The European Commission is advancing a significant initiative to enhance the electricity grid across Europe, with a focus on integrating South-East Europe (SEE) into the broader European market. This initiative is not merely about infrastructure upgrades; it represents a fundamental shift in how electricity is priced, traded, and financed in SEE. The primary goals are to lower energy costs, facilitate renewable energy integration, and reduce reliance on external energy sources. However, the implications of this expansion extend beyond these objectives, particularly through improvements in cross-border capacity and congestion management.
Electricity demand in Europe is projected to surge by approximately 60% by 2030, driven by factors such as electric vehicles, heat pumps, and industrial electrification. This anticipated growth poses challenges for existing systems that are already strained due to aging infrastructure and limited interconnections. In SEE, where transmission density is lower compared to core EU regions, the impact of these trends will be particularly pronounced. The region’s ability to adapt will depend heavily on the successful implementation of grid enhancements.
One of the pressing economic concerns prompting this initiative is the escalating cost of congestion management across Europe. In 2022, these costs were around €5.2 billion, but projections indicate they could rise to approximately €26 billion annually by 2030 if bottlenecks remain unaddressed. In SEE, while congestion costs may not be directly visible on operator balance sheets, they manifest through issues such as renewable energy curtailment and emergency imports. Strengthening grid infrastructure can alleviate these problems by enabling more efficient power flows between surplus and deficit areas.
The European Commission’s focus on developing so-called energy highways is particularly relevant for the Balkans. These corridors aim to eliminate critical bottlenecks that currently hinder renewable electricity from reaching demand centers. By transforming SEE from a collection of isolated national grids into an integrated extension of the EU electricity market, this initiative enhances the economic viability of hydropower systems and rapidly growing solar capacities in the region.
A key component of this transformation is the Trans-Balkan Electricity Corridor, which serves as a coordinated 400 kV backbone connecting Serbia, Montenegro, Bosnia and Herzegovina, Croatia, Hungary, and Romania. Significant projects within this corridor include a 109 km line from Obrenovac to Bajina Bašta in Serbia expected to be completed around 2027 and an additional extension toward Bosnia and Montenegro set for 2028. These developments will redefine trading capabilities in the Western Balkans and enhance regional integration with Central European power flows.
The structural changes brought about by increased interconnection capacity are expected to reduce price volatility significantly within SEE markets. Historically marked by sharp price fluctuations during extreme weather conditions or high generation periods, stronger cross-border connections will help stabilize prices by allowing for more effective management of excess generation and imports during scarcity events. This stabilization will also contribute to narrowing price spreads between SEE hubs and Central European benchmarks.
The existing Italy-Montenegro high-voltage direct current (HVDC) link exemplifies the evolving interdependence in the region. Currently operating at 600 MW capacity with plans for a second cable that would double this capacity by 2031 at an investment cost of around €500 million indicates Montenegro’s potential role as a significant gateway between SEE generation assets and Italy’s market. The realization of this potential hinges on whether EU internal grid enhancements can accommodate these increased flows.
Further developments include the planned second Italy-Greece interconnector (GRITA 2), which aims for up to 1,000 MW capacity over approximately 300 km with an investment nearing €2 billion. Although it does not directly traverse the Western Balkans, its influence will resonate through interconnected markets affecting price signals throughout SEE.
These transmission investments align with broader efforts from the Commission to accelerate renewable energy integration within SEE countries that possess substantial untapped hydroelectricity, wind, and solar resources. Current grid saturation limits deployment; however, expanding infrastructure will mitigate curtailment risks while improving market capture prices—a critical factor for attracting investment.
Moreover, as industrial sectors across Europe transition towards electrification under EU policy directives—covering steel production to transportation—the reliability of cross-border supply chains becomes increasingly vital for competitiveness. The inherent advantages of SEE’s legacy hydro resources gain significance when supported by robust import/export capabilities amid rising demand scenarios.
Security of supply remains a crucial aspect of this evolving landscape. Enhanced interconnections foster deeper mutual dependence among European nations rather than promoting self-sufficiency at national levels. This interconnectedness can mitigate risks associated with crisis-driven interventions historically seen in SEE markets—such as emergency imports or forced price controls—which have previously strained fiscal stability.
In summary, the ongoing grid expansion efforts are poised to fundamentally alter South-East Europe’s energy dynamics over time—from a historically volatile edge market into a pivotal contributor within Europe’s energy framework focused on balancing and renewable absorption capabilities. With milestones set for completion between 2024 and 2028 for various projects—including pathways toward increased Adriatic exchange capacity—successful execution hinges on aligning regulatory frameworks with operational realities across borders.
