The Council of the EU has set a bold course for the future: proposing a legally binding target to cut greenhouse gas emissions by 90% by 2040 compared to 1990 levels. If successfully passed, it would be a milestone that bridges the current 2030 goal of reducing emissions by 55% and the 2050 objective of climate neutrality under the European Climate Law, providing predictability for investments and shaping Europe’s pathway toward a decarbonised economy.
Achieving this target will require unprecedented action. Investments of €1.5 trillion annually this decade in renewables, grids, and clean technologies are essential. The payoff is significant: Europe could reduce its fossil fuel import bill by €2.8 trillion between 2031 and 20501, while strengthening competitiveness and energy independence through initiatives like the Clean Industrial Deal and the Affordable Energy Action Plan.
Ambition alone won’t deliver the green transition. Europe’s energy system is at a crossroads, and the question is clear: what will turn ambition into reality? The answer lies in effective markets, competition, and innovation. These are not abstract concepts. They are the invisible forces that determine whether Europe can achieve affordable, sustainable energy while maintaining security of supply.
A market in motion
The European electricity market is undergoing seismic changes. Earlier this year, trading shifted from hourly intervals to 15-minute slots on the day-ahead market, a landmark move that makes pricing more precise. It also makes it far more volatile. When the wind drops or the sun hides behind clouds, prices now swing faster than ever. For companies like ours that trade across 29 global markets, this volatility is not theoretical. It’s a daily reality that puts pressure on producers, consumers, and the entire system.
This transformation demands more than cables and turbines. It requires digital solutions that can respond in real time, open access to data, and automated trading systems capable of reacting minute by minute. Without these tools, Europe risks bottlenecks, inefficiencies, and wasted green energy.
The proof is in the numbers
ACER’s latest market delivers a compelling story: EU balancing platforms and trilateral Nordic balancing capacity markets delivered €1.6 billion in welfare gains in 2024 alone. That’s not just a statistic. It’s proof that integrated markets work. When TSOs cooperate across borders, consumers benefit. Slovakia joining the PICASSO platform cut price spikes in Czechia by 66%. Algorithm improvements and elastic demand adoption in Belgium and Denmark slashed extreme price spikes by up to 96%2. These are tangible wins for affordability and stability.
That’s not to say all challenges have disappeared. The keen observer will note my critique of how Nordic balancing capacity markets have operated since their launch earlier this year. The critique is not of their purpose, which is sound. It is of their functioning. While these markets have helped reduce costs for consumers, the burden falls disproportionately on renewable assets. Imbalance costs have surged by 200–600%, hitting renewables hardest and eroding investor confidence. This undermines appetite for the very assets we need to make attractive to build. It is a stark reminder of how much well-functioning markets matter to delivering the green transition.
Another key issue is congestion. In 2024, Europe’s transmission operators provided only 54% of available capacity on congested lines. Far below the EU’s 70% target. The cost? A staggering €4.3 billion in congestion management. Meeting that 70% threshold could unlock €580 million in welfare gains3. The message is clear: when electricity cannot flow freely, consumers pay the price and renewable energy goes to waste.
Consumer welfare meets energy security
Seeing the socio-economic benefit of cross-border energy exchange is fairly straightforward economics. It reflects how efficient allocation of resources delivers measurable welfare gains; we let the cheapest available production facility meet the demand unbound by borders as long as there is available capacity to transmit the energy from one market to another. Cross-border trading is also a cornerstone for resilience in our energy systems.
A smarter grid is not just about wires. It’s about flexibility. Batteries can absorb excess power when the wind blows and release it when demand peaks. As our partnership in Belgium with Google demonstrates, demand-side response can turn consumers into active participants, supporting grid stability and maximising renewable use. And most recently, in Lithuania, our Renewable Flexibility (ReFlex) program has demonstrated how solar assets can be transformed into reliable contributors to grid balancing and lower costs.
Nevertheless, flexibility remains underdeveloped. We need greater investment in storage, demand response, and dispatchable backup. These tools are essential to prevent costly emergency interventions and make the system cheaper to operate.
The Bigger Picture
Reading the Draghi Report underscores Europe’s balancing act: driving innovation, managing energy prices, and ensuring security of supply, all while tackling the climate crisis head-on. The reward for getting this right is enormous: lower prices, better use of green energy, and a more resilient system. It won’t happen without bold action.
Europe must accelerate grid expansion, market integration, and digitalisation. It must incentivise flexibility through smart market design and invest massively in technology, from trading platforms to batteries. And it must embrace transparency, opening real-time data to enable collaboration across borders, sectors, and markets.
Effective markets are not a technical detail. They are the backbone of Europe’s green future. They turn ambition into action, volatility into stability, and innovation into impact. At Centrica Energy, we see this every day: when markets work, consumers win, competition thrives, and sustainability becomes achievable.
The question is not whether Europe can afford to invest in integration and flexibility. The question is whether it can afford not to.
Sources
1 EU 2040 Climate Target: a strong economic and security case for the net-zero transition / Strategic Perspectives
2 Progress of EU electricity wholesale market integration / ACER
3 ACER warns that grid congestion and infrastructure delays are limiting renewable integration across Europe / Strategic Energy
