Europe’s Power Price Divide. Southeastern Economies Face The Heat As Ukraine Cuts Russian Gas Supply

The fallout from the Ukraine war continues to reshape Europe’s energy sector, hitting southeastern economies the hardest. With Russian pipeline gas supplies to Europe interrupted, countries like Greece have been forced to seek more expensive alternatives, driving up energy costs across sectors, particularly in tourism.

This trend threatens to erode Greece’s competitiveness compared to other Mediterranean nations.

A Growing Burden on Households and Businesses

For many in southeastern Europe, energy costs have become an untenable burden. Electricity expenses in Greece, for instance, have surged from 3% of monthly turnover to an alarming 15% since Russia’s invasion of Ukraine in 2022. This steep rise has rippled across industries, squeezing household consumption and pushing businesses, airlines, and shipping companies into financial strain.

“Increased energy prices and a negative impact on GDP are a tautology,” noted Nikos Magginas, a senior economist at Greece’s National Bank. The energy crisis has added to Greece’s ongoing cost-of-living challenges, a grim reminder of the debt crisis that ravaged the country between 2009 and 2018.

A Divide Between Southeast and Northwest Europe

The impact of Europe’s energy crisis is uneven. While northern and western Europe benefit from interconnected energy grids and a robust mix of renewable sources, southeastern Europe remains fragmented and underdeveloped in energy infrastructure. In August, wholesale power prices in Greece and Italy were 12 times higher than those in Nordic countries. This disparity is even more striking when compared to other southern European nations also struggling with extreme heat.

Investment—or the lack thereof—is a key factor. Germany boasts 1,668 megawatts (MW) of large-scale energy storage capacity, while mainland Greece has none. “Southeast Europe and the Balkans are lacking in electricity interconnects,” explained Henning Gloystein, head of energy at Eurasia Group. This isolation leaves countries vulnerable during power shortages or periods of low renewable energy output.

Subsidies and Sustainability

Since 2021, Greece has spent a staggering 11 billion euros on energy subsidies to shield citizens from rising costs. In 2022 alone, these subsidies accounted for 5.3% of the country’s GDP, the highest in the European Union and double that of second-placed Italy. Despite these efforts, the financial strain is palpable.

Kosovo, Montenegro, and other Balkan nations face similar challenges. Kosovo, which generates over 90% of its power from coal, launched an auction in December to install 100 MW of wind capacity. However, the World Bank estimates it needs 10 gigawatts of new capacity to phase out coal by 2050, a transition projected to cost 4.5 billion euros.

The Renewable Energy Imperative

The energy divide illustrates the urgency of renewable energy investment. Spain, a Mediterranean neighbor, has made significant strides, generating almost 60% of its electricity from renewables in the first half of this year, up from 51% the previous year. Such advancements have been supported by EU funding and strong infrastructure.

Greece is beginning to catch up. Renewable energy output is increasing, with two new gas-fired power plants set to come online this year and plans for battery storage facilities by 2028. The government has also committed to upgrading power links with Italy, Albania, and Turkey by 2031 at an estimated cost of 750 million euros. “Wholesale prices will gradually fall,” assured Aristotelis Aivaliotis, secretary-general of Greece’s Energy Ministry. “This will definitely get passed on to consumers at some point.”

The Human Cost

For many Greek families, these assurances feel distant. Many families are struggling to cover school tuition and allowances due to soaring power bills and are urging children to use less of their laptops and phones to save electricity—a difficult request in a digital age.

Prime Minister Kyriakos Mitsotakis has called on the European Commission to address the “unacceptable” differences in electricity costs across Europe. However, experts agree that the path to sustainable energy lies in investment. “If you don’t invest, energy prices will stay high,” warned Fabian Ronningen, an analyst at Rystad Energy.

What is at stake is clear, without significant investment in renewable energy and cross-border integration, southeastern Europe risks falling further behind, widening the economic divide within the continent. For countries like Greece, the journey to energy resilience is both a challenge and an opportunity—one that requires immediate and sustained action.