Regulatory Reform to Unlock EU Electricity Markets

Europe faces a critical challenge: despite strong political commitment and increasingly favourable economics, renewable deployment remains well below the pace required to meet EU targets. This hurts Europe’s competitiveness, which is increasingly linked to the availability of secure, affordable and reliable electricity. As electrification accelerates across industry, transport, heating and digital services, including AI data centres, power has become a strategic input to growth, investment and innovation (cf. Draghi 2024). This paper argues that the binding constraints are not primarily technological or financial, but largely regulatory. Frameworks originally designed for centralised, unidirectional, thermal-based power systems are poorly suited to an electricity system characterised by decentralised generation, two-way flows, storage and active demand-side participation. The paper argues that, given the positive correlation between EU Member States’ wholesale electricity prices and their renewable deployment penetration rates, Europe’s competitiveness is related to renewable deployment in a national energy system. Despite accelerated deployment rates across most Member States, deployment still fall well short of national objectives, let alone available technical potential – despite heightened energy security concerns. Project-level data (e.g. those announced, in development or abandoned) reveal persistent bottlenecks along the development pipeline: many projects take years to reach completion, if they do so at all. While grids are increasingly central to system transformation, the analysis highlights structural underinvestment and regulatory incentives that favour traditional reinforcement over more efficient solutions. The paper then examines how regulatory design affects market entry, investment decisions and, ultimately, the pace of system transformation. Case studies illustrate how well-designed reforms can enable new technologies, allow entry of new business models and market participants. Evidence from countries including France, Germany, Ireland, Italy and Sweden points to faster deployment and greater innovation following targeted regulatory changes. Clarifying legal rights and permitted uses has helped overcome restrictive frameworks, for example by enabling dual land use for agriculture and solar PV in France and Italy. Procedural simplification can also deliver rapid results: reforms to grid-permitting rules in Germany have allowed the Federal Network Agency (BNetzA) to approve significantly more transmission projects in 2024–25 than in previous years. Ireland’s market reforms to remunerate ancillary services (such as inertia or fast frequency response) on a standalone basis, and Sweden’s readiness-based connection rules, further demonstrate how regulatory changes can unlock system services and improve outcomes without immediate new infrastructure. Drawing on the OECD Diagnostic Toolkit for Reducing Regulatory Barriers to Solar, Wind and Pumped Hydro Storage, the paper proposes a taxonomy and scoring of regulatory barriers to help policymakers prioritise reforms across governance levels. It identifies five regulatory bottlenecks slowing deployment in Europe: (i) legal ambiguity that deters market entry, particularly for novel solutions; (ii) insufficient remuneration for new system services such as flexibility and inertia services; (iii) slow and fragmented spatial planning and permitting procedures; (iv) inefficient grid-connection rules that block viable investments; and (v) grid-investment frameworks biased towards capital-intensive expansion rather than system optimisation. Building on this analysis, the paper advances targeted recommendations for regulatory adaptation to accelerate deployment and unlock Europe’s electricity markets.