EU Clean Industrial Deal: Energy policy plays a leading role

Reducing the cost of energy is a key area of focus to improve competitiveness of EU industry under the European Commission (EC) Clean Industrial Deal (CID), published on 26 February 2025.  For an overview of the CID, please see our blog here.

The EC recognises that high energy costs mean that existing industries may choose to relocate, or new investments may take place outside of the EU. The Action Plan on Affordable Energy (APAE) (adopted in February) is at the heart of CID proposals to address this. The APAE sets out measures to lower energy bills for industries, businesses, and households by accelerating the roll-out of clean energy and electrification by encouraging deployment of grid, renewables and energy storage, increasing interconnection, completing the internal energy market, reforming the gas market, and reducing reliance on fossil fuel imports. 

Grid infrastructure

Grid build-out is expected to reduce cost of energy system management which have doubled from 2020 to 2022 to €4.2 bn. The APAE highlights the scale of grid build-out anticipated, estimating that €584 billion is necessary for investment in electricity grids this decade. To support this build-out, the CID provides that the EIB will introduce a Grids Manufacturing Package for the European supply chain. Under the package, the EIB would provide counter-guarantees to manufacturers of grid components in an indicative amount of up to €1.5 billion, giving the supply chain certainty to enable the ramp-up of production ahead of firm orders. The EC will also propose a European Grid Package (to be brought forwards by Q1 2026) to simplify Trans-European Networks for Energy and ensure cross-border integrated planning. Alongside these plans, the EC will also bring forward a proposal for an Industrial Decarbonisation Accelerator Act to speed up permitting bottlenecks related to industrial access to clean energy. 

Noting that interconnected energy grids require secure digital networks and systems, as part of its APAE, the EC is intending to adopt a Strategic Roadmap for Digitalisation and AI for the Energy Sector in 2026. It is envisaged that the rollout of AI solutions will support real-time grid management, improve demand-side flexibility, and enable predictive maintenance for critical energy infrastructure.  

Electricity and Gas Markets

The CID sees reform of electricity markets as playing a significant role in reducing bills. The EC plans to implement the Electricity Market Design Directive (approved in 2024), including promoting cross-border power purchase agreements (PPAs) and contracts for difference (CfDs) for industrial users. To encourage entry into long-term energy offtake contracts, a pilot programme was launched alongside the CID whereby EIB will counter-guarantee obligations of SMEs and mid-cap companies, and energy intensive industries under corporate PPAs. The aim is to reduce the credit support requirements for businesses, which are often a barrier to execution of a long-term corporate PPA. The EC also plans to issue guidance on CfD design in line with State aid rules (including combining CfDs with PPAs) in Q4 2025. New rules on cross-border forward capacity allocation will be brought forwards to help develop forward markets as well as guidance on methodologies for network tariff design. The EC will also develop guidance to Member States and retailers on remuneration of flexibility in retail contracts by Q4 2025, providing products for those who can reduce electricity demand.

The CID seeks to decouple electricity prices from gas prices. To support this aim, the EC has set up a Gas Market Task Force to prevent distortions in natural gas markets and will launch a broader consultation to assess the need for further changes on energy and financial market rules (MiFID/REMIT) as well as to reduce reporting burden. Proposals have also been published to extend the Gas Storage Regulation, including measures to promote better coordination of gas storage refilling to reduce system stress and market distortions.

Hydrogen

Measures to promote development of the hydrogen sector are also highlighted. The adoption of a delegated act on low carbon hydrogen that promises to clarify rules for production is now anticipated in Q1 2025 (having been delayed from 2024) and a third call under the EU Hydrogen Bank auction is expected in Q3 2025 with a budget of up to €1 billion. The Hydrogen Mechanism will also be launched to connect offtakers and suppliers, particularly in hard to decarbonise industrial sectors in transport such as maritime and aviation. There is also a plan to review the delegated act on renewable fuels of non-biological origin, beginning with the launch of a study to assess the effectiveness of the hydrogen framework and identify barriers.

Nuclear

Policy on nuclear power, historically somewhat of a wedge issue within the EU, is becoming more defined. The CID contains a brief mention of support for the acceleration of the development and deployment of small modular reactors and plans to review the State aid for nuclear supply chains and technologies. The APAE includes more concrete plans including a proposal for a Fusion Strategy (including the creation of a Public-Private Partnership to accelerate commercialisation) and an assessment of investment needs in nuclear energy.