ROI-Europe's energy transition is now an economic security race: Martin Vladimirov

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29/07/2026 07:00

The opinions expressed here are those of the author, the director of the Geoeconomics Program of the Center for the Study of Democracy
By Martin Vladimirov
SOFIA, July 29 (Reuters) - While Europe's vulnerability to energy supply disruptions has declined significantly since the 2022 Russia crisis, the region faces another insidious threat: high energy prices that are hollowing out the continent's industrial base. 
Europe has weathered the global energy squeeze caused by the Iran war that began on February 28 relatively well thus far, largely thanks to massive investments in liquefied natural gas terminals, mandatory gas storage and increased reliance on U.S. LNG. European gas prices have risen, but the region has yet to enter true crisis mode, as it did in 2022 following Russia’s full-scale invasion of Ukraine.
But the Iran conflict has also demonstrated that Europe’s exposure to global fossil fuel markets leaves it vulnerable to shipping disruptions, geopolitical instability and competition with Asian buyers for LNG. As long as imported fossil fuels determine electricity prices, every external shock risks translating into higher costs for European households and industry.
European natural gas and electricity prices were down 34% and 14%, respectively, from their 2022 averages by the end of 2025. Even so, they remained about 50% and 38% above pre-war levels.
Elevated energy prices have already had a significant economic impact in Europe. The continent lost more than one million industrial jobs between 2019 and 2023. Germany, previously considered Europe's growth engine, shed another 143,000 in 2025, according to Handelsblatt.
This was due to many factors, including pandemic-related disruptions, elevated inflation and increased competition from China in advanced manufacturing, but higher energy prices also played a major role, partly because they made it more challenging for European manufacturers to compete.
Europe, therefore, risks faster deindustrialisation if affordable electricity remains scarce.
     
AFFORDABILITY CRISIS
The 2026 Energy and Climate Security Risk Index (ECSRI), which we developed at the Center for the Study of Democracy, shows that affordability has overtaken geopolitics as the largest source of energy security risk for most European economies.
Affordability risks fell by 13% year-on-year in 2025 but remained much higher than in 2021.
Countries most dependent on fossil fuels – like Poland, Bulgaria, Romania and Greece – face structurally higher energy costs and weaker industrial competitiveness over the long term.
The most energy resilient countries in Europe – including Sweden, Finland and France – offer a different model. They combine low-carbon power, including nuclear and hydropower, with fast-growing solar and wind capacity and high levels of electrification.
When the Iran war disrupted LNG flows through the Strait of Hormuz in March, average wholesale electricity prices in Germany were higher than in Finland, Sweden and France by €61, €33 and €35 per megawatt hour, respectively, according to the Electricity Maps data platform.
The reason is largely that gas rarely sets power prices in these highly electrified systems. Electricity already accounts for around 30% of final energy consumption in both Finland and Sweden, far above levels in much of Europe, while France's electricity system benefits from receiving over 70% of its power from nuclear.
This suggests that Europe's long-running debate over nuclear versus renewables isn’t the correct one. The strongest-performing electricity systems are those that combine both.
GROWING PAINS
Unfortunately, Europe still lacks the institutional framework needed to deploy a more balanced energy system both reliably and quickly across the continent.
True, Europe's electricity system is changing at unprecedented speed. Installed solar capacity in several Central and Eastern European countries almost quadrupled between 2021 and 2025, while EU battery storage expanded 10-fold, according to Eurostat.
Yet the rapid growth of intermittent renewables is placing increasing pressure on electricity grids, storage and balancing systems — vulnerabilities highlighted by last year's Iberian blackout.
Countries that combine renewables with reliable, low-carbon generation, stronger interconnections and greater investment in grid infrastructure appear to be significantly more resilient than their more fossil-fuel-dependent peers.
Another issue is that new nuclear projects continue to face fragmented regulation, lengthy permitting, financing constraints and supply-chain bottlenecks that drive up costs and delay construction.
So what might be done?
For starters, instead of treating every project as a bespoke national undertaking, the EU could develop common deployment programmes based on standardized procedures and commercially viable financing models that allow successful designs and delivery models to be replicated quickly across multiple countries.

KEEPING UP IN THE AI RACE
The race to develop a competitive AI ecosystem is turbocharging this energy security race. AI data centres and advanced semiconductor manufacturing require enormous quantities of reliable, low-carbon electricity.
They also depend on secure supply chains for critical raw materials, batteries, semiconductors and advanced grid equipment, areas where Europe remains heavily dependent on Chinese manufacturing. Unless Europe diversifies these supply chains, it risks replacing one strategic dependency with another.
In the AI age, energy security is no longer just about supply. It is about whether the continent can deliver enough affordable, clean and reliable electricity to sustain industrial competitiveness, technological leadership and economic sovereignty.
The countries that understand this shift will define Europe's next decade. Those that do not will be left behind.
     
(The views expressed here are those of Martin Vladimirov, Director of the Geoeconomics Program of the Center for the Study of Democracy (CSD)) 
     
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 (By Martin Vladimirov; Editing by Marguerita Choy and Anna Szymanski)
 ((anna.szymanski@thomsonreuters.com))