The European Union’s implementation of the Carbon Border Adjustment Mechanism (CBAM) is reshaping the landscape of electricity trade in Southeast Europe, particularly for Serbia. With its power sector heavily reliant on lignite, Serbia faces significant challenges as the CBAM establishes a carbon pricing barrier that hampers the competitiveness of coal-based electricity in EU markets. In light of this, stakeholders are increasingly focused on generating CBAM-compliant electricity, characterized by lower embedded carbon emissions suitable for export to the EU.
Serbia’s electricity generation is predominantly coal-based, with Elektroprivreda Srbije (EPS) managing around 4.4 GW of lignite capacity. This generation is mainly sourced from major thermal plants such as Nikola Tesla A and B and Kostolac B, which have historically provided cost-effective domestic electricity due to local lignite mining. However, the combustion of lignite results in substantial carbon dioxide emissions, often surpassing 1 tonne of CO₂ per MWh. Consequently, under CBAM regulations, this high carbon intensity imposes a financial burden linked to EU carbon prices, currently fluctuating between €70–90 per tonne of CO₂. This translates to an implicit cost of over €70–80 per MWh for Serbian coal-generated electricity, rendering it less competitive for export.
To align with CBAM requirements, Serbia must pivot towards low-carbon energy sources such as hydropower, wind, and solar. Currently, Serbia boasts approximately 3 GW of hydropower capacity, featuring significant installations like the Djerdap I and II hydroelectric plants. These facilities generate electricity with minimal carbon emissions, making them prime candidates for CBAM-compliant exports to EU markets. Nevertheless, reliance solely on hydropower is insufficient due to its vulnerability to hydrological variability; fluctuations can lead to reduced output during dry seasons, necessitating greater dependence on coal.
The expansion of renewable energy capacity is critical for developing a robust portfolio of CBAM-compliant electricity. The Serbian government has initiated renewable energy auctions aimed at promoting investment in new wind and solar projects. These auctions have already facilitated several hundred megawatts of capacity and suggest that growth in wind and solar installations could accelerate significantly over the next decade.
The potential for wind energy is particularly high in regions such as Vojvodina and eastern Serbia, where existing large wind farms contribute to the energy mix. Similarly, solar energy prospects are promising in central and southern areas where sunlight exposure is optimal. The long-term strategy involves assembling a diverse array of renewable generation assets specifically designated for export to EU markets. Such exports could include guarantees of origin, ensuring that the electricity supplied is derived from renewable sources with minimal carbon emissions.
Energy storage solutions will be vital in supporting this transition by managing the variability associated with increased wind and solar generation. Technologies like battery storage or pumped hydro storage can mitigate fluctuations in production levels, thereby ensuring reliable electricity exports. Plans are already underway for the development of the Bistrica pumped storage hydropower project, which aims to provide substantial storage capacity that balances renewable generation while facilitating cross-border trade.
The financial implications of this transition are considerable; significant investments will be necessary across renewable projects, transmission enhancements, and storage infrastructure—potentially amounting to billions of euros. Key roles are anticipated from international financial institutions and European development banks alongside private investors in financing this ambitious infrastructure overhaul.
If successful, Serbia’s shift towards exporting CBAM-compliant electricity could reinforce its position as a regional supplier while adhering to EU climate policies. Rather than relying on coal-based exports, Serbia could emerge as a provider of low-carbon electricity generated from renewables. This transition would also benefit local industries; sectors such as steel and aluminum manufacturing increasingly demand low-carbon power to remain competitive within EU markets. Thus, enhancing renewable capacity not only supports export ambitions but also aligns with broader industrial decarbonization goals.
The evolution towards CBAM-compliant electricity has the potential to transform Serbia’s energy sector from one primarily dependent on coal into a hybrid system that effectively integrates renewable resources with hydropower flexibility and strategic storage capabilities.
