South East Europe’s power market is frequently discussed in terms of coal, gas and solar, but water availability remains a key driver in parts of the region. In the Western Balkans, hydropower plays a central role in system balance and generation patterns. This dependence links day-to-day operations and cross-border flows to weather conditions.
Hydropower is especially important for Albania, where the electricity system is overwhelmingly hydro-based. Bosnia and Herzegovina, Montenegro, Serbia and North Macedonia also rely on hydropower to varying degrees. Bruegel research notes that Western Balkan electricity generation is significantly reliant on hydropower, with Albania producing close to all of its electricity from hydro.
Hydropower’s role in supply flexibility and regional pricing
Hydropower can provide low-carbon electricity along with flexibility, storage and fast ramping capabilities. In wet years, hydro-heavy systems can export electricity and reduce regional prices. In dry years, those same systems can shift toward import dependence and contribute to price stress.
Because generation and storage depend on inflows, hydrology becomes one of the most important market risks in South East Europe. Hydrological conditions affect how much energy is available and how quickly it can be dispatched. This risk profile influences both balancing needs and market outcomes across the connected region.
2025 drought highlights impacts on Albania’s generation and imports
The 2025 drought conditions provided a clear example of how weather can translate into market pressure. AP reported that a severe drought and heatwave affected the Western Balkans, reducing hydropower output in Albania. The same report said the government spent around €60 million on energy imports.
This reflects a structural constraint: while hydropower plants can respond operationally, water inflows are not controllable. Reservoirs can shift energy across hours, days or seasons only when there is sufficient water to store. During prolonged drought, hydropower loses both energy availability and flexibility value.
Climate volatility links demand growth with reduced hydro availability
Hot, dry summers can increase electricity demand through air conditioning while also reducing hydro availability. The combination affects both supply levels and peak demand timing in the same period. Solar output may be strong during heatwaves, but solar does not cover evening demand unless paired with storage or demand shifting.
These interactions mean weather patterns can influence multiple parts of the system at once. Demand-side changes driven by temperature occur alongside changes in water availability for generation. At the same time, variable solar generation does not automatically resolve evening shortfalls without additional measures.
Cross-border trade swings tied to hydrological conditions
Hydrological conditions also affect cross-border power trade across South East Europe’s interconnected system. Albania may act as an exporter during wet periods and an importer during dry periods. Montenegro and Bosnia and Herzegovina can also swing with hydrological conditions.
A dry Balkan hydro season can increase imports from EU markets, raise prices and intensify competition for cross-border capacity. These shifts link national balance changes to regional market pricing and transmission constraints.
Forecasting needs for traders and planning for developers
For traders, hydro forecasting is essential because it directly affects expected balance changes. Rainfall, snowpack, reservoir levels, river flows and seasonal temperature outlooks can be as important as fuel prices for modeling supply adequacy. A market model that ignores hydrology may miss major balance swings.
Renewable developers may also view hydro as a complement to solar generation. Solar produces during daylight hours, which can allow hydro reservoirs to conserve water for evening or peak periods. In theory, hydro can function as a natural battery for solar-heavy systems, but this depends on reservoir management, market rules and water availability.
Diversification, modernization and constraints on new projects
For policymakers, hydro risk supports diversification beyond weather-sensitive generation concentration. A hydro-heavy system may be low-carbon but is not automatically secure under drought conditions. Albania’s experience illustrates how dependence on one weather-sensitive source can create import risk.
Solar, wind, storage, interconnectors and demand response are among the measures that can reduce exposure to hydrological variability. For investors, hydro modernization may be an overlooked opportunity for existing assets through upgrades such as better turbines, digital controls and improved reservoir management. Environmental safeguards are also part of upgrade considerations.
Pumped hydro may play a role where geography and permitting allow. However, new hydro development must be handled carefully due to environmental, biodiversity and social concerns that can arise on sensitive river systems. The region needs improved hydro flexibility while avoiding ecological costs.
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