Energy Prices as a Location Factor: What Europe's Electricity Cost Structure Means for Supplier Selection

How different industrial electricity prices across Europe affect quoted prices, supply chain risks and relocation decisions, and which criteria buyers should consider when selecting locations and suppliers.

Status quo: Energy costs have become a central procurement criterion

Anyone comparing suppliers in Europe nowadays encounters a question that played hardly any role in tenders just a few years ago: Where does the plant stand in energy terms, and how stable are its energy costs? The background is simple. Energy is a relevant cost block in many manufacturing processes, and prices for it differ so widely within Europe that they influence the competitiveness of entire locations. Competitive industrial electricity prices are considered a central prerequisite for securing a country as an attractive production location in international comparison.

For buyers, this changes the perspective on the overall supplier package: Not only manufacturing competence, capacity and logistics determine the economic viability of a source, but also the cost structure at the location: especially for electricity- and gas-intensive processes such as casting, forging, heat treatment or surface finishing. Those who only compare the unit price per position overlook the fact that an attractive offer under unfavourable energy costs has a different future than an equivalent offer from a country with lower energy cost burdens.

At the same time, the topic is politically charged: governments are responding with relief measures, subsidies and market policy interventions. For procurement, this means that energy costs are not a static factor but are subject to a regulatory framework that can change at short notice. It is precisely this combination of significant country spreads and political influenceability that makes energy costs a standalone evaluation criterion in supplier selection.

The price scissors in Europe: What the data show

The figures demonstrate how large the differences are. According to a Statista analysis of Eurostat data, Irish industrial customers with an annual consumption of between 500 and 1,999 megawatt hours paid around 24.78 cents per kilowatt hour in the second half of 2025: the highest value in the EU for this consumption level. German industrial customers, at the same volume, stood at 18.28 cents, lower but still at a high level. At the bottom end of the scale are countries such as Finland with 4.94 cents in this consumption category.

Some patterns can be read from the data. In the 500-MWh category, besides Ireland and Germany, Hungary and Italy in particular are above 16 cents. Scandinavian countries as well as Portugal and Spain are clearly below this level in this segment. For larger consumption volumes, the picture partially changes: In the 20,000 to 69,999 MWh category, Finland stands at 7.16, Spain at 9.91 and Poland at 9.72 cents, while Ireland at 15.54 cents and Hungary at 15.54 cents remain further up. Germany registers 15.54 cents in this category, thus declining less sharply than others.

Why the prices differ so much: market prices, grid fees, levies

The electricity price for industrial customers essentially consists of three blocks: procurement or generation including sales, grid fees, and taxes, levies and surcharges. For location assessment, it is crucial that these blocks are not weighted equally in all countries. According to a study commissioned by the Initiative Neue Soziale Marktwirtschaft, in Germany it is precisely the grid fees as well as taxes, levies and surcharges that are above average. The most electricity-intensive companies in Germany, according to the study, pay the highest grid fees of all EU member states at just under 3 cents: almost twice the EU average of 1.73 cents.

For government-induced price components as well, Germany, according to this study, is higher than in almost all comparison countries, the only exception being Poland. In other countries, subsidies or price caps have a damping effect. For buyers this means: the pure exchange or procurement price is only one building block. National regulation, from access to regulated tariffs to the design of grid fees, often shapes the ultimately applicable price level more strongly than the market itself.

Besides electricity, natural gas also plays a role, especially for heat and forming processes in the supplier industry. The INSM study concludes that German industrial companies pay roughly five times as much for natural gas as companies in the USA, Canada or Mexico, and assesses this disadvantage as structural and unlikely to be eliminated for the foreseeable future. For procurement within Europe, this means: processes with high gas demand respond particularly sensitively to the national energy price structure of the manufacturing location.

Developments that additionally alter the assessment

Political relief measures: often temporary

An example of political influenceability: On 9 November 2023, the German government agreed to reduce the electricity tax for industry to a minimum of 0.05 cents per kilowatt hour for the years 2024 and 2025. Such relief measures have an immediate effect on the cost structure of suppliers, but they are limited in time and can expire or be changed. Buyers should therefore distinguish between structural cost disadvantages (such as grid fees) and short-term relief when evaluating suppliers.

Rising grid costs as a forward-looking risk

The INSM study refers to estimates of up to 730 billion euros in grid expansion costs by 2045 and warns of a possible tripling of industrial grid fees. Should this path materialise, today's already high German grid fee rate would rise further. For procurement decisions with long terms, such as framework agreements spanning several years, this is a relevant uncertainty factor that cannot be reduced to today's quoted prices. It is a forecast, not an established fact; how grid fees actually develop depends on political and regulatory decisions.

Consumption volume as a lever

The data show a clear scale effect in almost all countries: large consumers pay considerably less per kilowatt hour than small ones. According to Eurostat figures for the first half of 2025, the average electricity price for large consumers with over 150 million kWh annual consumption in the EU was around 10.2 cents, while for small companies under 20,000 kWh it was around 24.8 cents. Transferred to supplier selection, this means: large plants with high purchase volumes benefit from more favourable energy procurement conditions, while smaller operations bear relatively higher energy costs: a factor that can be reflected in their price structures and becomes relevant when comparing mid-sized suppliers with one another.

Impacts on quoted prices, margins and supply chain risks

From a procurement perspective, energy costs operate on three levels. First, directly on quoted prices: a supplier with high electricity and gas costs must either charge higher prices for energy-intensive processes or accept a lower margin. Both have consequences: in the first case for procurement, in the second for the financial stability of the source. A cost level undervalued by the market can lead to a supplier not fully reflecting cost developments in its prices and later coming under pressure.

Second, on price stability: where a relevant part of the cost structure lies in volatile energy prices, the quoted prices are also less predictable. Contractual protection mechanisms such as energy price clauses or indexation can address this, but make offers harder to compare. Third, on supply risk: a location whose energy costs are structurally unfavourable compared to competitors carries a higher risk that investments in capacity or technology will take place elsewhere, that prices will follow, or that the qualification of an established supplier will not pay off in the long term. These risks are less visible than an overcrowded order board, but for multi-year procurement strategies they are existentially relevant.

An assessment that can be derived from the data, but not established as a fact from a single source: the placement of energy-intensive processes in countries with low industrial electricity prices and the concentration of energy-intensive steps there where the overall cost structure is right, are likely to influence the geographic distribution of the European supplier industry in the medium to long term. Which industries and processes are affected and to what extent is currently open and also depends on how regulation and grid costs develop.

What this means for reshoring and relocation decisions

The reshoring debate is usually conducted in terms of supply capability, quality control, transport costs or geopolitical dependencies. Energy costs add another dimension, and it does not always favour reshoring. If an in-house or domestic location operates energetically more expensively than a European alternative location, relocation within Europe can be cheaper than reshoring. Likewise, a reshoring that reduces primary costs (transport, inventories, communication effort) can be at least partially offset by higher energy costs at the target location.

For the evaluation of relocation options, this means: the energy cost structure belongs in the calculation paths of the TCO analysis, and with an outlook over the contract term, not just with today's prices. Four questions are practically relevant here:

1. How large is the energy cost share in the respective manufacturing process, and does it differ measurably between candidate locations?
2. How is the energy price component structured, which shares are market-determined, which are state-regulated, which are temporarily relieved?
3. How likely is it that the energy cost structure at the location will shift significantly during the planned supply relationship: for example through changes to grid fees or the expiry of relief measures?
4. How stable is the energy supply at the location, and what contractual hedging options are available?

Criteria catalogue: operationalising energy costs in supplier evaluation

Concrete criteria can be derived from the developments described, which buyers can take into account in tenders and supplier evaluations. They do not replace classic supplier qualification, but supplement it with an energy dimension.

• Record the location profile: query the federal state or country, grid area, consumption profile of the plant and supply terms for electricity and gas as part of supplier qualification.
• Separate price components: for offers from countries with temporary relief (such as electricity tax reductions), clarify whether these are included in the quoted price and how the price behaves once they expire.
• Leverage scale effects: with multi-supplier strategies, check whether bundling volumes with a supplier that has a large energy purchase allows that supplier's cost advantage to be partially passed on.
• Request a process energy balance: for energy-intensive manufacturing steps, ask for the energy demand per component or per batch in order to make offers from suppliers with different energy efficiencies comparable.
• Address price stability contractually: explicitly negotiate energy indexation, price change mechanisms or tiered terms rather than leaving them to market reality.
• Factor in grid cost perspective: with long framework agreements, assess the probability of rising grid fees at the supplier location as a risk position, especially in countries that already have high grid fees.

For structuring such criteria in tenders and supplier selections, a marketplace such as Amplifa can help by setting up provider profiles and request processes in such a way that location- and process-related information is systematically queried and compared. This does not remove the professional responsibility from the evaluation, but makes available the data needed for a well-founded decision basis.

Uncertainties and open questions

The findings presented here are based on data from different survey periods and sources, some of which reflect different consumption categories and price components. Some points remain uncertain and deserve clear labelling:

• The values from the cited statistics come from different half-years and use cases; they are not readily directly comparable and change with each survey.
• The estimate of grid expansion costs of up to 730 billion euros by 2045 and the assumption of a possible tripling of grid fees are scenario assumptions from a single study, not established developments.
• What long-term effects the European energy price structure has on the distribution of the supplier industry remains open. There are plausible mechanisms, but no reliable data on the extent to which and in which industries relocations actually take place.
• The political steering of energy prices is an open process: relief measures, price caps or grid fee reforms can change relative location advantages at short notice.

Conclusion: energy costs as a standalone dimension of supplier strategy

Energy costs have gone from a secondary aspect to a standalone evaluation criterion in European procurement. The price scissors between countries is considerable; the causes lie partly in market prices, partly in national grid fees, taxes and levies, and they are subject to political decisions that can change quickly. Buyers or supply chain managers who select suppliers or prepare relocation decisions should therefore systematically record the energy cost structure of candidate locations, understand the composition of prices, and factor forward-looking risks, especially rising grid costs and expiring relief measures, into contract terms. This also includes requesting the relevant data points in tenders rather than relying on one-off quoted prices. Those who operationalise the energy dimension of supplier evaluation cleanly make their procurement more resilient against the price and regulatory dynamics of the coming years.

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Anthony Filipiak

CEO & Co-Founder at Amplifa

Anthony leads Amplifa as CEO and co-founder.

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