The EU Carbon Border Adjustment Mechanism (CBAM) is contributing to a shift in Western Balkan electricity flows, strengthening Serbia’s position as a northern transit and trading hub while weakening several established routes towards EU markets.
The change became more visible in the second quarter of 2026, when scheduled electricity exports from Serbia to Hungary increased by 111% year on year. At the same time, commercial flows from Romania to Hungary rose by 156%, pointing to a growing concentration of electricity trading around the Hungarian market and transmission corridors serving Ukraine’s expanding electricity import needs.
The pattern differs from the region’s trading structure in 2025. Electricity previously moved more evenly across connections with Croatia, Bulgaria, Greece, Hungary and Italy. Since the definitive CBAM regime began on 1 January 2026, trading has increasingly concentrated along corridors where demand, price spreads and onward delivery opportunities can absorb the additional cost associated with carbon exposure.
CBAM is not the only factor behind the change. The first quarter was marked by exceptionally strong hydropower production, lower Western Balkan electricity prices and temporary regional surpluses. As hydrological conditions normalised in Q2, the region moved from net exports of around 1,247 GWh in Q1 to net imports of approximately 1,048 GWh in Q2.
Greece also strengthened its role as a southeastern electricity supply centre. Exports towards Bulgaria, North Macedonia and Albania increased as rising solar and wind generation altered the regional merit order. Albanian exports to Greece, however, declined after their hydro-driven surge during the first quarter.
The failure of several traditional cross-border routes to fully recover is more difficult to separate from the impact of CBAM. Gross scheduled electricity exchanges between the six Western Balkan markets and neighbouring EU countries were approximately 15% lower year on year in Q2, while the decline reached around 19% across the first half of 2026.
Wholesale price spreads alone would normally have supported stronger exports. Italian electricity prices averaged around €27/MWh above Montenegro during Q2, while Hungarian prices were approximately €13/MWh above Serbia. Those spreads were insufficient to cover indicative default CBAM charges of around €73.70/MWh for Montenegro and €78.37/MWh for Serbia.
The carbon adjustment has therefore changed the economics of transmission capacity. Traders may secure cross-border capacity but still choose not to nominate electricity when the expected wholesale spread does not cover the associated CBAM liability. As a result, high capacity allocation does not necessarily translate into higher scheduled commercial flows.
Serbia occupies a particularly important position in this changing market. It has the largest electricity market in the Western Balkans and serves as a major transit system connecting Bosnia and Herzegovina, Montenegro, Kosovo, North Macedonia and Bulgaria with Hungary and, through neighbouring networks, Ukraine. Serbia also operates the region’s most liquid power exchange.
Its generation mix, however, remains heavily dependent on carbon-intensive sources. Serbian lignite production fell 12% year on year to 6.54 TWh in Q2 2026, but coal continues to underpin domestic generation and contributes to the country’s high CBAM default factor. At the same time, Serbia’s geographical position gives traders access to a northern corridor where Ukrainian demand and Hungarian market liquidity can support selected electricity exports.
This combination could strengthen Serbia’s role as both a trading and transit platform. It does not necessarily improve the economics of Serbian coal-fired generation. Electricity produced elsewhere can pass through the Serbian network, while CBAM treatment depends on the contractual origin of the electricity, the reporting methodology and the importer’s ability to demonstrate embedded emissions.
The rerouting of commercial flows is also accompanied by a growing divergence between scheduled transactions and physical electricity flows. On the Bosnia and Herzegovina–Croatia border, scheduled exports reportedly declined by approximately 43%, while physical flows increased by around 270%, reaching 824 GWh compared with 282 GWh of commercially scheduled electricity.
Electricity follows network physics rather than commercial contracts. A transaction scheduled from Serbia towards Hungary can generate loop flows through Bosnia and Herzegovina, Croatia, Montenegro or neighbouring EU networks. When commercial schedules and physical flows diverge significantly, transmission system operators need to maintain larger security margins and rely more heavily on redispatch and countertrading.
These interventions create additional costs that can ultimately affect network tariffs or congestion-management accounts. They can also weaken the relationship between the location of a commercial transaction, the network experiencing the physical constraint and the system collecting congestion revenues.
Domestic electricity-market liquidity is developing in the opposite direction. Day-ahead trading volume across the four observed Western Balkan exchanges increased by 19% to 2.70 TWh in Q2. ALPEX recorded a 52% increase, Montenegro’s MEPX rose 49%, North Macedonia’s MEMO increased 31%, while Serbia’s SEEPEX grew 7%.
The figures indicate a regional market that is becoming more liquid domestically while becoming less integrated across the EU border. This creates a challenge for a region whose energy transition depends on access to larger balancing areas, deeper electricity-market liquidity and EU-based renewable offtakers.
The redirection of electricity flows does not prevent cross-border trading from continuing, but it increases the importance of documenting the origin of every EU-bound transaction. Analysts at Virtu.Energy, a CBAM-focused engineering platform specialising in electricity, said transactions entering the EU should be supported by CBAM evidence packages capable of being examined by EU-accredited verification bodies.
Formal compliance responsibility remains with the authorised CBAM declarant or importer. In practice, however, the documentation burden extends throughout the delivery chain because the declarant must obtain generation, metering, trading, contractual and cross-border allocation records from exporters, intermediaries and producers.
The challenge becomes greater when electricity crosses several bidding zones or changes ownership before entering the EU. Each intermediary must preserve the contractual and data link to the original generator. A broken evidence chain could prevent the importer from applying actual emissions even where the electricity originated from a low-carbon source.
Virtu.Energy analysts recommend implementing pre-verification at an early stage, particularly for transactions involving multiple borders and intermediaries. Identifying missing generation, metering or capacity-allocation records before delivery gives market participants an opportunity to correct contractual and technical gaps. Discovering such deficiencies after the reporting period could force the importer to rely on a significantly higher national default factor.
The pending revision of CBAM could reduce some of these market distortions. Calculating default values on the basis of the full national generation mix would lower the carbon burden for countries with significant hydropower, wind and solar production. Easier access to actual-emissions reporting could also allow verified renewable exports to avoid being charged according to the carbon intensity of coal-heavy national systems.
Until those changes are agreed and implemented, Western Balkan electricity is likely to continue moving towards corridors where demand is strongest and price spreads can absorb carbon-related costs. Serbia and Hungary are emerging as a key northern channel, while Ukraine’s structural electricity deficit is creating additional demand along that route.
For regional exporters, traders and generators, the market is therefore changing on two fronts: the physical and commercial route to the EU is becoming more selective, while the evidence route required by CBAM is becoming equally important. The ability to demonstrate where electricity was generated, how it was traded and how it reached the EU market will increasingly determine which cross-border transactions remain commercially viable.
