LEAK: The European Commission's grand plan to bring down Europe's electricity bills
Grid costs, smart meters and an unexpected solution for energy taxation: a brief walk through the leaked draft.
High electricity prices in Europe have been argued over a great deal since the Draghi report on competitiveness landed in 2024. The European Commission has now drafted a Regulation to “future-proof electricity bills,” and Politico published a leaked copy this week. It is still marked sensitive until adoption and the numbers are in brackets, but the structure is clear enough to walk through. My take on the leaked document is below based on first reading.
(Note that this is an extraordinary Substack article not part of my usual newsletter.)
What I like about this package is that it treats the electricity bill as a whole rather than chasing the wholesale price alone. The energy component is only one part of what people pay. Grid costs, taxes and levies shape the rest, and they tend to get ignored in the public debate even though they make up a large share of the bill.
One caveat before I go into the detail. This is a draft. It will change in negotiation, and those bracketed figures may well change. But the direction of travel reads as a serious attempt to align the cost of electricity with where Europe says it wants to go.
Here are the key proposals broken down into network charges, energy taxation and smart meters.
Network charges
Grid costs already make up between 24% and 29% of the average household bill, and ACER expects annual grid investment in Europe to roughly double by 2050, reaching up to 100 billion euros a year. As the energy component of bills falls, this is the part that grows.
Making better use of the grid we already have is something I and various collaborators have been raising for years, so it is good to see it reflected so prominently. The point is simple: non-wire, innovative contractual and digital solutions should be considered alongside conventional reinforcement, and ideally before it, rather than as an afterthought once the wires have been ordered.
The draft replaces Article 18 of the Electricity Regulation with a tighter set of rules. Charges have to be cost-reflective and transparent, and they have to reward the behaviour that keeps system costs down, whether that is shifting demand, providing flexibility or reducing peak load. Regulators would set performance indicators and ACER would benchmark transmission operators against each other, with national regulators doing the same for the 2,600-plus distribution operators. There is also a real push on transparency, with regulators required to publish the cost categories and tariff values behind their methodologies.
Member States may also use public money to cover part of network costs, so that less of the grid bill falls on system users through tariffs. The draft explicitly mentions the general budget and, more interestingly, Cohesion funds or other available EU funding. In effect it is a way to socialise some grid investment onto the taxpayer, or onto EU funds, rather than the bill-payer, at a moment when those costs are climbing steeply.
The conditions attached read like an attempt to pre-empt State aid concerns, but how much room states really have will depend on how this sits with State aid rules and the Clean Industrial Deal aid framework, and the text does not fully resolve that.
Smart meters and smart grids
Without smart meters, time-of-use tariffs and flexibility incentives are unlikely to do much of anything. The draft sets an EU-wide floor: at least 50% of customers by 2030, rising to 65% by 2033. Many member states have already passed this, though there are laggards, with Germany still below 5%. Cost-benefit tests would only apply above that floor, which closes off the previous option of effectively opting out of the rollout altogether.
Alongside this, the draft proposes a framework for grid data exchange and a voluntary route for operators to develop shared digital and AI tools for running the system. More transparency can help facilitate faster grid connections and smarter use of the grid.
Taxation
The draft does what the Energy Taxation Directive failed to do because it is currently stuck in the legislative process due to the requirement of unanimity.
The proposal sidesteps that. It does this by stating that electricity must be taxed no higher than natural gas, and by placing the principle inside the Electricity Regulation under Article 194 it shifts the decision to qualified majority voting.
This proposal if adopted would have teeth: In a number of countries today the position is reversed, with electricity carrying the heavier tax burden. Member States would keep the freedom to set their own rates, but they could no longer hold electricity above gas. There is also scope to cut electricity tax for energy-intensive industry, down to zero, to support electrification where the cost gap with gas is the widest.
That legal base of this may well be fought over, and the “tax harmonisation in disguise” argument is likely to be made. But the signal it sends is the right one. If the goal is to electrify homes and industry, the tax system should not be pulling in the opposite direction.