At the beginning of the 21st century, the EU decided both to liberalise electricity generation and distribution and to replace cheap — and polluting — generation technologies in order to curb emissions.
The results show that, however good our leaders’ intentions may have been, their strategies were not implemented in a way that would benefit European consumers or the wider economy.
The reason electricity generation and distribution infrastructure was developed as state-owned in the post-war years was very simple. It required very large investments, with very long payback periods and therefore substantial investment risk. No private investor would have been willing to take on such a large risk without the prospect of equally large returns.
So these were developed as state-owned entities without competition. The question of whether, in a shift to private, competitive generation, cost savings from optimisation would exceed the increase in costs from pricing in investment risk appears not to have concerned anyone when the decision was taken to liberalise the electricity market.
Another factor that was not taken into account is that, for a free market to function properly and fairly, certain rules must be in place. On the producers’ side, there must be relatively easy access to the market and — obviously — a likelihood that additional output can be absorbed.
If barriers to entry are very high and demand is almost completely inelastic, it is very unlikely that anyone will add capacity beyond current demand, with the result that there will be no obvious — at least, no positive — impact on prices.
On the consumption side, the basic rule of a free market is that consumers must have choices. And, of course, demand must be at least slightly elastic in the negative direction. If consumers cannot choose not to use a product — or at least reduce their consumption of it — whatever the price on offer, then we certainly do not have a free market.
The green transition, meanwhile, although no one can dispute its rationale, went ahead without any assessment of the costs. Despite it being clear that “green” electricity is significantly more expensive, the EU did not “bother” to calculate, let alone try to offset, this increase in costs.
The introduction of a carbon tax, intended to make dirty energy at least as expensive as clean energy, was accompanied by the slogan “the polluter pays”. Unfortunately, very few of us realised that “the polluter” is not the producer of the energy, but its consumer.
We are all experiencing the results today. In Greece, the price of electricity in September was more than double its average level in 2019, the last year before the introduction of the single European power exchange (64 €/MWh in 2019 versus 133 €/MWh in September 2026). The only external cost factor that has changed is the price of natural gas.
But if we calculate the net increase in generation costs attributable to the change in the price of natural gas, it accounts for no more than one-third of the increase in prices.
The remaining two-thirds must be attributed, on the one hand, to the policy on emissions costs (€25/tonne in 2019 versus €85/tonne in September 2026) and, on the other, to the system for setting energy prices (the target model), which requires us to pay an emissions charge even on electricity generated by solar panels and wind turbines.
The conclusion is simple. Brussels could dramatically reduce electricity prices across the European Union if it acknowledged that, under current conditions, the system it has chosen is wrong and suspended its operation, at least temporarily.
The Latins said, “Extremis malis, extrema remedia” or, loosely translated, “when extreme events occur, they must be addressed with extreme measures”. Those who decide Europe’s fate should think carefully about this before the effects on the European economy become irreversible.
*Konstantinos Giatzitzoglou is President of the Hellenic Mining Enterprises Association