Why electricity costs what it does: the merit order, the grid and taxes

In 2025 an EU household using between 2,500 and 5,000 kWh a year paid 28.9 cents for each kilowatt-hour, on average. Eurostat splits that price in three: 12.5 cents for energy and supply, 8.2 cents for the network and 8.3 cents for taxes, fees, levies and charges, VAT included (parts rounded separately). The same kilowatt-hour cost 10.8 cents in Hungary and 38.5 cents in Germany. The three parts are driven by different things. The first is linked to the wholesale market, where a rule called the merit order, and often gas, sets the price. The second covers the grid. The third is made up of taxes, fees, levies and charges. This article takes them in turn, with the data and the source of every step.

Three parts of every kilowatt-hour

Eurostat publishes annual price components for household electricity (nrg_pc_204_c). The split follows an EU regulation on gas and electricity price statistics, which defines the three main components in its second annex (Regulation (EU) 2016/1952):

• Energy and supply: generation, aggregation, balancing energy, supplied energy costs, customer services, after-sales management and other supply costs.
• Network: transmission and distribution tariffs, transmission and distribution losses, network costs, after-sale service costs, system service costs, and meter rental and metering costs.
• Taxes, fees, levies and charges: the sum of VAT, charges for promoting renewable energy, energy efficiency and combined heat and power, charges for capacity payments and energy security, environmental taxes, nuclear-sector charges and a residual group.

The regulation adds that prices include all charges payable, minus any rebates or premiums, plus other charges such as meter rental and standing charges. The figures here are for the consumption band Eurostat calls DC, from 2,500 to 4,999 kWh a year, the band this site's electricity price pages use. The component prices are annual, so they can differ a little from the half-year prices on those pages.

How the three parts moved since 2019

The table gives the EU average (27 countries) for each year, in cents per kWh, with each part's share of the price.

Source: Eurostat, nrg_pc_204_c, EU27, band DC, euro; the price is the sum of the three components; shares of the price in brackets, rounded.

Three things stand out. The energy and supply part rose from 6.7 cents in 2019 to 16.6 cents in 2023 and has fallen since. The network part rose every year, from 6.0 to 8.2 cents. And the tax part fell from 8.6 cents in 2021 to 5.3 cents in 2022 and then climbed back to 8.3 cents. Eurostat says its half-year tax shares "reflect the impact of the governmental measures to mitigate EU household electricity costs in 2022 and the gradual reduction of those measures since 2023": the share was 14.7% in the second half of 2022, the lowest in the period Eurostat charts, 2008 to 2025, and 28.9% in the second half of 2025 (Eurostat, Electricity price statistics).

The wholesale price: how the merit order works

The energy and supply part is linked to the wholesale market. In the EU that market works as a system of marginal pricing, also called pay-as-clear: all generators get the same price for the power they sell at a given moment. The European Commission describes it step by step: producers bid according to their production cost, the bidding goes from the cheapest to the most expensive source, the cheapest electricity is bought first, and "once the full demand is satisfied, everybody obtains the price of the last producer from which electricity was bought" (Commission, Electricity market design). The ranking of the bids from cheapest to dearest is the merit order, and the last bid accepted is the marginal bid.

The bids are ranked by marginal production cost, the variable cost of producing one more unit. The Commission's Joint Research Centre says that cost typically has three parts: fuel, carbon emissions under the EU emissions trading system, and variable operating and maintenance costs. Gas, coal and lignite plants bid at a price "mostly driven by the underlying commodity price", while solar, wind and hydro have close to zero variable production costs, and the last accepted bid sets the price paid to all accepted generators in that period (JRC, The Merit Order and Price-Setting Dynamics in European Electricity Markets, 2023). The JRC notes that day-ahead prices are set zone by zone, usually a country or a smaller region, and that interconnectors let cheaper power flow to a dearer zone until the lines are full. Since 30 September 2025 the Commission says day-ahead prices are calculated every 15 minutes instead of every hour.

How often gas sets the price

The same JRC brief notes that natural gas-fired plants "are often the marginal technology units in the merit order". Europe's energy regulators say the same. ACER, the Agency for the Cooperation of Energy Regulators, wrote in its 2022 assessment of the market design that "gas-fired plants often set marginal electricity prices in EU power markets" (ACER, Final Assessment of the EU Wholesale Electricity Market Design), and in its 2026 monitoring report that "gas-fired generation frequently sets the marginal price, particularly during peak demand periods" (ACER, Key developments in European electricity and gas markets, 2026). Setting the price is not the same as supplying the power. In the JRC's simulation of the 2022 EU market, gas-fired plants set the price 55% of the time while producing 19% of EU electricity. That is a model result for one year, not a count of observed hours.

In a comparison of peak-load wholesale prices in Europe, the United States and Japan, ACER ties price levels to the generation mix: "higher shares of renewables and nuclear decrease wholesale price levels", while "greater gas reliance leads to higher and more volatile prices". It also describes a changing role for gas: as solar generation grows, demand for gas-fired generation "shrinks across daylight hours", yet the number of hours in which gas is the price-setting technology "has risen again, especially during evening ramps and periods of low wind". ACER's April 2022 assessment described the crisis as "in essence a gas price shock, which also impacts electricity prices" and judged that the current wholesale market design was "worth keeping", having found that it ensures efficient and secure supply under relatively normal market conditions.

From wholesale to the bill

A household does not pay the wholesale price directly. ACER's 2026 report finds that household gas and electricity prices "have stabilised at elevated post-crisis levels": fixed-price contracts and hedging strategies slowed the pass-through of lower wholesale costs, and several crisis-era tax reliefs and support measures expired. Wholesale costs feed into the energy and supply component, which, as the regulation defines it, also holds other supply costs such as balancing energy, customer services and after-sales management. ACER puts energy and supply costs at around half of final household prices in 2024 (it averages all household bands); in the Eurostat data for band DC the part was 49% of the EU price in 2024 and 43% in 2025.

Why the price of a kilowatt-hour differs between countries

Eurostat lists what the price of energy in the EU depends on: "a range of different supply and demand conditions, including the geopolitical situation, the national energy mix, import diversification, network costs, environmental protection costs, severe weather conditions, or levels of excise and taxation". The component data show where in the price the differences sit. The table covers the 27 EU countries for 2025, sorted by price.

Source: Eurostat, nrg_pc_204_c, 2025, band DC, euro; the price is the sum of the three components. For 23 of the 27 countries the sum is within 1% of the average of the two half-year prices on the site's electricity pages; Cyprus, Czechia and Hungary differ by 1.2% to 2.2%, and Ireland's components (33.8 cents) are 7.2% below its half-year average (36.4 cents).

• Energy and supply runs from 2.5 cents in Hungary to 22.9 cents in Ireland, a gap of 20.4 cents, the widest of the three.
• The network runs from 3.3 cents in Greece to 12.5 cents in Ireland, a gap of 9.1 cents (taken from the unrounded values).
• Taxes, fees, levies and charges run from −1.7 cents in Luxembourg to 16.6 cents in Denmark, a gap of 18.3 cents; Denmark also has the highest share of the price, 48.6%.

The regulation counts rebates against the price, and the dataset records allowances as separate items. In the Netherlands, for example, the environmental taxes item is −5.6 cents, with an allowance item of 15.8 cents per kWh recorded under TAX_ENV_ALLOW, and the whole component comes to −1.4 cents. Eurostat's half-year series also shows negative tax shares in Luxembourg and the Netherlands in the second half of 2025 (−6.3% and −5.2%), and it says the EU average tax share rose by 1.3 percentage points between the first and second half of 2025, "mostly driven by reduction of subsidies and allowances".

What the three parts do not say

• The order changes in PPS. Eurostat's purchasing power standard removes price-level differences between countries. In the map of its article (data extracted in April 2026) for the second half of 2025, Romania (49.52 PPS per 100 kWh), Czechia (38.65) and Poland (37.15) are the highest and Malta (14.09), Hungary (15.10) and Finland (18.77) the lowest, a different order from the one in euros.
• One consumption band. The table is for households using 2,500 to 4,999 kWh a year. Eurostat's dataset has four other bands, from under 1,000 kWh to 15,000 kWh or more, and they give different prices per kWh.
• Annual components. The split is annual and runs to 2025. The half-year prices on the site's pages are published earlier and extend into 2026.
• Not a forecast. Nothing here says where prices go next.

Where to look on this site

• The electricity price ranking lists every country; country pages such as Germany and Hungary show the half-year history, and the euro-area page shows the aggregate.
• Household gas follows the same rules: see the gas price ranking and the euro-area gas page.
• The prices hub puts inflation and the price series side by side, and the euro-area inflation page has the latest monthly rate.

The short version

• A household kilowatt-hour has three parts: energy and supply, network costs, and taxes, fees, levies and charges. In the EU in 2025 they were 12.5, 8.2 and 8.3 cents, 28.9 cents in all.
• The wholesale price is set by the merit order: the cheapest plants run first and the last one needed sets the price for every generator. Gas often sets it: in the JRC's simulation of 2022 it set the price 55% of the time while producing 19% of EU electricity.
• The household price follows the wholesale one with a delay, through fixed-price contracts and hedging, and is shaped by networks and by taxes and allowances as well.
• Between countries the gap is widest in energy and supply (2.5 cents in Hungary, 22.9 cents in Ireland); taxes range from negative to 16.6 cents.

Figures: Eurostat (household electricity price components nrg_pc_204_c, half-year prices nrg_pc_204, Electricity price statistics), Regulation (EU) 2016/1952, the European Commission (Electricity market design), the Commission's Joint Research Centre, and ACER (Final Assessment of the EU Wholesale Electricity Market Design, 2022; Key developments in European electricity and gas markets, 2026). euroflation is an independent tracker and is not affiliated with Eurostat, the European Commission, ACER or the EU. Nothing here is financial advice. Quotations are from the English originals.