The implementation of the EU Carbon Border Adjustment Mechanism (CBAM) has begun to significantly alter the electricity trading landscape in Southeast Europe, as detailed in the Energy Community Secretariat’s quarterly assessment for Q1 2026. The report indicates that CBAM is creating a pronounced structural divergence between EU and non-EU electricity markets, impacting arbitrage opportunities, market coupling, and investment signals for renewables in the Western Balkans.
Covering the six Western Balkan Energy Community Contracting Parties—Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia—the report also includes insights from neighboring EU markets such as Hungary, Croatia, Bulgaria, Romania, Greece, and Italy. The findings are particularly relevant following the definitive CBAM phase for electricity that commenced on January 1, 2026.
A key observation from the report is the breakdown of historical price convergence between Western Balkan countries and adjacent EU markets. In a marked shift during Q1 2026, day-ahead price spreads between WB6 markets and EU zones exceeded €30/MWh—two to three times higher than in the same quarter of 2025. This divergence occurred despite robust hydro generation across the region that typically would facilitate exports from lower-cost systems into higher-priced EU markets. Instead, CBAM-related costs have diminished these arbitrage prospects.
The implications of this shift are particularly acute for Serbia and Montenegro. Serbia’s average default CBAM emission factor was calculated at 1.041 tCO2eq/MWh, resulting in an estimated CBAM cost of €78.45/MWh for electricity exported to the EU during this period. Montenegro’s emission factor reached 0.979 tCO2eq/MWh with a corresponding cost of approximately €73.78/MWh. Conversely, Bosnia and Herzegovina faced the highest burdens at €86.51/MWh while Albania benefited from a zero default emission factor that exempted its hydroelectric exports from CBAM charges.
This situation has led to a competitive imbalance within the region. Albania’s hydro-based generation allows it to export electricity without incurring additional carbon costs under CBAM. In contrast, Montenegro’s reliance on coal-fired generation means it continues to face competitive disadvantages despite favorable hydro conditions.
The dynamics of trade have also shifted markedly on interconnectors such as the Montenegro–Italy submarine cable. The average price in Italy’s South bidding zone surpassed €130/MWh while Montenegro averaged only €85.8/MWh—creating a regional spread of approximately €43/MWh that would typically incentivize exports from Montenegro into Italy. However, scheduled flows fell by over 2,100 MWh/day as traders perceived that CBAM costs negated potential profits.
Furthermore, SEEPEX—the largest power exchange in the region—reported an 11% decline in traded volumes during Q1 2026 amidst expanding neighboring exchanges. This decline is attributed to Serbia’s historical role as a transit corridor for electricity trading between EU markets which has diminished due to regulatory uncertainties introduced by CBAM.
Consequently, Southeast European electricity trading is increasingly shifting towards “CBAM-free” routes as new trading structures emerge that bypass traditional WB6 corridors. There has been an uptick in intra-WB6 trading activities while routes linked to Albania have gained strategic importance with increased exports to Greece serving as a redistribution hub to Bulgaria and Italy.
The report highlights potential long-term implications for grid investment and market integration across Southeast Europe. It suggests that sustained fragmentation may arise between EU and non-EU electricity systems under CBAM’s influence—creating two distinct regional realities: one favoring low-carbon exporters like Albania and another disadvantaging coal-dependent nations such as Serbia and Montenegro.
For renewable energy developers operating in carbon-intensive jurisdictions like Serbia and Bosnia, these developments complicate bankability due to uniform default emission factors which could deter renewable investments if exported electricity inherits national-level emission penalties.
The operational stability of regional power systems is also at risk as commercial schedules diverge from physical electricity flows due to reduced use of certain WB6 transit corridors. This mismatch could impose additional stress on transmission system operators (TSOs), leading to increased operational costs and network tariffs.
Hydrological conditions played a significant role during Q1 2026 with regional hydro generation rising by 33% year-on-year—from 16.70 TWh to 22.18 TWh—as Albania alone saw a surge of approximately 70%. Meanwhile, coal generation across the region declined by about 16%. While these hydrological factors were exceptional this quarter, their impact on market behavior remains critical.
The overarching conclusion drawn by the Secretariat emphasizes that CBAM is actively reshaping Southeast European electricity economics well before many compliance structures are fully established. The mechanism now influences price spreads, transmission economics, market liquidity, route selection for trades, renewable competitiveness, and overall system operations across Southeast Europe.
As stakeholders navigate this evolving landscape—including power systems operators, exchanges, traders, industrial exporters, and renewable developers—the urgency lies not just in adapting to changes brought about by CBAM but also in preventing long-term fragmentation within Southeast Europe’s interconnected electricity architecture.
