Lowering Electricity Prices: The Key to Unlocking the Energy Transition

The global energy landscape is undergoing a massive transformation, driven by the urgent need to decarbonize and technological advancements that are accelerating electrification and renewables adoption across societies. However, high electricity prices, especially when compared to fossil fuel alternatives, continue to disincentivize many consumers—particularly those in lower-income households—from embracing clean electrification. It might seem paradoxical that countries leading in renewable energy deployment, such as Germany and Denmark, also have some of the highest electricity prices. Yet this is the reality we face, and it’s a challenge that must be addressed if we are to accelerate the energy transition.

Electricity is Critical to Modern Live

Electricity has become the world’s most critical energy source because it powers all the digital devices – smart phones, computer, data centers – that are essential to modern live.  Electricity also has a key role in decarbonization and in particular transport and heat as the use of electricity is far more efficient than fossil fuel systems, often being up to three times more efficient, making it key to a cleaner, more sustainable energy system. However, the transition from fossil fuels to electricity requires substantial investments in new equipment, such as heat pumps and charging infrastructure, as well as a shift in fuel from using coal,  natural gas and oil to electricity.

Sweden: How to do it

A country like  Sweden provides an excellent example of how to do it, having successfully electrified their heating systems and making significant progress in electrifying transport. Its success is partly due to the affordability of electricity, which incentivizes consumers to make the switch. The result is that Sweden uses almost no natural gas for heating purposes, with gas making up only about 2% of its primary energy supply. This low reliance on gas helped Sweden weather the impacts of the Russian-Ukrainian energy crisis more effectively than most European countries.

Germany: How not do it

In stark contrast, Germany’s energy system was severely affected by the loss of cheap Russian natural gas with the government having to spend circa €300bn bailing out electricity companies and subsidising customers. The issue is that natural gas still accounts for about 25% of Germany’s primary energy supply, and that is despite a major shift in the power generation mix away from fossil fuels to renewables over the last 15 years. The challenge is that German industry, commercial customers and household are all hooked on natural gas for heating purposes. And with natural gas costing just one-third of the price of electricity, there is little incentive for anyone to switch.  In addition, a raft of complex subsidy programmes has led to the absurd situation where wealthier households, who can afford to invest in solar panels, EVs and energy-efficient technologies, benefit from subsidies, while poorer households are left shouldering the burden of high electricity prices without access to such solutions.

Incentivizing the Right Choices

The solution to the electricity-fossil price gap lies in restructuring energy pricing and taxation. Lowering retail electricity costs, would send the right signal to consumers that clean electricity is the way forward while making clean energy options more affordable which would drive the necessary investments in renewable and electrical infrastructure. This would have the added benefit of enabling the introduction of carbon fees or higher taxes on fossil fuels such as oil and gas, without the fear of customer revolts, as we have seen in countries like France.

A Fairer, Cleaner Future

Lowering electricity prices is not just about affordability—it’s about laying the foundation for a fairer, cleaner energy system. When consumers can see the economic benefits of switching to electric vehicles, heat pumps, or rooftop solar, they are more likely to make those choices. This, in turn, creates a positive feedback loop, where increased demand for clean energy technologies drives further investment and innovation, ultimately pushing down costs over time.

In short, if we are serious about achieving a sustainable energy future, addressing high electricity prices is critical. By doing so, we can accelerate the transition to a clean energy economy, ensuring that all sectors of society—not just the wealthy—can participate in and benefit from this crucial shift.