One year on from Draghi, where does EU energy policy stand?

The September 2024 report by former Italian prime minister Mario Draghi, intended to steer European Union competitiveness policy, identified high energy prices as a major problem. In a first anniversary speech on 16 September, Draghi said that, while strategies to deal with this, proposed in the last year by the European Commission, are consistent with the report’s agenda, there are still no firm measures. Nor are EU countries showing any clear desire to take major steps to integrate European energy markets. So, where does Europe’s implementation of a longer-term energy plan, as recommended by Draghi, stand, and what can be expected in the coming months?

Russia’s invasion of Ukraine has reshaped Europe’s energy markets, increasing the gap between US and EU energy prices. To limit the impact on EU competitiveness, Draghi proposed measures including leveraging Europe’s market power in international gas markets via EU joint purchasing, pushing European electricity market integration and short-term steps to more rapidly decouple electricity prices from volatile gas prices. To rapidly slash electricity costs and allow consumers to benefit from renewable energy, he stressed the need for long-term arrangements, such as power-purchase agreements (PPA) and contracts-for-difference (CfD) in the electricity market (contracts that provide revenue stability for energy producers and price certainty for buyers or governments). 

In its Affordable Energy Action Plan, published February 2025, the European Commission endorsed several of these proposals, starting with Draghi’s push for PPAs and CfDs. However, implementation is yet to be seen. Initiatives such as a platform to jointly procure energy and raw materials have so far not succeeded in projecting European purchasing power. External conditions change fast and Europe has signed a pledge to buy $750 billion of energy products from the US by the end of 2028, as part of the EU-US trade deal. In this context, Draghi has said US liquified natural gas (LNG) should be subject to EU joint purchasing, but the likelihood of this happening is low.

Meanwhile, calls to artificially suppress electricity prices below production costs continue to surface. For instance, the Commission adopted in July a new State Aid Framework, giving EU countries greater leeway to subsidise energy for industry. Subsidies would be conditional on industry making decarbonisation investments but the move is risky for three reasons.

First, it could have difficult distributional implications at national level, as households might end up paying the bill for energy-intensive industries. Second, it risks fostering a dangerous subsidy race between EU countries. Third, from a broader competitiveness perspective, it risks keeping energy demand high, and electricity expensive, by subsidising energy-intensive production stages that actually should move to where cheaper clean energy sources are becoming available at scale – whether within the EU or outside.

On more structural remedies to Europe’s energy problem, Draghi pushed for ambitious reform to further integrate the European electricity market and accelerate the expansion of clean energy. He called for shorter permitting times for clean energy projects and electricity grid expansion, and for removal of national political obstacles to the development of interconnectors. 

The Affordable Energy Action Plan does not address these issues, though the Commission is set to propose a European Grid Package by the end of 2025. This will “help upgrade and expand grids to support rapid electrification and speed up permitting” and is the opportunity for the Commission to formulate a strong toolkit that delivers energy infrastructure to underpin European competitiveness. An increase in the funding for electricity infrastructure from €6 billion to €30 billion in the proposed EU 2028-2034 budget signals that this is what the Commission has in mind. EU countries, meanwhile, should embrace closer integration of the European electricity market, which is the key to accelerated decarbonisation, lower energy costs and reinforced European energy security.

To integrate the European electricity system, both hardware and software need upgrading. Draghi rightly called for an overhaul of Energy Union governance, under which major system-development decisions of direct cross-border relevance must be taken centrally. So far, the Commission has not proposed any fundamental change in this area, limiting itself to the launch of an Energy Union Task Force in June 2025. Measures to deepen electricity market integration planned for proposal in early 2026 must, therefore, mark a genuine step towards a real EU electricity union to boost competitiveness, security and decarbonisation.

The response to Draghi’s call for action on energy has thus so far been more incremental than disruptive. But potentially significant initiatives are on the way. These will represent Europe’s moment of truth for energy integration, and will show if Draghi’s recommendations on energy will have any real lasting impact. 

This First Glance was republished in Bulgarian by Capital on 23 September.