Europe’s switch to renewable energy supply and efficient energy consumption is gaining momentum, not only as a result of the European Green Deal but also in reaction to the fossil fuel price crisis. EU legislation already creates some opportunities for citizens to access affordable renewable energy more directly, as well as to facilitate energy savings through, for example, building renovation. In a new Knowledge Community, Heinrich-Böll-Stiftung European Union and the Green European Foundation (GEF) gather a broad range of experts from EU institutions, local governments, industry, consumer organisations and think tanks to look into these opportunities. The aim is to explore concrete tools and identify their current potential, as well as the remaining gaps that need addressing. Analysis by Taube Van Melkebeke and Jörg Mühlenhoff

Green and progressive voices rightly present renewable electricity as the cleanest and cheapest source of energy, implying a win-win for both the environment and economy. However, households and businesses still receive sky-high energy bills, despite the rapidly increasing share of ever-cheaper renewables in the EU’s energy consumption. Energy savings and efficiency measures are maybe even more obvious quick wins. Reducing consumption simply reduces costs, while limiting ecological and material footprints. However, also here, there is still quite some untapped potential. Indeed, not all households and businesses can afford the sometimes high upfront costs to reduce their energy consumption.

Surveys show that these contradictions start to undermine the high social acceptance of the energy transition amongst EU citizens.

Let’s not confound the illness and the remedy.

With the upcoming EU election campaign, far-right and populist parties are already planning their backlash against the European energy transition. They portray it as the source of the cost-of-living crisis. In concert with several national governments, they are calling for a pause, slowing down or even abandoning the transition to a more efficient and renewable energy supply.

Nothing could be more shortsighted. A little reminder: it was the climate crisis together with the EU’s dependence on fossil fuel imports that caused the price hikes in 2021 previously. After extreme droughts across the continent, the hydropower plants had to reduce their output. Electricity generation from nuclear power plants also dropped massively because of a lack of cooling water. Russia, in parallel, weaponised its fossil fuel supply. After fossil gas storages were not filled up by Gazprom, fossil gas prices increased massively. Prices exploded again after the Russian invasion of Ukraine. The emergency measures of EU Member States buffered the fossil fuel price explosion, leading to an all-time high of fossil fuel subsidies of €123 billion in 2022 – an immense budgetary cost for the EU and its Member States.

It is clear that the EU cannot afford fossil fuels anymore, both from an environmental and an economic perspective. Instead of driving deeper into the fossil fuel impasse, policymakers should now make full use of the new EU legislation as a response.

Brand new EU policy initiatives are already initiating new ways of engaging citizens in the energy transition. There are a number of new rights and rules in the EU electricity market design, the revised Renewable Energy Directive (RED) and the Energy Performance of Buildings Directive (EPBD) to accelerate the energy transition. These come with opportunities for the social dimension of Europe’s energy transition as they lay the foundation for tools that can conciliate the demand for affordable energy, the well-being of citizens and climate protection. After the European elections, it will be up to EU institutions and Member States’ governments to, on the one hand, ensure a consistent rollout of these legislative initiatives, so that citizens can benefit better from green transition policies, and on the other hand, close remaining policy gaps.

Against this backdrop, the Knowledge Community of the Green European Foundation and Heinrich-Böll-Stiftung EU will assess five tools that are amongst the most promising options to bring clean and affordable energy to more citizens in a fast way. We describe their potential and their key challenges for the next legislative term.

1. Fair and green retail electricity tariffs

There is broad consensus among EU policymakers and market analysts that accelerating the deployment of solar and wind capacities has a price-dampening effect on wholesale electricity markets. But this macro-economic effect is not necessarily passed on to households. The way in which different retail electricity tariffs were designed has deepened inequalities, pushing millions into energy poverty. The right price signals from retail tariffs can incentivise consumers to shift their consumption to those hours when cheap renewable electricity is abundant. Rising block tariffs can bring together social protection, as well as market price signals. They are a tool that combines a universal basic supply at low cost with rising or more dynamic pricing beyond the limited number of kilowatt-hours of basic supply. This rewards, in particular, low-income households with low energy consumption. Balancing price stability with exposure to volatility is a key challenge of this tool. In addition, suppliers now have the opportunity to integrate low-cost renewable electricity in their offers, using Power Purchase Agreements (PPAs) and/or Contracts for Difference (CfDs). This could buffer sudden price shocks to the benefit of their customers.

2. Energy sharing with those who cannot invest on their own

Many citizens cannot or do not want to invest in their own renewable installations. Energy sharing is a new tool that allows them to self-consume renewable electricity remotely without becoming an owner. Their neighbours, local energy communities, municipalities or small companies can pass on their excess renewable electricity to those who cannot, or do not want to, invest. Those who run own installations like solar panels can, in exchange, receive a potentially higher remuneration for their excess solar power than from wholesale markets, while those who engage in an energy sharing scheme would still pay less compared to average retail prices. Landlords and social housing companies, together with local administrations, are well-positioned to ensure inclusiveness in view of vulnerable and underrepresented groups of consumers. However, it is not yet clear how to foster flexibility and allocate the overall system costs, such as for the use of networks, in a fair way.

3. Facilitate access to renovation and renewable heat

Renovating the building stock and switching to renewable heating and cooling pays off – provided the homeowner can afford the huge initial investment. New EU legislation enables a number of innovative tools that bring together public support and market mechanisms. If coupled with Green Mortgage Portfolio Standards, Green Bonds or guarantee funds, private offers like ‘heat as a service’ and on-bill schemes can leverage the required financing for renovation measures while remaining cost-neutral from the perspective of a tenant’s monthly rent. Member States also have to establish one-stop shops to simplify planning, advice and financing. Ideally, these tools can then facilitate access to renewable heating systems for those who do not have sufficient own capital. It is still necessary to tailor stick and carrot approaches. Starting from new EU laws, best practices in combining obligations (e.g. Minimum Energy Performance Standards) and targeted social safeguards need to spread. In view of more households opting for heat pumps or connecting to district heat networks, specific rights and responsibilities deserve a critical review to ensure social acceptance and affordability.

4. Turn local authorities into energy transition managers

As the energy transition entails a switch to decentralised local renewable energy sources, local authorities also get more legal duties and practical tasks. Strong municipalities are key in providing plans, permits and advice to ensure investment security. The well-functioning, competent local authority, serving as a pro-active energy transition manager, is the key tool for citizens’ access to renewables and energy savings. Municipalities are now also more responsible for co-planning energy infrastructure and heating in view of positive energy neighbourhoods. They also need to facilitate energy communities so that their citizens can take ownership of the local energy transition. The increasing role of such a local energy transition manager, however, also requires sufficient financing and local staff. EU institutions have deployed a number of financial tools to – albeit, narrowly for now – boost local authorities’ agency in the energy transition. European budgetary and cohesion policies can be adapted to ensure more tailored and stable funding so that all local authorities can actually become an effective tool for increased participation in the EU’s energy transition.

5. Governance mechanisms of a just and fair transition

The EU’s just transition policy framework, characterised by the ‘leave no one behind’ catchphrase, is – although not sufficient in scope, depth or scale – a significant milestone when it comes to inclusiveness and participation in the EU’s energy transition. It is built around three key mechanisms. Firstly, it entails the Just Transition Mechanism, addressing the social and economic effects of climate mitigation, and focusing on the regions, industries and workers who will face the greatest challenges. Secondly, the Social Climate Fund is meant to compensate vulnerable energy and transport consumers for the costs that will result from the new emissions trading system for buildings and transport (ETS 2). And thirdly, it includes the Council Recommendation of June 2022, which seeks to steer the Member States to ‘ensur[e] a fair transition towards climate neutrality’. On top of that, other existing EU governance tools can be used to enable the delivery of a just and fair transition, including the Cohesion Funds, the Recovery and Resilience Facility, and the Modernisation Fund. These instruments, however, all still exemplify a compensatory logic, which is a barrier to a more holistic – and thereby fully inclusive – approach. Governance can be strengthened through merging governance areas, better and more transparent data, extended social impact measurements, and long-term planning. For the 2024–2029 mandate, it will be crucial to truly deliver on a systemic, whole-of-governance approach towards an inclusive, fair and just transition.

By autumn 2024, the Knowledge Community will collaboratively develop five short political briefs. Each brief will cover the potential of each single tool in view of a strengthened, more inclusive and fair participation in the EU’s energy transition. Besides discussing the legal framework and distributional questions, as well as the national dimension of consistent implementation of EU legislation, the briefs will provide recommendations for EU policymakers on how to improve each of the tools.