For decades, Montenegro’s hydroelectric system has been perceived primarily through a regional lens. Its reservoirs and run-of-river plants were valued as instruments of domestic supply security and, at most, as balancing assets for neighbouring Balkan systems. Market coupling with Italy fundamentally redefines this role. Montenegro’s hydro fleet is no longer optimised against a regional Balkan equilibrium, but against the dynamics of a large, liquid Mediterranean electricity market. In doing so, hydro shifts from a regional stabiliser to a European-level flexibility asset.
This transition is subtle but profound. Hydro assets are not transformed physically; dams and reservoirs remain where they are. What changes is the reference price against which water is valued. In a coupled system, the opportunity cost of releasing water is no longer the avoidance of domestic scarcity alone, but the foregone revenue from exporting flexibility into Italian peak hours. Water becomes a financial asset whose marginal value is increasingly set outside Montenegro’s borders.
Italy’s electricity market creates a unique demand profile for flexibility. Summer cooling demand produces pronounced evening peaks, precisely when solar generation declines and gas plants become marginal. These hours often coincide with high prices and increased balancing requirements. In a coupled regime, Montenegrin hydro naturally gravitates toward these windows, exporting power westward when Italian prices signal scarcity.
This alters reservoir management strategies. Traditional hydro optimisation in Southeast Europe focused on seasonal smoothing, preserving water for winter demand or regional drought conditions. Under Adriatic coupling, daily and weekly price signals gain importance. Reservoirs are increasingly dispatched in response to short-term Italian price spikes rather than purely long-term regional considerations. The hydro system becomes more dynamic, but also more exposed to external volatility.
The economic benefits of this shift are clear. Montenegro captures higher revenues for its hydro output, improving asset utilisation and investment returns. Flexibility is rewarded more transparently, encouraging efficient dispatch. From a European system perspective, the integration of Balkan hydro into Italian balancing improves overall efficiency and reduces reliance on marginal gas units during stress periods.
However, this reorientation introduces systemic risks that did not exist under a regional optimisation paradigm. Hydro availability in the Western Balkans is inherently variable and increasingly uncertain under climate change. Drought years compress inflows precisely when electricity demand across Southern Europe is highest. In such conditions, aggressive export-driven dispatch can exacerbate scarcity within the Balkans, even as Italian prices remain elevated.
This creates a tension between market efficiency and regional security of supply. Price signals alone may not reflect the full social value of water retention during prolonged dry periods. Without coordination mechanisms, Montenegro’s reservoirs could be optimised for Italian scarcity at the expense of regional resilience. This risk grows as coupling deepens and export volumes increase.
The issue is not theoretical. Southern Europe has already experienced periods where interconnected hydro systems were stretched by simultaneous heatwaves and droughts. Under coupling, these stresses propagate more rapidly across borders. Montenegro’s hydro decisions increasingly influence not just its own system, but the stability of neighbouring markets that depend on its flexibility indirectly.
This raises the importance of institutional coordination. TSOs and regulators must adapt from a mindset of national optimisation to one of shared resource management. Market signals alone may need to be complemented by reserve requirements, coordinated water management protocols, or seasonal export constraints during extreme conditions. The challenge is to preserve market efficiency while safeguarding regional security.
From an investment perspective, the reclassification of hydro as a European flexibility asset enhances its strategic value. Existing reservoirs become more valuable without additional construction. At the same time, the economic case for modernisation, digital optimisation and ancillary service capability strengthens. Hydro operators invest not only in turbines, but in forecasting, automation and market integration.
By the early 2030s, Montenegro’s hydro system is likely to be evaluated less in terms of installed capacity and more in terms of dispatchable flexibility. Its competitive advantage lies not in producing energy, but in producing it at precisely the right moment. This aligns Montenegro with broader European trends, where flexibility increasingly commands a premium.
Yet this alignment also narrows policy space. Once hydro is embedded in a coupled European market, domestic interventions such as export restrictions or preferential dispatch become costly and politically sensitive. Market credibility depends on consistency. Montenegro must therefore balance the temptation to monetise hydro aggressively against the long-term need for stability and trust.
In this sense, hydro becomes both an opportunity and a responsibility. Montenegro’s reservoirs are no longer merely national assets. They are part of a wider European balancing system. Managing them effectively requires a shift in governance, from national energy planning to cross-border system stewardship. Market coupling accelerates this transition, whether institutions are fully prepared or not.
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