Originally, the European Community only took shape in the energy sector by virtue of the ECSC (European Coal and Steel Community) Treaty and the EAEC (European Atomic Energy Community) Treaty. In 1974, following the first oil shock, it proved necessary to establish an energy strategy so as to minimise the after-effects.

The Community gradually began to lay down common energy objectives during the 1980s. In the early 1990s the energy sector entered a period of change characterised by Europe’s growing energy dependence (48.2% of energy requirements were imported in 1996), by the need for environmental protection owing to the growth in consumption, and by the geopolitical transformations (collapse of the Soviet Union) affecting both the Community’s supplies and the growth in consumption.

The electricity sector in Europe currently encompasses around 11,000 companies and accounts for 77% of total added value in the energy sector, the remainder deriving from the gas and hot water supply industries. Electricity represents 20.6% of end-use energy consumption in the EU. It is generated to the tune of 57.7% by traditional power stations, 18.4% by hydroelectricity and 17.6% by nuclear power stations.

In the late 1990s the European Union put in place a policy of liberalising and Europeanising the electricity and gas markets. This policy made provision for price liberalisation, the unbundling of electricity transport and distribution from generation and consumer supply, and freedom for companies and consumers alike to choose their supplier. A transnational infrastructure (trans-European networks) was furthermore established to facilitate international and interregional trade in electricity.

Liberalisation led in many Member States to the privatisation of companies in the sector. The energy market nevertheless remains more tightly regulated than other sectors. It is highly concentrated: although the number of companies has risen, the new entrants often hold only a minimal market share, and the sector has undergone a major wave of mergers and acquisitions over the past decade.

Market opening and liberalisation have resulted in a substantial decline in employment since the mid 1990s, but the decline now seems to have ended; the sector might even experience labour shortages among the most highly skilled employees, owing to an image which is insufficiently attractive to young graduates. According to Eurostat, the electricity sector still employed approximately 870,000 people in the mid 2000s. The job losses associated with market opening since 1995 are thought to represent a drop of approximately 25% in total employment in the “old” EU Member States.

EU energy policy must likewise take account of the Union’s commitment to reducing greenhouse gas emissions (80% of which derive from the energy sector). One major challenge for the sector at present is combating climate disruption, through greater use of renewables, energy efficiency, the development of electric vehicles, and so on.