The great electrification: The EU’s drive toward a green, affordable, and autonomous energy system

For The EU, the energy transition is no longer only a climate imperative, it is also a strategic and geopolitical necessity.

Following Mario Draghi’s ground-shaking diagnosis of the EU’s competitiveness, the energy transition in the EU has shifted from being primarily motivated by climate concerns to being largely driven by the pursuit of competitiveness and strategic autonomy. The abrupt surge in gas and electricity prices following Russia’s invasion of Ukraine exposed the material and financial implications of the EU’s strong dependence on imported fossil fuels, which creates an immediate challenge to both the competitiveness of the EU’s industrial sector and to the energy affordability of households.

As a result, the EU has increased its focus on becoming less dependent on foreign energy supply, as detailed in our research. The EU has enacted an ambitious policy program, but due to the complexity of the challenge, the worrying trends are far from reversing course. The EU’s energy supply in particular remains a key problem.

In 2023, the EU’s overall energy import dependency reached approximately 60% of its gross available energy, with reliance on imported oil and gas rising to nearly 90%. Given the EU’s limited domestic reserves, reducing the weight of oil and gas in the energy mix – primarily by expanding the role of electricity – is the only viable strategy to lowering the region’s exposure to geopolitical risks and price volatility. Increased electrification will strengthen the EU’s strategic autonomy and competitiveness, while also supporting greenhouse gas (GHG) emissions reductions and more affordable energy prices.

This article, along with subsequent pieces in this series, will examine how electrification is a critical lever in the energy transition and how it can be aligned with the EU’s competitiveness objectives in today’s geopolitical landscape.

For any region lacking significant fossil fuel reserves, achieving a high degree of strategic autonomy requires replacing imported fossil energy carriers with locally available alternatives. In the case of the EU, the most realistic alternatives are renewables like wind and solar energy. However, such a shift requires changes across the entire energy system. It entails a structural and system-wide change in how we produce, transport, and use energy. This system-wide change is what we refer to as “the great electrification.”

The EU’s current energy system: A mix of molecules and electrons

Delivering energy to all consumption points and in all the forms needed requires a complex system. As illustrated by the Sankey diagram of the EU’s energy system in figure 1, energy is not only transported from source to consumption point, it is also transformed from its primary form to the form required for its end use (such as electricity, gas, or diesel).

With some exceptions,[1] energy is carried from source to final consumption point in one of two forms: molecules or electrons. Molecules include oil, gas, coal, hydrogen, e-fuels, and bio-based fuels. They are typically used for heating, transport, industrial feedstocks, and inputs for electricity generation. Electrons power electrical equipment, digital services, and, increasingly, buildings and transport. While all electrons are identical once consumed, the sources used to produce them vary widely. Electricity can be generated from:

[1] Other energy carriers include nuclear and mechanical energy.

The Sankey diagram highlights a core vulnerability of the EU’s energy system. Most final energy on the demand side is consumed as molecules (orange), and around 90% of these molecules are imported. This creates significant exposure to geopolitical shocks and global price volatility. The molecular energy route is also structurally inefficient. Converting imported fuels into usable final energy requires multiple chemical and thermal steps, each with substantial conversion losses. This results in a less efficient supply chain and higher system‑level operating costs compared with electricity‑based pathways.

The EU’s imperative: Go electric or stay dependent

To reduce its strategic vulnerability while improving its competitiveness and meeting its climate targets, the EU aims to increase the share of domestic resources in its primary energy inputs (the left-hand side of the Sankey diagram in figure 1). In particular, the EU needs to increase the share of renewables, such as wind and solar energy. Besides being domestic, these sources have lower emissions and lower marginal costs (as illustrated by Fraunhofer, IRENA, and Lazard) and thus contribute to lower energy bills, meeting climate targets and reducing vulnerability.

However, to achieve this the EU needs to electrify its energy consumption. Fossil fuel imports supply the vast majority of the EU’s consumed molecular energy, and consumers need alternatives before these imports can be cut. Direct substitution with low-carbon molecules such as biofuels and synthetic e-fuels offers only a partial solution because of constraints in costs, supply, and energy efficiency. By electrifying energy consumption, the EU can increase the share of demand fulfilled by electricity generated from renewables.

Figure 2 illustrates the effect of electrification on the energy system. By substituting conventional technology with electrical alternatives like heat pumps, electric vehicles (EVs), and electrified industrial processes, the EU can replace a substantial share of the molecular energy (in orange) in final consumption with electrons (in blue) by 2040. This change would facilitate a greater share of renewables like wind and photovoltaics (PV) in the EU’s energy inputs and limit its reliance on fossil fuel imports.

The two Sankey diagrams are based on historical data from 2019; forecasts for 2040 use the average of the S1, S2, and S3 scenarios[2] from the impact assessment accompanying the EU’s 2040 climate target from 2025. In this particular case, electrification would lead to an estimated 30% reduction in gross energy required to meet overall future demand. This improved efficiency, combined with a shift away from imported molecule-based fuels, would reduce the EU’s current import dependency from nearly 60% to roughly 30% by 2040.

[2] To frame the discussion on the EU’s 2040 climate targets, the European Commission produced an impact assessment including extensive modeling of the evolution of the EU’s energy system toward the discussed targets through different scenarios. There are four different scenarios included in the impact assessment. The so-called “S scenarios” (S1 to S3) and a complementary variant called “LIFE.” The central S scenarios mostly differ in the emissions reduction target set for 2040. S1 implies a linear emissions reduction resulting in approximately an 80% decrease in GHG vs. 1990. S2 achieves an 85% and S3 a 90% GHG reduction.

Electrifying the energy consumption of the EU is not a simple substitution of one energy source for another. It requires a systemic transformation across three interdependent building blocks of the electricity system:

1. Demand.
2. Generation.
3. Grids, networks, and infrastructure.

On the demand side, electrification requires substituting electric alternatives for fossil fuel-powered technologies in

1. Buildings (heating, cooling, cooking, equipment).
2. Industry (equipment, heat, steel, chemicals, cement).
3. Transport (trains, buses, cars, trucks, ships, planes).

This shift is not simply technological, it also requires creating sufficient demand for these solutions, as electrification requires significant investments from households and industries. Unless bound by regulation, they will only adopt EVs, heat pumps, and electrified industrial equipment if these alternatives are competitive in both performance and cost. Achieving sufficient demand for electric solutions requires not only technological innovation, large‑scale manufacturing, robust supply chains, and continuous technology adaptation but also effective support and regulation. Such developments typically unfold over decades rather than years.

Although technology has made a lot of progress over the past two decades, including the mass production of EVs and heat pumps, demand for electric solutions has made uneven progress. Across all sectors, molecules still supply the majority of energy, and the share of renewable molecules (such as biofuels) is growing faster than that of electrons.

In buildings, the use of heat pumps, electric HVAC systems, and electric cooking is emerging, but the majority of energy is still provided by molecules. Between 2005 and 2024, electrification in buildings only increased from 21% to 26%. In particular, heating forms the largest demand in buildings and is still mostly powered by molecules. During the gas crisis in 2022, heating bills for households surged in countries where gas was the dominant fuel for heat. The EU, therefore, has a strong strategic motivation to electrify heating.

The electrification of industry still has a long way to go. Between 2005 and 2024, industry only registered a modest increase in electrification, from 31% to 33%. Beyond replacing equipment with electrical alternatives, the prospects for the electrification of industries greatly vary, depending on the related processes. Industries that utilize low-temperature heat (below 200 degrees Celsius) generally display a favorable range of options. Critical industrial sectors and energy-intensive industries, such as steel, chemicals, and cement, require much more careful assessment. While the hardest-to-abate sectors may offset their emissions through carbon capture, utilization, and storage (CCUS), they may remain vulnerable to shocks in fossil fuel imports.

Transport, while initially being the least electrified of the demand sectors with only 2.3% electrification in 2024, already registers promising prospects. Last year’s new trends hint at structural change, with one in every four cars sold in Europe being electric and prominent sales of electric city buses. Of the lagging transport modes, heavy-duty trucks are electrifying much more slowly, while ships and planes are technically hard to electrify.

Though not currently playing a leading role in today’s energy supply, further innovation, technology learning, and economies of scale should significantly boost demand for electrification in the future. Furthermore, we can expect EU and national policies to further promote electrical technologies to reduce the EU’s dependence on imported fuels.

On the generation side, the great electrification entails a complete reshaping of the EU power supply. Increasing the share of domestic energy requires a significant renewable buildout across the region. Renewable technologies differ fundamentally from fossil fuel plants: While they don’t consume any fuel, they need more space, are weather-dependent, and are subject to different project economics. Scaling them up therefore requires continuous technological innovation, resilient supply chains for components and materials, and a regulatory environment that accelerates permitting and gives long‑term clarity. Because EU power prices are volatile and market conditions are under continuous change, public- or private-contracted revenue frameworks are necessary to maintain investor, developer, and financier confidence.

Renewable sources already make up most of the growth in EU power generation capacity (see figure 6). However, to decrease the share of imported gas and polluting coal, further growth in wind and solar power generation capacity will be needed over the coming decades.

To facilitate a greater share of electrons in the EU energy system, grids, networks, and infrastructure must undergo a profound upgrade. Electrification requires not only more grid capacity but also smarter and more flexible networks. Next to massive investments in cables, substations, and storage, digitalization and supportive regulatory frameworks are essential to ensure that the EU’s grids can keep up with the growth in renewables and electrification demand. This is because both peak generation from rapid solar and wind deployment and peak demand from EV charging, heat pumps, and new industrial loads are rising much faster than the grid can expand.

Compared to demand for electrification and renewables buildout, grid development moves slowly. Reinforcement and expansion projects face long permitting timelines, labor shortages, and high costs, especially in urban areas. Moreover, investments are subject to regulatory frameworks. As a result, grids and networks are becoming a major bottleneck for the great electrification.

To illustrate the magnitude of the great electrification, figure 7 summarizes the expected average investment per demand sector according to the modeled evolution in the impact assessment of the EU’s 2040 climate target. We have presented the average values for the central scenarios (S1-S3) considered in the impact assessment. As can be seen, the energy transition will entail average yearly investments for all involved sectors, ranging from close to EUR 40bn for industry to more than EUR 200bn for the residential sector. The analysis does not include the required investments in new EVs.

While significant, these investment requirements can be put into perspective by considering the impact of fossil fuel imports on the EU’s trade balance. After the price surge following Russia’s invasion of Ukraine, expenditure on net fossil fuel imports in 2022 alone surpassed EUR 600bn (see figure 8). In contrast, the total necessary investments up to 2040 are EUR 622bn and EUR 1,289bn up to 2050. Therefore, although the great electrification requires significant investments, the risk of inaction may be far more expensive.

Besides requiring structural changes, demand, generation, and grids are highly interdependent, posing a classic chicken-and egg problem: Power producers invest only when they expect stable and sufficient demand, grid operators expand infrastructure only when they can anticipate where and when new loads will materialize, and households and industries electrify only when they can rely on affordable, accessible electricity. If any one of these lags, it risks tripping up the entire system. Electrification is a dynamic process in which any element deviating from the ideal synchronized speed of change will impact the other interconnected elements.

Table 1 shows why the interdependencies underlying the great electrification make it an inherently bumpy ride. Each acceleration or deceleration of one of the principal components influences the others through feedback loops. The impacts can either boost or slow electrification and arise on different time scales. In particular, changes in demand and generation have multifaceted effects. In the short run, they can lead to a more competitive environment. In the long run, they can drive technological development, cost reductions, and further adaptation. Because progress is predominantly determined by private investments, the interdependencies between demand, generation, and grids will inevitably result in booms and busts.

In addition, the three principal components not only depend on each other but also on numerous externalities and constraints. Governments and regulators set goals, market conditions determine price signals and investment incentives, economic cycles shape demand and capital costs, regulation and permitting define timelines and feasibility, supply chain capacity influences the pace at which technologies can be deployed, and geopolitical developments affect prices, equipment availability, and risk perceptions. Over time, each of these externalities and constraints goes through cycles and further increases the volatility of the electrification process.

Generating an understanding of the great electrification requires a holistic view of the energy system and the (geo)politics around it. Such a view goes beyond market indicators and requires insights into policy shifts, technological developments, and demand‑driven trends shaping every interconnected part of the energy system.

The opportunities and constraints of electrification are not static; they evolve dynamically through the interplay of these forces. The disruptive technological changes that have happened mostly since 2000 are a testament to this. As nicely illustrated by the think tank Ember, disruption happened across the board in key electric technologies generating, transporting, storing, and consuming electricity. This includes the unprecedented cost reduction of renewable technologies (solar and wind) on the generation side, the nonstop cost reduction of batteries on the storage side, and the development of technologies for end users, such as heat pumps and electric vehicles. Similar developments can be expected over the next decades and will shape the course of the great electrification.

As explained throughout this article, the great electrification is a system‑level transformation. Grasping its implications demands a comprehensive and analytical perspective. Accordingly, this article sets the foundation for the upcoming chapters in our series, which will explore the core elements of the great electrification and their links to the principal components of the energy system. In the following chapters, we will dive deeper into the developments in: