LONDON, March 23 (Reuters Breakingviews) - After Russia’s invasion of Ukraine sent gas prices soaring in 2022, Europe doubled down on renewable energy and U.S. imports of liquefied natural gas. Yet despite extensive debate, European politicians never fixed the main headache from that crisis – the need to stop ​sky-high fossil fuel costs translating into ruinously expensive electricity. The potential for backsliding on green energy commitments amid the current Gulf energy shock may complicate ‌the most logical fix to the problem.

Gas-fired plants often set the electricity price in Europe because they’re the marginal generator, or the last asset required to meet power demand. Cheaper forms of generation, like wind and solar, are called upon first. But once gas enters the mix, it typically determines the market clearing price per megawatt hour (MWh) - which is a problem if that price suddenly soars 90%, as it has done ​since late February. Natural gas was the power price-setter across European Union states 63% of the time in 2022, despite representing, opens new tab only a 20% share in the electricity mix. ​That year, European power prices spiked to around 600 euros per MWh - compared to a typical level in the preceding decade of less ⁠than 50 euros per MWh.

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Governments could forcibly weaken the link between gas and electricity prices. Spain did this four years ago via the so-called Iberian Mechanism, which put a temporary ​cap on the price that gas-fired plants could command in the electricity market. The scheme compensated plants for the difference between the capped gas price and the market price and then ​recovered some of these costs via levies on consumer energy usage. A separate and more radical European proposal splits the power market into separate green and fossil-fuel segments, preventing gas plants from setting the price for all electricity. Lower renewable costs can then beget lower power prices.

Both schemes come with downsides, though. The Iberian one meant lower prices of gas, which unsurprisingly incentivised more use of the fossil fuel rather than ​less. The split clean and dirty power pools idea might create pockets where power supply can’t meet demand – leaving authorities to pick who gets lower-cost power and who doesn’t. Meanwhile, ​arbitrageurs could rush to buy energy in the cheap market and sell it in the more expensive one.

The least-bad workaround is just to go even faster on renewables to limit the proportion of gas ‌in the ⁠mix. In recent years, it’s worked for Spain. According to the think tank Ember, opens new tab, the country’s wind and solar growth has reduced the influence of expensive fossil fuel generators on electricity prices by 75% since 2019 - faster than the likes of Italy and Germany. In the first half of 2025, Spain’s wholesale electricity price was 32% lower than the EU average.

Yet while the EU has championed the green transition, it now faces a new round of energy price inflation just as its politicians are fretting about low growth and rearmament. The bloc’s Emissions Trading System (ETS), ​which requires power plants and heavy industries ​to buy permits for their CO2 emissions, contributes ⁠an average of 11% to final electricity bills for these energy-intensive operators. EU-imposed mandates to use Sustainable Aviation Fuel (SAF) increase airlines’ costs. Some gas-dependent states like Italy have indicated that they could restart shuttered coal plants if the Gulf crisis continues. Poland has asked the Commission to ​shackle the ETS to help to bring energy bills down. Business leaders want a new round of free ETS permits.

Maybe the EU ​will stand firm and leave ⁠its green policies unchanged. But it’s easy to see how its politicians might take a different view. If so, prospective investors in new renewables projects who sense a shifting regulatory picture might sit on their hands. And that could mean the least-bad solution to the electricity problem – a flood of green power projects to remove the baleful influence of volatile gas over power prices – doesn’t ⁠happen as ​quickly.

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Context News

• European Union leaders called on March 19 for temporary measures to mitigate the impact ​of soaring energy prices caused by the Iran war.
• In conclusions released at the end of a summit in Brussels, the European Council urged the European Commission to present temporary and targeted measures to mitigate the impact of rising ​power costs.

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Editing by George Hay; Production by Shrabani Chakraborty

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Jennifer Johnson

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Jennifer Johnson is a London-based columnist for Breakingviews, where she covers the telecoms, media and retail sectors. She was previously a reporter for the Investors’ Chronicle and she holds a master’s degree in financial journalism from City, University of London.

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