Europe Must Reclaim Control of Its Energy Destiny, Or Face Risks of Energy Poverty, Instability, and Geopolitical Irrelevance.

This article is from a European reader and energy consultant who authored it in response to my request that he expand on a comment he made on one of our posts. It's very thoughtful!

Guest Post by Damjan Stanek at D2S Energy & Business Solutions.

Europe’s energy sector stands at a crossroads. Recent shocks—from the Ukraine war to Iberia’s blackout—have laid bare a system weakened by siloed policies and antiquated market design. This paper argues for a holistic, technology-neutral strategy that marries climate ambition with grid reliability, economic resilience, and social equity. By realigning market signals, appropriate use of decentralized renewable energy sources, usage of dispatchable generation sources and embedding real-time AI controls, Europe can secure its energy future and catalyse investment through 2050.

BETWEEN IDEALS AND INFRASTRUCTURE

In the past three years, Europe has faced a cascade of energy shocks: the wartime curtailment of Russian gas; a seismic shift in U.S. policy under the Trump administration; and blackouts that stunned 50 million Iberians and North Macedonians alike. These events did more than interrupt power—they shattered the illusion that ideology alone can govern electrons.

It is unfortunate that the climate agenda commanded European focus for such an extended period. While achieving climate goals should be a shared imperative, it is becoming increasingly clear that climate policy must not be pursued in isolation from economic resilience, social cohesion, and the basic human right to energy access. A sustainable transition requires not only low emissions but also a thriving economy capable of supporting investment in new technologies. A holistic view of society’s needs is essential to ensure energy policies are viable and equitable.

Europe has committed itself to putting the end consumer at the heart of the green transition and to enabling him, through market mechanisms, to be an active market participant, free to decide on his needs and to participate in the market. Unfortunately, the outcome has been the opposite, largely due to a failure to address technical constraints—resulting in consumer discrimination—and procedural complexity that overwhelms the average user.

This exposes the consumer to choices that can lead to energy poverty and poorer economic outcomes due to risks that are difficult to manage. Recently, there has been growing dissatisfaction among end consumers, which is reflected in complaints against suppliers and distribution companies in different European countries, mainly due to prices, procedures, and discrimination.

For example, recent complaints in the UK over overbilling and hidden standing charges, and a class-action lawsuit against Enel in Italy—accusing the utility of failing to properly inform customers about sharp increases in gas and electricity tariffs—reflect growing public frustration. The reality shows that not everyone could become a prosumer and that it is vital that no end consumer should pay an increased bill in order to provide lower prices for another end consumer.

RETHINKING MARKET DESIGN FOR RESILIENCE

Recently, there have been growing concerns about the effectiveness of unlimited subsidies for renewable energy sources, the push for just certain “green” technologies and the excessive bureaucratisation of the sector. Concerns are also mounting about whether existing market mechanisms are appropriate for managing the green transition, given the disproportionate burden placed on end consumers.

In reality, all this pointed to the need for a deliberate adjustment of the market design, which is no longer sustainable in its current form. As part of its reforms, the European Commission proposes a number of measures that were proposed in the initial phase of market liberalisation, such as the use of PPAs (Power Purchase Agreements) and CFDs (Contracts for Difference) for risk hedging.

In these reform plans, two major trends also stand out: a push toward decentralised integration of renewables at the distribution grid level, and increasing centralisation of transmission and ancillary services coordination at the level of ENTSO-E. Will such an organisation of the energy sector ensure reliability of the power grid operation?

These concerns need to be understood. The European electricity system was liberalised under completely different circumstances than today. The high technological level of the European power grid and the surplus of power capacity allowed a gradual transition to a market environment, but this transition has not been complete.

Electricity energy markets (EUR/MWh) have developed rapidly, while addressing sufficient generation power (EUR/MW) and network development have been more neglected. The electricity system is an integrated physical network, where all elements are interdependent. It is, in fact, a challenge of our times, which has arisen because market mechanisms have evolved faster than the energy sector as a whole over the last twenty years, while ignoring underlying technological assumptions, economic challenges and societal needs.

GRID DYNAMICS & STABILITY CHALLENGES

The exact parameters of the recent blackout in Spain are still not known; interestingly, there was an immediate denial of a possible cyber-attack. Moreover, the loss of 'only' 2.200 MW of generation in a grid with a 35.000 MW load and generation surplus (3.800 MW of scheduled export at the time) is probably not the sole reason for a blackout of such magnitude.

It is impossible to avoid power grid disturbances but maintaining uninterrupted supply in the future will require reliable, dispatchable generation sources. It is risky to base the energy transition solely on emerging technologies and on a single solution while phasing out existing power plants prematurely. This risk becomes more pronounced with the fact that the mandated electrification of heating and transport and digitalisation (AI) will lead to a significant increase in consumption.

The connection of large amounts of renewable energy generation on the distribution level has blurred the traditional boundary between transmission and distribution and decreased the grid inertia. One of the most important insights gained from the operation of the power grid is that it will no longer be possible to operate the transmission and distribution systems independently and in a centralized manner. Distributed approach and greater coordination and integration of both the market and technical operations across all grid levels is essential.

In addition to ensuring a balanced, technology-neutral energy mix and storage capacity, several other critical challenges must be addressed: improving cyber security, enabling grid restoration in high-renewable environments, attracting qualified personnel and deploying high- quality AI-based tools for real-time grid operation and decision-making.

As proposed by the European Commission, pressure is growing to implement new market mechanisms across all layers of the electricity sector. Grid operations will increasingly need to conform to these market structures, which may bring both opportunities and constraints.

And if we briefly tackle also European natural gas strategy, at least two key questions concerning Europe’s gas infrastructure remain unanswered. Firstly, how the natural gas and the related network will fit into the targeted ‘zero carbon’ energy landscape? Secondly, will Russian gas ever return to European markets, and if so, on what terms?

STATE OF PLAY: FROM COMPLEXITY TO ACCOUNTABILITY

Nowadays, it is quite difficult to trace the original objectives of the first EU energy reform package. These were primarily the creation of a single European energy market, lower energy prices for end-users and the creation of price signals to encourage investment in generation sources and the power grid. However, the reform of energy policy in the EU has failed in many respects.

The market mechanisms that have been put in place do not ensure the reliability of the electricity grid and do not pass on the economic benefits of subsidised renewable energy generation to end consumers. Why? Because the “market signals” did not lead to adequate generation capacity and network development capable of accommodating intermittent

renewable generation. Moreover, the hidden costs imposed by renewable generation (solar, wind) have been passed on to all consumers.

The recent European energy crisis underscored the fragility of this framework. In response, member states adopted divergent national interventions—price caps, trade restrictions, and direct subsidies—despite the presence of a formally unified wholesale market. Meanwhile, energy exchanges continued to produce pan-European price signals that no longer reflected underlaying reality. Several trading firms required state compensation to remain solvent, further complicating the market landscape.

This growing disconnect points to a system that is both overly complex and overregulated, with insufficient accountability. And, that is why key questions should be asked at European and national level:

• How can we ensure that energy markets guarantee security of supply, affordability, competitiveness, and consumer protection—while still meeting climate objectives?

• Which market mechanisms or regulatory structures—if any—can successfully transform the energy sector in an environment of insufficient generation capacity?

The present inadequate European market model became an institutionalized folklore which increasingly resembles a fragmented regulatory environment where no stakeholders bear full responsibility. End consumers and power grid alike face escalating pressures. In response, some experts discuss a need toward more balanced and systemically regulated energy environment.

Others suggest re-centralising the sector, with the state once again playing a guiding role. Such a scenario may be realistic given the current situation, in which the market is heavily influenced by subsidies and there is a threat of electricity capacity shortages. Market prices are shaped by subsidised renewable energy production, while countries embark on major energy projects (such as nuclear power) and negotiate the purchase of natural gas. In addition to the current European market arrangements, institutional architecture will also need to be addressed to meet future challenges.

Taking a piecemeal approach instead of implementing comprehensive solutions and failing to anticipate the consequences of one's actions undermines the path forward.

GERMANY’S STRATEGIC PIVOT

It is imperative to acknowledge the aforementioned turnaround in Germany's energy strategy, formally articulated as the "Neue Energie-Agenda für Deutschland," which was unveiled by the German Christian Democratic Party prior to the 2025 electoral victory. In the case of Germany, the risks associated with a substantial green transition were exposed, particularly with regard to base-load shortages, power and energy shortages during the winter months, elevated energy prices and energy poverty.

The most salient aspects of the strategy are as follows: the recommissioning of certain nuclear power stations, the promotion of global CO2 trading, the establishment of pioneer markets and a capacity market, the phase-out of subsidies for renewable energy generation, the reinvestment of CO2 revenues in citizens and businesses, the reduction of the grid charge and the electricity tax with a climate bonus.

The latest signals emanating from Germany suggest that the nation should assume a leading role on the European and global stage. There is a growing recognition of the need to prioritise the reliability of the power grid, technological neutrality (particularly with regard to new gas-fired power plants), and affordability. We should await the outcomes of the new German energy approach and its impact on the EU's energy landscape.

WILL EUROPE MOVE TOWARD THE PATH OF RATIONALIZATION AND PRAGMATISM?

In conclusion, it is clear that Europe needs to address the energy sector in a holistic way and with a long-term strategic orientation. Energy is more than a tradable commodity—it is a foundational civilizational infrastructure, critical to both social stability and economic development. Failure to act is not an option. Europe must move beyond short-term fixes and pursue a viable long-term strategic vision because we will use more electricity, not less.

Countries must define their energy futures with clear goals and pragmatic policies. A systemically regulated market can provide the certainty needed for investment in resilient power generation and grid infrastructure. This framework should support a technology-neutral generation mix that reflects national conditions, rather than enforcing a one-size-fits-all solution. This will ensure both power grid reliability and energy market efficiency. As the consequence this should result in achievement of environmental goals, while maintaining market transparency, fairness for all actors and reducing the challenge of energy poverty.

Either Europe reclaims strategic control of its energy destiny — or it will face cascading risks: from energy poverty and supply instability to geopolitical irrelevance.

Damjan Stanek runs a business consulting firm, Poslovno Svetovanje, Damjan Stanek, S.P., based in Ljubljana, Slovenia, focusing on energy and business solutions. He founded D2S (Energy & Business Solutions), where he worked on projects related to renewable energy and advised governmental institutions in countries like Montenegro, Moldova, and Macedonia.

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