the  latest  reported  data  in  2018.  This 
reverses the downward trend from the highest peak of 2013 (EUR 400 billion).  

The bill has recently been driven up by rising fossil fuel prices, in particular by rises  in oil 
prices. In 2018, oil was responsible for 69 % of the total import bill, gas for 27 % and hard 
coal for 4 %. Oil and gas prices started to fall towards the end of 2019 and this would reduce 
the  energy  bill,  in  particular  if  consumption  would  fall.  In  the  first  half  of  2020,  due  to 
COVID-19’s  impact  on  economic  activity  and  transport,  prices  and  consumption  fell 
significantly.  COVID-19  has  accelerated  the  increasing  market  penetration  of  renewable 
energy encouraged by EU clean energy policies, contributing to the reduction of coal and gas 
presence in the electricity mix. All this will reduce the energy import bill in 2020. 

Figure 6 - The EU’s import bill 
Source: European Commission Directorate-General for Energy calculation 

3.2 Households expenditure on energy 

The  share  of  total  expenditure  that  European  households  spend  on  energy  (excluding 
transport) varies across income levels and countries. Households’ energy expenditure shares 
have been falling for all income levels since 2012, with the exception of 2017, in which they 
rose slightly, before falling again in 20184. That year, they reached values comparable to or 

3 EU27 plus UK 
4 Latest data available on household energy expenditure (excluding transport) collected by DG ENER 

8 

 
 
 
 
 
                                                           
 
lower than those before the 2009-2012 economic recession.  

In 2018, the poorest European households (those in the lowest 10 percent income bracket) 
spent 8.3% of their expenditure on energy. Lower-middle (third decile) and middle income 
(fifth decile) households spent 7.4 % and 6.7 %, respectively, of their expenditure on energy.  

By  region,  northern  and  western  European  middle-income  households  spent  3-8%  while 
central and eastern Europeans with the same income level spent 10-15%.  

By  country,  the  poorest  households  spent  from  slightly  more  than  20%  in  Slovakia  and 
Czechia  to  less  than  5%  in  Luxembourg,  Finland  and  Sweden.  In  absolute  terms,  the  EU 
poorest households spent on average a total amount of EUR 945 on energy products, which 
ranged  across  Member  States  from  less  than  EUR 500  to  EUR 2500.  However,  it  is 
important to consider that the purchase power varies largely amongst Member States. 

Figure 7 – Poorest households’ energy expenditures (excl. transport) by fuel and energy share in 
their total expenditure (2018) 
Source: DG ENER ad hoc data collection on household consumption expenditures 

Indicators of European households’ energy poverty continued to decline in 2017 and 2018, 
as they have been doing since the  end of the three-year  recession in  2012. From that  year 
until 2018, the average shares of European households experiencing ‘problems to keep their 
homes warm’ and ‘arrears in their utility bills’, fell from 11% to 8% and from 10% to 7%, 
respectively,  although  significant  differences  between  the  Member  States  can  still  be 
observed.  

All  this  suggests  that  energy  poverty  has  overall  decreased  in  Europe  over  the  last  years, 
partly due to improvements in the economic situation. The creation in 2008 of the European 
Energy Poverty Observatory has made the EU better equipped to identify and tackle energy 
poverty. Likewise, effective strategies have been developed to incorporate policies tackling 
energy poverty into energy transition plans and energy efficiency policies. 

In the aftermath of the COVID-19 crisis, energy poverty risks increasing as many Europeans 
are losing their jobs and income in the aftermath of the COVID-19 crisis while retail energy 
prices  and  consumption  needs  may  not  be  falling  in  the  same  proportion.  The  resulting 
adverse social consequences would need to  be  addressed  and  adequate policies by the EU 

9 

 
 
 
 
and the Member States deployed to support access to energy services for those in need. The 
European  Pillar  of  Social  Rights  places  energy  among  the  essential  services  to  which 
everyone has the right to access. 

The Renovation Wave,  announced in  the  Next  Generation EU5  Recovery  Package and the 
European  Green  Deal,  should  help  contain  energy  poverty  rises  by  helping  households 
reduce their energy consumption in buildings and bills, particularly for those living in social 
housing.  The  EU’s  eco-design  and  energy  labelling  measures  should  also  contribute  to 
savings  in  household  appliances’  consumption,  reducing  household  electricity  bills.  The 
Commission  Recommendation  on  Energy  Poverty6  accompanying  the  Renovation  Wave 
will also provide guidance on measuring energy poverty. 

3.3. Industrial energy costs  

Although energy is essential to enable economic activity, it plays an increasingly modest role 
in  the  economy’s  value  formation  in  the  EU.  In  2017,  from  a  macroeconomic  perspective, 
purchases of energy in total production value were 1.7% for industry (2.0 % in 2014) and 1% 
for services (1.2% in 2014). 

For  the  average  business  in  Europe,  energy  costs  account  for  a  rather  small  share  of 
production costs (0-3%). Energy costs shares in production costs are more important for the 
most energy intensive manufacturing sectors (ranging from 3% to 20%) and can reach very 
high  levels  for  certain  industrial  subsectors  (e.g.  40%  in  primary  aluminium,  31%  in  zinc, 
28% in ferro-alloys and silicon, 25% in flat glass, 71% in fertilisers and 20% in electric-arc-
furnace secondary steel7). Beyond manufacturing, the purchase of energy can also be a very 
significant  source  of  costs  in  certain  sectors  providing  transport,  information  and 
accommodation and restauration services. 

Table 1 — Energy share of production costs across sectors 

Energy share of 
production costs 
(indicative range) 
0-3 % 
0.4-1% 

equipment, 

Examples of sectors 

Average European business  
Trade, 
computers,  motor 
pharmaceutics, construction 
Waste management, plastics, textiles, grain  
Accommodation and restaurants 

vehicles, 

electrical 

Energy intensive sectors in manufacturing:  
Cement,  clay  building  materials,  pulp  and  paper,  glass,  iron  and 
steel, basic chemicals, non-ferrous metals, refineries 

Air transport, land transport 
Data centres 
Mining of metals and others, electricity and gas 
Source: Trinomics (2020), Eurostat 

2-4 % 
3-5 % 

3-20 % 

20-30% 
10-15% 
10-20% 

5  COM(2020) 456 final 
6 C(2020)9600 
7    For  aluminium,  flat  glass,  zinc,  silicon,  fertilisers:  study  on  energy  prices  and  costs  and  their  impact  on 
households and industry by Trinomics et altri (2020). For steel, the JRC Technical Report on Production costs 
from iron and steel industry in the EU and third countries (2020).    

10 

 
 
 
 
 
                                                           
Between 2010 and 2017, energy costs in the manufacturing sectors under examination fell by 
13%. The fall in  energy  costs was more pronounced between 2014 and 2017, when energy 
costs declined in all 30 sectors analysed. Energy costs dropped despite slight price rises and 
more  economic  activity,  thanks  to  significant  reductions  in  the  sectors’  energy  intensity, 
particularly in sectors with moderate energy intensities. The reductions in the sectors’ energy 
intensities  resulted  from  lower  energy  consumption  per  output  unit  and,  to  a  lesser  extent, 
from  fuel  switching  (from  coal  to  gas  and  electricity)  and  from  a  restructuring  of  the 
production mix (to products with high value added and low energy intensity). 

In the international perspective, European electricity industrial prices are lower than those in 
Japan, comparable to those in China, double those in the US, and higher than those in most of 
the other non-EU G20 countries. European gas prices are lower than in east Asian countries 
(Japan, South Korea, China), but higher than in most other G20 countries, including the US. 
Relatively  high  non-recoverable  taxes  and  levies  in  the  EU  and  price  regulation  and  or 
subsidies in the non-EU G20 play an important role in this difference. 

Figure 8 – Electricity (up) and gas (down) industrial prices in EU27, Japan, China and the US 
Sources: Trinomics (2020) based on data from Eurostat, CEIC, IEA 
Note: China gas prices are proxy on Usage Price, 36 City Average of gas for industrial users.  

11 

 
 
 
 
 
The  limited  international  data  suggests  that  Europe’s  most  energy-intensive  sectors  have 
energy  costs  shares  of  a  comparable  magnitude  to  international  trade  partners.  The  energy 
costs  shares  of  these  EU  sectors  are  overall  lower  than  or  similar  to  those  in  the  US  and, 
when compared with Japanese sectors, the results are mixed. As for the main fuel used, when 
compared to Japan and the US, the energy costs shares in these EU sectors tend to be higher 
for electro-intensive sectors  and similar or lower for the more  fossil fuel-intensive sectors8. 
The energy intensities of Europe’s most energy-intensive sectors are higher than in Japan and 
Korea,  comparable  to  the  US  and  lower  than  in  Russia.  The  moderate  energy-intensive 
sectors in  the EU display  energy  intensities that  tend to  be lower than those in  most of the 
EU’s international trade partners (and sometimes are the lowest)9. European industry should 
continue  its  energy  efficiency  efforts  that  help  to  curb  energy  costs  gaps  with  international 
trade partners. Manufacturing sectors in many non-EU G20 countries often experience lower 
costs associated with clean energy, climate and environmental policies than those in Europe 
and/or  receive  energy  subsidies.  The  Commission  is  reviewing  its  state  aid  regime  and  the 
free  allocation  of  ETS  allowances  aims  at  addressing  the  risk  of  the  carbon  leakage. 
Moreover, should differences in levels of ambition worldwide persist, as the EU increases its 
climate ambition, the Commission will propose a carbon border adjustment mechanism, for 
selected sectors, to reduce the risk of carbon leakage, as an alternative to current measures. 

COVID-19’s  negative  impact  on  energy  prices  in  2020  should  in  principle  reduce  energy 
costs and the share of energy in production costs (as the fall in energy prices may be higher 
than the fall in price of other production inputs and final products). This, however, may not 
be fully the case for energy intensive industries with high fixed levels of energy consumption 
(e.g. industries that have to keep furnaces working 24h/day irrespective of the output).  

4.  Government revenues from energy taxation and tax and levies applied on 

energy products 

In  2018,  EU  Member  States  collected  energy  taxes  that  amounted  to  EUR  294  billion10. 
Energy  taxes  have  remained  over  the  years  relatively  stable  as  a  GDP  share,  at  ca.  2%,  as 
well as in their share in total tax revenues, representing 4.6% in 2018. Excise duties (of which 
more than 80% comes from oil products) constitute the largest part of energy taxes. 

Energy  taxes  ensure  significant  revenues  to  Member  States  budgets  and  provide  a  buffer 
mitigating  the  impacts  of  the  volatility  of  crude  oil  prices  on  retail  prices  of  petroleum 
products. Energy taxes also play a role in fostering the energy transition and decarbonisation 
of  the  economy  as  they  can  amplify  price  signals  to  discourage  wasteful  consumption  or 
environmentally harmful behaviour in line with the polluter pays principle.  

8 By electro-intensive sectors, we mean non-ferrous metals and steel produced with electric arc furnaces. By 
fossil fuel-intensive sectors, we refer, for instance, to glass, refineries and basic chemicals. 
9 Where data was available, sectors’ energy intensities in China are systematically higher than in EU.  
10 EU27 plus the UK  

12 

 
 
 
                                                           
Figure 9 – Energy taxes in the EU 
Source: Eurostat 

Taxes and levies account for 41% and 30-34% of households and industry electricity prices, 
respectively, and for 32% and 13-16% of the households and industry gas prices. They also 
account for 50% of heating oil prices, 60% of gasoline and 56% of diesel. The types of the 
taxes  and  levies  (excises,  VAT,  renewable  energy  levies,  capacity  levies,  environmental 
taxes, etc.) and their importance in prices varies widely across energy products and countries. 
Member  States’  different  fiscal  preferences  and  policies  result  in  different  levies,  tax  rates 
and  exemptions  applied  to  products.  The  overall  taxes  and  levies  differences  between 
households and industry usually respond to recoverable taxes (VAT) and to taxes and levies 
exemptions applied to industry for economic reasons. Differences between gas and electricity 
are  due  to  higher  taxes  and  levies  in  electricity  prices  to  finance  energy  and/or  climate 
policies, and lower taxes, negligible renewable levies and tax exemptions for gas, associated 
with its traditional social role as a heating fuel. Finally, tax breaks for consumption of fossil 
fuels represent a significant amount of circa EUR 30 billion in 2018.11  

The upcoming initiatives seeking to align the energy taxation with the Green Deal objectives 
and ambition, and the commitment to  end harmful  fossil fuels  subsidies, should exploit the 
potential  of  energy  taxes  and  of  reducing  support  to  fossil  fuels  to  contribute  to  climate 
neutrality. It is also important to encourage further awareness of the variety and complexity 
of  taxes  and  levies  affecting  energy  prices  with  different  purposes  and  impact.  Their 
combined  impact  on  prices,  and  thereby  the  signal  given  to  consumers,  could  also  be 
considered  in  the  light  of  these  taxes’  different  purposes,  in  particular  the  promotion  of 
consumption  and  behaviour  aligned  with  the  EU’s  energy  and  climate  policies  and  on 
achieving a just and fair transition. 

In 2020, the COVID-19-related slowdown in economic and transport activity will likely curb 
revenues from energy (mainly transport fuel excise) taxes. Support to fossil fuels, mainly tax 
rate  reductions  to  transport  fuel  excises,  are  also  likely  to  fall,  alongside  the  drop  in 

11 Estimate based on data from Annex on energy subsidies of the 2020 State of the Energy Union Report. 

13 

 
 
  
                                                           
consumption  of  transport  fuels.  Conversely,  the  fall  in  electricity  prices  could  increase  the 
support received by renewable generation still linked to feed-in-tariffs. 

5.  Prices, costs and investments in power markets 

Electricity markets ensure a secure and  affordable supply for the EU’s consumers and send 
the necessary signals to investors to maintain the level of supply in the long term. Undistorted 
prices,  including  environmental  externalities,  provide  the  right  signals  to  market  actors  to 
make the necessary investment decisions for the energy transition. 

The EU has set a legal framework12 prepared for a transition to a system with an increasing 
share  of  renewable  electricity.  Investments  in  new  generation  capacity  have  continued,  in 
particular with respect to renewable sources for electricity generation (RES-E). In 2018, 32% 
of electricity generated in the EU was from renewable sources. 

Electricity  wholesale  prices  can  vary  significantly  during  one  day  as  the  electricity  system 
has  not  been  designed  to  store  large  amounts  of  electricity  but  rather  to  match  supply  and 
demand in real time. As a result, price patterns seen by wind and photovoltaic generators are 
strongly driven by meteorological factors. The profitability of RES-E investments is largely 
determined  by  these  ‘realised’  prices,  by  support  schemes  and  by  technology  costs.  Falling 
technology  costs  have  risen  the  profitability  of  renewable  energy  sources,  which  can 
increasingly  compete  in  electricity  markets.  Support  levels,  which  are  increasingly  set  by 
competitive  auctions,  have  been  falling  for  both  wind  and  photovoltaic  projects.  The 
continuation  of  this  trend  to  fully  market-based  RES-E  projects  should  help  contain 
electricity retail prices by reducing the support-related component. The increased penetration 
of  wind  and  photovoltaic  generators  has  already  led  to  a  decrease  in  market  revenues,  as 
shown in Figure 10 using the example of photovoltaic generation. 

12 Directive (EU) 2019/944, Regulation (EU) 2019/943 

14 

 
 
 
 
 
 
 
                                                           
Figure 10 – Realised price in EUR/MWh (above) and as percentage of baseload price (below) 
for solar photovoltaic (PV) generation 
Source: Trinomics (2020)  

This trend is expected to continue with increasing penetration of RES-E and could offset the 
gains obtained by falling technology costs.  Due to the strong decrease in power consumption 
in  the  first  half  of  2020  triggered  by  the  COVID-19  crisis,  on  some  occasions  RES-E 
temporarily  supplied  50%  of  the  EU’s  demand,  resulting  in  drops  in  electricity  prices. 
Lessons  should  be  drawn  from  the  impact  of  this  crisis  on  power  markets.  This  has 
anticipated a situation originally expected to be seen in the mid-2020s, keeping in mind that 
reaching at least 55% of greenhouse gas emission reductions by 2030 is expected to lead to 
ca. 65% share of renewable electricity. 

Conventional sources of power generation, such as gas-fired power plants, can adapt output 
to  changes  in  demand.  Consequently,  flexible  generators  take  the  decision  to  produce 
electricity based on price signals, seeking to produce when market revenues cover the costs 
of producing an additional unit of electricity. While the realised prices for flexible generators 
will  thus  be  above  average  power  prices,  the  increasing  penetration  of  meteorologically 
driven  renewable  energies  can  reduce  the  number  of  hours  during  which  prices  are 
sufficiently high for breaking even. 

15 

0%20%40%60%80%100%120%140%201220132014201520162017201820192020DEESFRIT - 10 20 30 40 50 60 70201220132014201520162017201820192020EUR / MWh 
 
  
 
 
 
 
6.  Conclusions 

After  2-3  years  of  rises,  wholesale  prices  started  to  fall  in  2019  due  to  the  economic 
slowdown and market specific supply rises. In the first half of 2020, prices plummeted amid 
falling  demand  and  the  mobility  restrictions  triggered  by  the  COVID  pandemic.  Prices  are 
expected to rise as the economy picks up, but may need until 2021 to recover to 2019 levels. 

Electricity wholesale prices had been converging until they recently diverged across regional 
markets  due  to  insufficient  interconnections  and  an  uneven  importance  of  renewable 
generation  in  the  Member  States’  power  mix.  This  suggests  that  investments  in  the  grid’s 
flexibility,  cross-border  capacities  and  renewable  generation  in  those  Member  States  which 
are  lagging  behind,  would  bring  more  integrated  and  competitive  markets  with  potentially 
lower price dispersions. Energy markets’ close interlinks result in crude oil prices volatility 
also  affecting  gas  and  electricity  prices.  This  influence  however  decreases  alongside 
renewable penetration in power markets and the growing importance of European gas hubs, 
which  displace  the  use  of  US  dollar  oil-indexed  gas  prices  and  strengthen  the  international 
role of the Euro. 

European retail prices were on a rising trend or relatively stable between 2017 and 2019. In 
the  previous  years,  price  falls  lasted  longer  and  were  stronger  for  gas  and  large  industry 
consumers  than  for  electricity  and  households.  As  a  result,  over  the  decade,  household 
electricity and gas prices rose above inflation, while for industry, they rose below industrial-
price-indexes,  and  fell  for  the  larger  (in  particular  gas)  consumers.  Contrary  to  what 
happened during most of the decade, in  recent  years, taxes and network  charges have been 
relatively  stable  or  have  risen  slightly  resulting  in  price  changes  driven  by  changes  in  the 
energy component. The reduced pressure of renewable levies on prices comes along with the 
wider use of more market-based instruments promoting renewables and a gradual phase-out 
of  previous  support  schemes.  This  means  that  the  (market-based)  energy  component  is 
expected to play a major role in driving price changes in the future, although network charges 
should  become  gradually  influential,  alongside  the  need  to  finance  investments  in  more 
resilient  and  smarter  grids.  As  for  oil  products,  prices  at  the  pump  rise  and  fall  following 
fluctuations in crude oil prices, buffered at retail level by taxes. Albeit with a certain time lag, 
retail  prices  started  to  react  in  the  2nd  quarter  of  2020  to  COVID-19-induced  falls  in 
wholesale prices and subdued demand.  

The  EU’s  energy  import  bill,  which  after  3  years  of  consecutive  rises  reached  EUR  331 
billion in 2018, is a reminder of the costs for the EU derived from its high reliance on fossil 
fuel  imports  and  exposure  to  volatile  international  markets.  The  bill  could  have  fallen  in 
2019, due to the lower fossil fuel prices that year, and will fall in 2020, in the light of strong 
declines in fossil fuels consumption and prices prompted by the COVID-19 pandemic.  

Energy  costs  shares  in  production  costs  have  fallen  generally  and  in  a  more  pronounced 
fashion across industrial sectors in recent years, extending their overall downward trend over 
the  decade.  The  sectors’  lower  energy  intensity,  with  moderately  energy-intensive  sectors 
joining the highly energy-intensive industries in energy efficiency efforts, contributed to the 
falls  in  energy  costs,  in  a  context  of  slight  price  rises  and  increasing  economic  activity. 
International  price  differences  have  remained  stable  in  recent  years,  with  the  European 

16 

 
 
 
industry  facing  higher  prices  that  the  US  and  comparable  or  lower  prices  than  Asian 
competitors. Limited data on energy costs and energy intensities, points to Europe’s sectors 
having  higher  energy  intensities  than  those  in  Asia  (but  China)  and  comparable  to  the  US, 
while  facing  higher  energy  costs  shares  than  those  in  Asia  and  comparable  or  lower  than 
those in the US. Some of these differences may be explained by subsidies to industry in non-
EU G20 member states and the EU’s higher climate-related costs. To maintain its competitive 
edge  in  international  markets,  European  industries  should  keep  on  improving  their  energy 
efficiency.  COVID-19’s  impact  on  energy  prices  and  economic  activity  is  not  expected  to 
increase energy costs pressures on industry’s production costs, with the exception of energy-
intensive sectors having a large proportion of their energy consumption fixed irrespective of 
the level of output.    

European households are spending on energy a comparable share to what they were spending 
before the 2008  crisis.  The shares’ gradual  fall over the last  years,  along  with  other energy 
poverty  indicators,  point  to  a  reduction  in  the  overall  energy  poverty  risks  in  Europe  that 
resulted from improvements in the economy and more targeted EU energy policies to identify 
and  address  energy  poverty.  That  said,  energy  poverty  remains  a  challenge  for  the  EU.  In 
2018,  the  European  poorest  households  spent  on  energy  (on  average)  8.3%  of  their  total 
expenditure,  and  up  to  15%  -  22%  in  some  Central  and  Eastern  European  Member  States. 
The  EU’s  policy  efforts  should  thus  continue  as  COVID-19’s  economic  impact  may  be 
eroding households’ income, particularly for the poorest. 

Energy taxes are an important and stable source of revenues for Member States. Total energy 
tax revenues, which mainly come from excises on oil products, are likely to fall in 2020 in 
the aftermath of COVID-19’s impact on transport fuels consumption. There are many types 
of  taxes  and  levies  imposed  on  energy  products,  which  have  different  purposes  and  which 
Member States apply in different ways. All combined, they have a very significant impact on 
prices, in particular on electricity, which varies widely across energy products and Member 
States. The EU and its Member States are aiming to align energy taxation with the energy and 
climate objectives in line with the Green Deal proposed initiatives. In addition, the combined 
effect on prices of all (not only energy) taxes and levies could be considered when assessing 
how they promote behaviour aligned with a clean and fair energy transition.  

Realised  prices  for  renewable  generation  are  falling  along  with  the  renewable  energy’s 
growing market penetration. In the light of the expected growth in renewable investment, the 
existing monitoring of  market  design and support  schemes should look at  ensuring that the 
appropriate  balance  will  be  struck  between  efficient  market  revenues  and  the  provision  of 
support (de-risked) revenues that enable investments. 

17