European Commission publishes Electrification Action Plan to make Europe the “first electro-powered continent”

On 17 July 2026, the European Commission published its Electrification Action Plan, as part of a wider package that also includes a proposed review of the EU Emissions Trading System (ETS). The package also included legislative proposal on network charges, and the publication was accompanied by a press release, Q&As and other supporting materials. 

This publication focuses on the Electrification Action Plan, through which the Commission doubles down on affordable, homegrown and clean electricity as central to the European Union’s strategic goals of industrial competitiveness, energy independence and decarbonisation.  

Key takeaways

• The Commission wants to make Europe the “first electro-powered continent” and proposed an indicative electrification target of 46% by 2040, measured as electricity’s share in final energy consumption. 

• The Electrification Action Plan focuses on reducing the electricity-to-fossil fuel price gap, lowering upfront switching costs, accelerating grid deployment, boosting innovation and building the skilled workforce needed for widespread electrification across industry, transport and buildings.

• A new legislative proposal on network charges would introduce measures to incentivise electrification, taxation measures designed to ensure that electricity is taxed less than natural gas, and rules on efficient, transparent and non-discriminatory access to transmission and distribution networks in situations of grid congestion. 

Background

The package delivers on the Affordable Energy Action Plan, adopted on 26 February 2025 as part of the Clean Industrial Deal (see our previous blog post), which set out key actions to reduce energy costs for households and enterprises, strengthen Europe’s competitiveness and reduce energy dependencies. 

It also follows AccelerateEU, adopted after the events in the Middle East, which made the case for faster clean energy deployment and electrification as a means of reducing exposure to fossil fuel price shocks and import dependence (see our previous blog post). In particular, the Electrification Action Plan implements the third pillar of AccelerateEU, which foreshadowed a new electrification target, additional measures for industrial, transport and buildings electrification, and action on fossil fuel subsidies.

The Electrification Action Plan: an overview

The Action Plan identifies five barriers to widespread electrification: (i) unfavourable electricity-to-fossil fuel price ratios; (ii) high upfront investment costs for the switch from fossil fuels to electricity; (iii) electricity grid capacity constraints, connection queues and sub-optimal use of existing grids; (iv) slow uptake of innovation for certain uses; and (v) skilled workforce shortages. To address these barriers, the Commission sets out actions which include the following. 

1. Reducing the gap between electricity and fossil energy costs 

A central concern is the gap between electricity and gas prices for end-users. This gap is commonly expressed as an electricity-to-gas price ratio: a ratio of 2 means that electricity costs twice as much as gas for the same amount of energy. The ratio varies significantly across Member States depending on wholesale prices, network charges, taxes, levies and fossil fuel subsidies. Against that backdrop, the Commission encourages Member States to bring national electricity-to-gas price ratios down to a maximum of 2.5 for households and 2 for industry by 2030.

Network charges, flexibility and storage. Alongside the Action Plan, the Commission adopted a legislative proposal on network charges, amending the Electricity Regulation. The proposal is intended to incentivise electrification, encourage system-friendly grid use (including for storage installations), accelerate smart meter deployment, and improve the electricity-to-gas price ratio from the network charges side. The proposal introduces minimum smart meter deployment obligations (50% of final customers by 2030, rising to 75% by 2033) and allows for special cost-reflective network charge regimes for specific categories of users such as energy-intensive industries and data centres, with safeguards for household and SME affordability.

On flexibility and storage, the Commission sets a key performance indicator of 200 GW of storage capacity by 2030 (up from around 55 GW in 2026) and 500 GW by 2040. The Commission also points to the Tripartite Agreement on Energy Storage, which has already yielded pledges of 30–35 GW of stationary storage capacity for 2026–2028. Further measures include the launch of a framework for regulatory sandboxes and living labs to enable vehicle-to-grid (V2G) projects and adopting a common Union rating scheme and minimum performance standards for data centres. The Commission recognises that flexible data centres can help reduce overall electricity system costs by supporting grid stability and renewable integration, and links this to the data centre acceleration zones proposed under the proposal for the Cloud and AI Development Act.

The European Investment Bank (EIB) Group has also committed more than EUR 75 billion over the next three years for energy transition objectives, focusing on large-scale electrification of end-use sectors, capacity expansion in the power sector, grids, storage and flexibility solutions, and support for manufacturers of related equipment including heat pumps and EV chargers (see our previous blog post).

Taxation. The legislative proposal on network charges also addresses the tax differential between electricity and gas. It would introduce provisions intended to ensure that electricity is not taxed more heavily than gas, while giving Member States a tailored option to reduce electricity taxation further for energy-intensive industry. These measures would complement the existing Energy Taxation Directive and, while Member States retain discretion over their tax levels, are designed to reduce divergences in electrification incentives across national taxation frameworks. The Commission also intends to propose measures on the gradual phase-out of fossil fuel subsidies as part of the post-2030 Energy Union package expected later this year.

Clean energy deployment. The Commission emphasises that the lowest electricity prices in the EU are observed in markets with the highest shares of clean electricity (renewables and nuclear). Full transposition of the Renewable Energy Directive (RED III) is therefore identified as a priority, noting that no Member State had fully transposed it by the May 2025 deadline. The Commission aims for completion by Summer 2027. Small Modular Reactors (SMRs) are recognised as complementary to renewables in strengthening energy security and autonomy (see our previous blog post on the SMR Strategy). In addition, the Commission plans to launch a map-based tool, “GeoDep”, by the second quarter of 2027 to help energy-intensive industry and investors assess location-specific energy factors, including proximity to generation, available infrastructure and favourable electricity-to-gas price ratios. This tool could also support the establishment of Industrial Manufacturing Acceleration Areas under the proposed Industrial Accelerator Act (see our previous blog post). The Commission is also set to adopt guidance on Net-Zero Industry Act (NZIA) non-price criteria in renewable energy auctions (see our previous blog post). 

2. Lowering upfront costs for electrification of end-use sectors 

To reduce the capital cost of switching to electric technologies, the Commission encourages Member States to use existing flexibilities under the VAT Directive to apply lower VAT rates to electrification technologies (heat pumps, solar panels, residential batteries), and to offer reduced registration taxes for EVs, shorter depreciation times or tax incentives for company EVs. As part of the Circular VAT initiative announced in the Clean Industrial Deal (see our previous blog post), the Commission will present an EU framework for the electrification of corporate fleets. 

Industry. The Commission states that around 60% of current industrial energy demand met by fossil fuels could be electrified using commercially available technologies, including industrial heat pumps and electric boilers. It also highlights the role of waste heat recovery in improving overall efficiency. Member States are encouraged to apply the Clean Industrial Deal State Aid Framework (CISAF) and related recommendations on tax incentives to lower costs for electrification in the industry. The Commission also encourages rapid adoption and early implementation of the Industrial Accelerator Act. In parallel, the proposed ETS revision would support industrial electrification through the proposed EUR 100 billion Industrial Decarbonisation Bank and the EUR 30 billion ETS Investment Booster, both of which could support investments in electrification equipment, grid connections, on-site energy management and electricity or thermal storage. 

Transport. Road transport accounts for almost one third of the EU’s energy use. The Commission notes that more than 8 million battery electric vehicles (BEVs) are already in use across the European Union and that passenger BEVs accounted for 20.7% of new registrations in April 2026. However, progress is still required. The Commission is focused on accelerating progress in the battery electric heavy-duty vehicle (e-HDV) sector, encouraging Member States to exempt zero-emission lorries from tolls. The proposed Clean Corporate Vehicles Regulation is intended to accelerate electric vehicle registrations by large companies, which are also important suppliers of second-hand vehicles to the wider market. Member States are also encouraged to use Social Climate Fund resources and ETS revenues to support social leasing schemes for electric vehicles. Further measures include a Commission recommendation on fiscal and non-fiscal demand-side incentives for zero-emission vehicles by the end of 2026 and a review of the Clean Vehicles Directive by the end of 2027. The Action Plan also indicates that maritime and aviation electrification will require further policy attention. 

Buildings. Commercial and residential buildings account for around half of the EU’s gas consumption. The Commission highlights heat pumps as a central technology. The Action Plan sets a key performance indicator of around 4 million heat pump installations per year by 2030, compared with 2.4 million in 2025. 

3. Access to infrastructure 

Grid connection queues and insufficient grid capacity remain a clear constraint on electrification. The Commission has proposed measures through the Grids Package and encourages system operators to involve key electrification stakeholders – including industrial sites, data centres, district heating operators, charging point operators, airports and ports – in their network planning. The EIB Group’s EUR 75 billion financing commitment also identifies grids as a key priority. 

The Commission will also review the Alternative Fuels Infrastructure Regulation (AFIR) in 2026 to support the accelerated roll-out of charging infrastructure (including for e-HDVs and onshore power supply at ports), ensure a coordinated European deployment of e-HDV charging infrastructure, and expand the Clean Transport Corridors initiative. Port infrastructure is highlighted for its potential to facilitate the electrification of maritime transport, with the Commission encouraging ports to be designated as industrial accelerationareas under the proposed Industrial Accelerator Act.

4. Accelerating innovation in electrification solutions

For energy uses not yet ready for full electrification – notably long-distance transport and certain industrial processes – the EU commits EUR 18.6 billion through Horizon Europe, the Modernisation Fund and the Innovation Fund. For 2026–2027, Horizon Europe dedicates almost EUR 2 billion to energy storage, breakthrough energy technologies, renewable energy, grid technologies, electrification of buildings and industry, and transport solutions. 

The Commission will also continue work with the European Industrial Alliance on Small Modular Reactors to conclude its second call for projects, reinforce the Strategic Energy Technology Plan, and update the EU hydrogen strategy to ensure complementary decarbonisation solutions where direct electrification is not feasible.

What now?

The Electrification Action Plan confirms that the Commission sees faster electrification as a central pillar of Europe’s competitiveness, security and decarbonisation strategy.  

The key question now is implementation. Much will depend on whether the Commission can translate the Action Plan into adopted legislation, whether Member States use the fiscal and state aid flexibilities available to them, and whether grid, storage and clean technology deployment can move fast enough to close the electricity-to-fossil fuel cost gap in practice.

If you would like to discuss any aspect of the Electrification Action Plan, please reach out to the contacts on this post, or to your usual Linklaters contact.