Why Expanding Renewables Alone Won’t Solve Europe’s Energy Crisis

As long as electricity remains organised around private profit rather than public need, expanding renewables alone will not deliver affordable energy in Europe

Each new energy shock in Europe is treated as an exception, a crisis that arrives from the outside through war and supply disruption. And each time the reaction follows the same, predictable pattern: energy prices surge, governments come up with temporary relief measures to soften the blow and the system that produced the crisis in the first place remains untouched.

The latest disruption, driven by the US-Israeli war on Iran and the subsequent closure of the Strait of Hormuz – a route for about a fifth of global oil and liquefied natural gas (LNG) trade – once again exposed Europe’s vulnerability to fossil fuel markets.

Following the Ukraine war, renewable energy investments in the EU grew in an effort to reduce dependency on Russian fossil fuels. Yet its share in final energy consumption did not grow dramatically.

Instead of increasing energy autonomy, Europe substituted one dependency for another: between 2021 and 2025, imports of LNG from the United States more than tripled. So when the latest disruption to fossil fuel trade tightened global supply and drove up energy prices, Europe showed how little it had learned from the previous energy crisis. 

Gas Sets the Price for Electricity

That’s also because the design of the Union’s electricity market rarely features in discussions on resilience to energy shocks. Electricity is still priced in a way that makes such crises inevitable. The most expensive source, often a gas-fired power plant, sets the price for all electricity – including wind and solar power, which cost almost nothing to produce once installed.

There lies a key contradiction of the European energy system: while cheap renewable electricity capacity expands, consumers are rarely allowed to benefit from it. Electricity prices do not reflect real production costs, but instead serve as a source of profits for producers and retailers. In times of energy crises, it leads to windfall profits and skyrocketing household bills. But this is how the market is designed to function.

How Europe Liberalised its Electricity Market

To understand why, we need to look back at the restructuring of Europe’s energy systems that began in the 1980s, when European governments progressively dismantled publicly owned electricity systems. Generation, transmission and supply were separated and increasingly privatised to participate in cross-border wholesale markets, where electricity producers sell power for profit, and retailers then purchase it and resell to consumers at an additional profit.

Electricity was no longer treated as a public service delivered at regulated tariffs, but as a commodity traded on the market to promote private enterprise.

The logic was presented as one of efficiency and optimisation: competition would lower costs. But the opposite happened, as electricity prices became detached from production costs. At the time when energy transition requires massive electrification, electricity grids across Europe have suffered from systematic underinvestment. Simultaneously, companies investing in renewables, often alongside fossil fuel business, amass billions in windfall profits. TotalEnergies reported a record €4.96 billion profit in the first quarter of 2026.

This profit-based electricity market system is unfit for the renewable energy transition. The production costs of renewables are almost zero, but prices are still set by fossil fuels.

Within this market logic, periods of strong wind or sunshine combined with low demand can lead to negative electricity prices, which forces generators to pay the grid to take their electricity. 

To protect them from financial losses resulting from this merit-order system, public budgets are used to guarantee sufficiently high revenues through long-term contracts, covering the costs when prices fall below the agreed price level. These guarantees reduce investment risk and allow private companies to secure financing for new projects. Their financing costs – such as interest rates, risk premiums , and shareholder returns – make up a significant share of final electricity prices. 

Public borrowing works differently. Public bodies can take out money at significantly lower cost than private developers and do not need to pay dividends to shareholders. For this reason, trade unions like the European Federation of Public Service Unions argue that returning to a system of public ownership of electricity networks and infrastructure, dismantled through decades of EU liberalisation reforms, would allow electricity pricing to align more closely with real production costs rather than investor expectations of return.

Why Renewables do not Automatically Mean Cheap Electricity

A widespread assumption in European policy debates is that expanding renewable energy will naturally bring down electricity prices. This is only partially true under the current market system.

Spain is often presented as a success story to replicate because of its low wholesale electricity prices and high renewable capacity, but it remains more of an exception within the EU. In reality, even countries with much larger shares of renewables continue to experience high prices when gas-fired plants set the marginal price.

Austria, for example, generates around 90 per cent of its electricity from renewable sources, yet remains exposed to gas-driven pricing because it is embedded in the larger Central European electricity market network. Due to the interconnected nature of regional electricity markets, Austria’s electricity prices continue to follow gas prices regardless of its own domestic renewable capacity.

In April 2026, more than 80,000 people came out across Germany to demonstrate for a faster rollout of renewables in response to the government’s plans to curb its expansion while embracing gas power. This testifies to the fact that a social base can be mobilised around energy, providing an opportunity to politicise renewable electricity and call for it as a public service, not a source of corporate profits.

This is crucial as the dysfunctional merit order system provides fertile ground for far-right parties to build anti-renewable political campaigns, while preserving existing oligopolistic market structures. In such political contexts, it is not surprising that public spending with limited effects on households’ bills can challenge public support for renewables – particularly in EU countries with smaller fiscal capacities, such as Malta, the Czech Republic, and Slovakia, which recorded the lowest shares of renewable energy in the EU in 2025.

Crisis Management Instead of System Reform

According to estimates by the think tank Bruegel, EU member states have mobilised over €11 billion in emergency measures to cushion industry and households from rising energy costs. Most of the spending took place in Spain (€5 billion) and Germany (€1.62 billion) and largely took the form of temporary cuts to VAT and energy taxes. The European Commission’s latest “help” in tackling the energy crisis has not been to provide major new financing or propose meaningful electricity market reform, but to publish a catalogue listing measures already implemented by member states as examples for others to follow.

While measures like tax cuts can reduce prices to some extent, they remain short-term fiscal interventions that soften the symptoms without addressing the underlying disease. This is one reason why left-wing political parties across Europe, such as La France Insoumise and Die Linke, call for electricity pricing decoupled from gas prices under the current market system to guarantee affordable basic energy consumption.

Spain’s temporary response to the 2022 energy crisis already showed that cutting this link through a price cap mechanism can significantly reduce domestic electricity prices.

While Spain reimbursed gas power plants for the difference between capped and market prices, a public tariff system would instead ensure stable pricing based on production costs without subsidising excessive corporate profits through public money in the first place.

Europe’s Energy Choice

With most European capitals currently governed by right-wing parties responsive to corporate lobbying demands, there is little appetite for meaningful reform of the merit order system that would decouple electricity prices from gas in the long term.

Yet the reality remains that the current market model, built around private sector profitability, will keep failing to reduce electricity prices, incentivise sufficient and fast renewable investment across the entire continent and allow consumers and industry to benefit from the low production costs of electricity.

This does not mean the choice is between accepting the current crisis-prone market system and abandoning renewables in favour of fossil fuels.

The real choice is whether Europeans can mobilise around treating electricity as a public service rather than a tool for extracting profit. Until this is translated into political decisions and a genuine cooperation at the European level, households and the EU economy as a whole will remain vulnerable to recurring energy shocks and high electricity prices.

Author: Alexandra Gerasimcikova is a Project Manager at the Rosa-Luxemburg-Stiftung Brussels Office, where she works on climate, energy and trade.

Image credits: IMAGO/NurPhoto