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Coal declines, gas returns and renewables rise as hydrology normalises

Southeast Europe continued to reduce coal generation during the second quarter of 2026, but the fading of exceptional hydro conditions brought natural gas back into the regional electricity mix.

Total generation across the Western Balkan Contracting Parties and neighbouring EU markets reached 107.97 TWh, broadly unchanged year on year. Coal and lignite production fell 8% to 10.34 TWh, while gas-fired generation increased 6% to 27.12 TWh. Renewable output rose 2% to 56.58 TWh.

The full mix shows that the transition is not linear. Exceptional hydrology in the first quarter had displaced both coal and gas. As water conditions normalised in Q2, part of the lost hydro output was replaced by gas, particularly in larger EU systems.

Italy remained the largest market, producing 53.17 TWh, with gas, solar, hydro and wind forming the main mix. Greece recorded the strongest relative increase among neighbouring EU countries, rising 17% to 12.77 TWh, largely because of solar and wind. Bulgaria increased 9% to 9.04 TWh, while Romania and Hungary remained supported by nuclear generation.

Within the Western Balkans, Serbia remained the dominant coal producer. Total output fell 12% to 6.54 TWh as lignite generation declined. Bosnia and Herzegovina, Kosovo and North Macedonia also retained coal-heavy structures. Albania remained almost fully hydro-based.

Montenegro’s reported output rose sharply to 0.52 TWh, mainly because the Pljevlja lignite plant was operating after being offline during the same quarter of 2025. The increase illustrates how the availability of one large thermal plant can materially change a small system’s generation mix and default emission profile.

Across the first half of 2026, the decarbonisation direction remained visible. Coal generation declined 13% to 26.13 TWh, renewables increased 11% to 109.10 TWh, and gas rose 3% to 72.23 TWh. Total regional production increased 3% to 237.57 TWh.

The data also understate some renewable production in the Western Balkans because rooftop solar, small hydro and other distribution-connected assets are not fully reported. North Macedonia’s solar output is particularly incomplete.

For CBAM, the generation mix has direct financial consequences. Coal-heavy systems retain high national default factors, while Albania’s hydro structure gives it a zero factor. The pace at which Serbia, Montenegro, Bosnia and Herzegovina, Kosovo and North Macedonia replace lignite will therefore influence both domestic generation economics and access to EU electricity markets.

The second quarter showed genuine progress in reducing coal, but also the system’s continuing dependence on gas and thermal flexibility when hydro conditions weaken. Renewable expansion must be accompanied by storage, balancing resources and stronger networks if lower coal production is to become permanent rather than hydrology-dependent.

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