Europe once again finds itself on the receiving end of energy geopolitics. This time, it’s Washington leveraging the continent’s reliance on imported gas – tying long-term American LNG contracts to tariff negotiations. Whether friend or foe, suppliers recognise gas as a strategic weak spot. Meanwhile, European households and businesses remain trapped in a cycle of volatile gas prices that has pushed some 72 million EU citizens into energy poverty and eroded the competitiveness of Europe’s energy-intensive industries.

Progress has been made. Following Russia’s 2022 invasion of Ukraine, Europe slashed its gas consumption by 20% through renewables deployment and demand reduction policies. But governments continue to sign gas contracts with undemocratic regimes and persist with domestic policies that undermine energy sovereignty.

One example is capacity markets. Designed to ensure power supplies at all times, they’ve become a backdoor subsidy for fossil fuels – particularly gas. A new report by Aurora, prepared for Beyond Fossil Fuels, reveals the scale of the problem. Since 2015, six European countries – Belgium, France, Great Britain, Ireland, Italy and Poland – have allocated €90bn to energy providers through capacity market contracts, nearly €53bn of that to fossil fuel plants. Only one-fifth has been allocated to clean flexibility solutions such as battery storage, demand side response and interconnection.

Instead of future-proofing Europe’s power system, these subsidies prop up nearly 200 gas-fired power plants, including 30 GW of new-build gas capacity. Contracts stretch into the 2040s, well past Europe’s climate deadlines, even in countries committed to decarbonising their power systems by 2035 or earlier. It’s a major setback for climate action, as gas releases substantial amounts of CO₂, as well as methane – 80 times as potent.

Where is the money going?
Great Britain has the longest-running capacity market in Europe, in operation since 2014. Over this time, it has allocated €24.3bn to energy providers, with over €14bn going to gas plants. The new UK government says it will maintain a ‘backup’ reserve of gas plants, as part of its 2030 Clean Power Plan. It is considering an ‘out-of-the-market’ mechanism to manage this reserve – which would remove gas plants from the wholesale market and therefore reduce their ability to set energy prices. This idea needs to be turned into action.

The UK’s reliance on gas plants as the key back-up solution has handed market power to their owners. Just this winter, energy giants Vitol and Uniper – two of the largest recipients of capacity payments – charged more than £12mn for three hours of electricity during a cold snap. Meanwhile, Ofgem estimates UK household energy bill arrears are £2.9bn.

Italy’s capacity market is even more skewed towards gas. Some 82% of its €18.4bn allocations since 2019 have gone to gas plants – the highest share in Europe. Almost all of its gas is imported, resulting in some of the highest electricity prices in the EU. Clean flexibility solutions, by contrast, received just €2.2bn.

Poland presents a mixed picture. It generates over half of its power from coal – more than five times the EU average, according to Ember analysis – and has allocated almost €6bn to coal-fired generators. However, Poland is Europe’s leader in funding energy storage. Meanwhile, in Ireland and Belgium, 67% and 73% of capacity market funding has gone to gas plants, respectively.

Instead of future-proofing Europe’s power system, these (capacity market) subsidies prop up nearly 200 gas-fired power plants, including 30 GW of new-build gas capacity.

Consumers are paying twice
For energy consumers, the system is a financial double blow. Not only are they subsidising fossil fuel plants, they are also locking in volatile gas prices for years to come. Gas is nearly always responsible for high electricity prices. Conversely, generating electricity from renewables is nearly always cheaper. But investments in flexibility solutions needed to ensure this cheaper clean power is always available where and when needed have fallen short.

Recent analysis by Ember shows that, by 2030, EU wind and solar could produce excess power equivalent to Poland’s total annual power consumption. If flexibility solutions such as battery storage grid connectors, and demand-side response were deployed at scale, this excess could save €9bn a year in gas and help accelerate the electrification of Europe’s economy so it is globally competitive.

Concerningly, some governments remain distracted by technologies such as carbon capture and storage, which they hope can play a part in a clean power future by ‘retrofitting’ power plants. These remain expensive and unproven at scale, and will likely result in delays. Gambling on them wastes time and diverts investment away from proven clean flexibility solutions.

Urgent need for reform
If one lesson stands out from Europe’s successive crises of the 2020s, it’s that energy sovereignty is paramount. The energy crisis cost taxpayers €758bn in just 16 months to shield households and firms. This should have been a wake-up call for governments to rapidly end our exposure to international fossil fuel markets that are inherently volatile and vulnerable to geopolitical instability. Instead, at present, many capacity markets continue to prop up gas plants, risking future price shocks as well as high emissions.

Leaders must act now, by redirecting capacity market funding away from fossil fuels and towards storage, interconnection and flexible demand solutions that deliver homegrown energy security. The longer governments delay welcoming a new age of clean energy security, the more households and businesses will, literally, pay the price.

The views and opinions expressed in this article are strictly those of the author only and are not necessarily given or endorsed by or on behalf of the Energy Institute.

• Further reading: ‘The coming glut of gas’. At International Energy Week 2025, speakers from the International Energy Agency, BP and Shell predicted a large increase in natural gas reaching global markets by the end of the decade. At the same time, they, and others, highlighted the importance of reducing methane emissions in producing those fossil-fuel projects.
• There are both bleak and optimistic aspects to European countries’ efforts to meet climate targets. However, it could be that the growth of renewables (and decline of coal) is being led more by economics than environmental benefits, suggests Alexandru Mustață, Beyond Fossil Fuels.