The energy landscape in South-East Europe is undergoing a significant transformation, particularly evident in January’s market dynamics. The traditional reliance on day-ahead market (DAM) prices as indicators of system stress is diminishing. Instead, the true marginal price signal now largely stems from balancing energy and ancillary services, which are becoming critical in managing electricity supply amid increasing demand and operational constraints.
Throughout January, countries like Serbia, Romania, Bulgaria, and Croatia exhibited a notable pattern during evening peak hours. The DAMs operated on platforms such as SEEPEX, OPCOM, and CROPEX recorded high peak prices ranging from €170 to €300/MWh. However, these figures do not fully reflect the underlying market pressures; balancing markets were consistently pushed to their operational limits. This discrepancy indicates that the available balancing reserves are being heavily utilized even when fuel supplies remain adequate.
A pivotal issue affecting these markets is the limited depth of available resources. In many South-East European systems, only 5% to 10% of installed capacity can serve as fast and controllable balancing reserves during peak winter periods. Hydro power plays a crucial role in providing this flexibility, followed by a limited number of gas and combined heat and power (CHP) units. In contrast, renewable sources like wind and solar have minimal contributions to upward reserves during January’s conditions, while demand response mechanisms remain underdeveloped across most markets.
This structural limitation leads to an early emergence of balancing scarcity before any noticeable energy shortages occur. Consequently, the marginal cost for real-time electricity can significantly exceed that of day-ahead auction prices. This situation has economic ramifications; imbalance prices frequently surpass DAM prices considerably during periods of stress. Observations from January suggest effective imbalance costs ranged between €300 and €500/MWh during peak hours, presenting a stark contrast even when DAM prices were lower.
Romania illustrates this phenomenon effectively. Despite OPCOM reporting an average baseload price of €150.51/MWh and a peak of €176.60/MWh for January, the reliance on a limited pool of hydroelectric and thermal resources for balancing was evident during evening demand surges. The nuclear sector’s contribution remains vital for baseload generation yet offers little in terms of short-term balancing capabilities. As such, the effective marginal cost for system security climbed well beyond the published DAM peaks.
Serbia reflects similar trends but with distinct characteristics. Although SEEPEX recorded peak days nearing €294/MWh—indicating market pressure—the balancing capacity remains more constrained than in Romania. Serbia’s hydro resources are extensive; however, their availability for balancing purposes is often limited due to water management practices or prior dispatch into DAMs. This creates a precarious situation where profits generated during high DAM pricing can be quickly negated by just a few hours of imbalance.
In Croatia, the interplay between domestic balancing resources and cross-border trading constraints is crucial. When interconnections are operationally constrained, domestic resources must bear the full burden of demand spikes. The average peak price reported by CROPEX at €165.66/MWh does not accurately represent the total flexibility costs incurred during these times; instead, these costs are reflected through reserve activation rates and imbalance settlements.
The current market conditions have led to a silent revaluation of asset capabilities within the region. Assets equipped for rapid response—such as specific hydro units or gas facilities with flexible dispatch rights—are increasingly able to capitalize on scarcity-driven premiums that are not evident in day-ahead pricing structures. In January alone, participation in balancing markets often yielded risk-adjusted returns that surpassed those available through DAM arbitrage strategies.
For market participants including traders and utility companies, this evolving landscape underscores a critical insight: portfolios that seem hedged within day-ahead frameworks may still face structural vulnerabilities in balancing markets. The events of January highlight that managing balancing risks has become paramount within South-East Europe’s energy framework; failure to enhance participation in these markets will likely result in continued volatility in DAM pricing—not due to genuine energy shortages but rather out of concerns regarding real-time operational control.
