Mario Draghi's report on the future of European competitiveness, published on 9 September 2024, put energy prices at the centre of Europe's economic problem. The former European Central Bank president argued that European companies face electricity prices two to three times those in the United States, and natural gas prices four to five times higher, and that this gap is one of the main reasons European industry is losing ground. He called for decoupling the remuneration of renewable and nuclear generation from the volatile price of gas, faster deployment of renewables and grids, simplified permitting, and a more coordinated approach to buying gas, including joint procurement and long-term contracts with diversified suppliers. The report's broader estimate that the EU needs additional investment of EUR 750 to 800 billion a year to close its competitiveness gap drew most of the headlines.
Our view is that the energy chapter is the most practical part of the report and that its diagnosis is correct. Europe's high prices are not mainly the result of its market design, but of its dependence on imported gas at the margin and its slow pace in building the cheaper alternatives. The cure Draghi proposes is sensible, but it depends on three things that Brussels cannot deliver alone: a much deeper market for long-term contracts, a grid that can carry renewable power where it is needed, and the willingness of member states to use their combined buying power for gas.
Why gas still sets the price
In Europe's electricity markets the price in each hour is set by the most expensive plant needed to meet demand. In many hours, especially in the evening and in winter, that plant is a gas turbine. When gas is expensive, electricity is expensive, even if most of the power consumed that hour came from wind, solar, hydro or nuclear plants with much lower costs. Draghi's argument is that this link transmits gas price volatility to the whole economy and prevents consumers from benefiting from the lower costs of clean generation.
He is careful, however, not to call for the abolition of marginal pricing. As analysts at the Florence School of Regulation and others have noted, the report accepts that short-term marginal prices provide efficient signals for dispatch and flexibility. Instead it calls for long-term instruments, such as power purchase agreements and two-way contracts for difference, through which consumers can buy clean power at prices that reflect its cost. This is consistent with the EU's electricity market reform adopted earlier this year.
The contracts problem
The difficulty is that long-term contracts are still the preserve of large, creditworthy companies. Power purchase agreements in Europe have grown, but they remain concentrated among technology companies and large industrial groups. Small and medium enterprises, which make up most of European industry by number, rarely have the balance sheet or the predictable demand to sign ten or fifteen-year contracts. If decoupling depends on contracts, the benefits will flow first to those least in need.
Draghi's report points to the need for guarantees and aggregation mechanisms that let smaller buyers participate. We agree, and would go further. Public guarantee schemes, possibly through the European Investment Bank, and pooling arrangements that let groups of companies sign contracts together could open the market. Without such measures, decoupling will remain partial.
The grid problem
Clean power is only cheap if it reaches the consumer. Europe's grids were built for a system of large central plants and are struggling to connect the volume of renewables now being proposed. Connection queues in several countries stretch for years, and congestion is forcing wind and solar farms to curtail output while gas plants run elsewhere. Draghi calls for faster grid investment and permitting. Those are among the most important recommendations in the report, because without grid capacity, additional renewables will not lower the prices that industry pays.
Grid investment also raises a distributional issue. Network costs are recovered through tariffs, and rising investment will push them up in the short term. Governments will need to decide how much of that cost falls on industry, which is most exposed to international competition, and how much on households.
The gas buying problem
On gas, Draghi argues for using the EU's collective weight as the world's largest gas importer to secure better terms, through joint purchasing, reduced reliance on spot markets and long-term contracts with reliable suppliers. The EU's joint purchasing platform, AggregateEU, created after 2022, is a start, but it has been used mainly as a matching tool rather than as a real collective buyer.
There is a tension here. Long-term gas contracts reduce price volatility but lock in gas use at a time when the EU is committed to reducing it. Contracts that run beyond the mid-2030s could leave buyers with obligations to take gas they no longer need. The challenge is to secure supply and price stability for the transition period without creating a new form of lock-in.
Taxes and the role of member states
The report also notes that taxes and levies on energy vary widely and in many cases weigh more heavily on electricity than on fossil fuels. That is a national competence. Lowering levies on electricity, or shifting them to general taxation, would immediately narrow the gap between electricity and gas for heating and industrial processes, and would support electrification. It costs public revenue, which is why many governments have resisted. Draghi's analysis gives finance ministries a competitiveness argument for doing it anyway. Whether they accept it will be an early test of how seriously the report is taken in national capitals rather than in Brussels.
Our assessment
Draghi has given the energy debate a clear economic frame: high energy prices are a competitiveness problem, and solving them requires investment and coordination at a European scale. His recommendations are broadly right. But the report is a guide, not a programme. Its energy proposals will succeed only if the Commission and member states build a deep market for long-term clean power contracts that includes smaller companies, accelerate grid investment, and make real use of collective gas purchasing without locking in demand. The next Commission's industrial and energy plans will show whether that happens.