Integrating Energy into the EU Single Market: Challenges and Opportunities

By Mika Horelli, BRUSSELS – Enrico Letta’s April report proposed incorporating energy into the EU single market alongside finance, telecommunications, and defense. This ambitious reform could revolutionize Europe’s energy landscape, harmonizing fragmented markets, enhancing energy security, and supporting the EU’s climate goals. However, its realization requires tackling technological, regulatory, and investment challenges.

Recent findings by the European Network of Transmission System Operators for Electricity (ENTSO-E) underline the importance of such reforms. While Europe’s electricity supply for the winter of 2024–2025 appears stable, localized risks persist, highlighting the need for integrated, resilient energy systems.

The Nordic electricity market offers a striking example of how integrated and efficient energy markets can operate. Unlike many other parts of Europe, where electricity markets are fragmented and often rely on national control, the Nordic region has a long history of regional cooperation through the Nord Pool power exchange, established in 1996. This market unites Norway, Sweden, Finland, and Denmark and has expanded to include Baltic countries and parts of Central Europe.

Renewable energy dominates electricity generation in the Nordic countries, with hydropower in Norway and Sweden, wind power in Denmark, and a mix of bioenergy and nuclear power in Finland. These cleaner energy sources stand in contrast to the fossil fuel dependency still prevalent in parts of Europe. The region’s robust grid infrastructure and cross-border interconnections enable efficient electricity trade, with hydropower acting as a balancing resource for intermittent wind and solar energy.

Moreover, the Nordic model’s use of real-time pricing and demand-side flexibility encourages consumers to adapt their energy usage based on price signals. While other parts of Europe are exploring similar mechanisms, the implementation is often hindered by regulatory differences and less developed market structures.

The success of the Nordic market demonstrates the benefits of regional cooperation and serves as a blueprint for how Europe can achieve a more unified and sustainable energy market.

Currently, Central Europe’s energy markets remain fragmented, with member states independently managing their electricity networks. This fragmentation results in inefficiencies, higher costs, and challenges in responding to crises. The energy disruptions following Russia’s invasion of Ukraine in 2022 exposed the vulnerabilities of the current system. Letta’s vision of a unified energy market aims to harmonize regulations and technical standards, reduce energy costs through competition, and strengthen energy security by reducing reliance on single suppliers. Additionally, such a market would support the EU’s goal of carbon neutrality by 2050 by enabling the efficient distribution of renewable energy.

ENTSO-E’s Winter Outlook Report reinforces these objectives. While Europe’s electricity supply is expected to meet demand this winter, risks remain in specific regions, such as Ireland, Malta, Crete, Cyprus, Finland, and Poland, especially during extreme cold spells or unexpected outages. These challenges illustrate the need for greater cross-border energy integration and robust contingency planning.

Achieving an integrated energy market requires significant technological advancements and infrastructure upgrades. Modernizing and expanding cross-border electricity transmission networks is essential to ensure smooth energy flows across Europe. As renewable energy capacity, particularly from solar and wind, continues to grow, grid infrastructure must be adapted to handle increased demand. Smart grid technologies are also crucial for balancing supply and demand across large areas, optimizing energy distribution in real-time, and reducing waste. Energy storage solutions, such as battery systems, pumped hydro, and green hydrogen technologies, will play a vital role in managing peak demand and ensuring resilience in regions prone to supply disruptions.

At the same time, the growing digitalization of energy systems highlights the importance of cybersecurity. Protecting energy infrastructure from cyber threats is increasingly vital, particularly given the hybrid warfare threats targeting critical infrastructure.

Integrating energy into the EU single market also demands substantial investment. According to the European Commission, upgrading Europe’s electricity infrastructure will require at least €584 billion by 2030, with annual investments potentially reaching €85 billion after that. Renewable energy capacity, energy storage solutions, and the development of new technologies, including green hydrogen, will require significant financial commitments from both public and private sectors.

While the short-term costs of these investments may drive up energy prices, the long-term benefits are clear. A unified energy market would stabilize prices, reduce inefficiencies, and accelerate the transition to renewable energy. High gas storage levels, currently at 94%—well above the EU’s 90% target for winter preparedness—demonstrate Europe’s ability to improve energy security. Integrating energy markets would further enhance this resilience, allowing energy to flow more freely between countries and reducing dependency on fossil fuels.

However, the transition poses challenges, particularly for regions heavily reliant on fossil fuels or lagging in renewable energy development. Rising energy costs during this period may disproportionately impact vulnerable communities, necessitating targeted support. The EU’s Just Transition Fund provides a mechanism to address these challenges, offering financial assistance to regions and populations most affected by the shift to sustainable energy.