In January 2023, hydropower emerged as a crucial stabilizing force within South-East Europe’s energy market, shaping prices and managing supply amid challenging conditions. The month was characterized by significant evening demand spikes, limited import capacity, and frequent scarcity pricing across various power exchanges. Hydropower reservoirs and cascading systems played a vital role in providing flexibility, absorbing market volatility when possible and capitalizing on tight conditions.
Throughout the Western Balkans and Romania, the overall hydrological conditions were not exceptional in terms of volume; however, their operational significance was pronounced. Systems equipped with reservoir hydro began the month with adequate water levels to facilitate daily and intra-day balancing. This strategic deployment allowed hydro plants to operate more as flexible resources rather than traditional baseload generators, particularly during peak hours that drove prices on SEEPEX, CROPEX, and OPCOM into triple digits.
Serbia’s hydropower infrastructure, primarily managed by EPS and totaling over 3 GW of installed capacity, demonstrated a deliberate approach during this period. Rather than maximizing generation output, Serbia’s hydro facilities were utilized strategically to maintain peak adequacy. This behavior is reflected in the pricing data from SEEPEX: average baseload prices were recorded at €118.13/MWh while peak prices soared to nearly €294/MWh. This indicates that hydropower was selectively dispatched; during off-peak hours, prices softened towards €60–70/MWh as reservoirs withheld water, whereas evening releases contributed to capping higher potential prices under constrained import scenarios.
In Croatia, the impact of hydropower was similarly significant but faced structural challenges due to its reliance on regional interconnections. The Croatian energy system incorporates both reservoir and run-of-river hydro resources but showed a higher dependence on imports during periods of stress. In January, CROPEX averaged €143.16/MWh for baseload and €165.66/MWh for peak periods. While Croatian hydropower helped mitigate price volatility, it could not fully offset rising costs when imports from neighboring countries were limited.
Romania’s situation illustrated the interplay between hydropower and other energy sources such as nuclear and gas-fired generation. The country entered January with sufficient hydro availability to support operations but not enough to dominate the generation mix completely. As a result, hydro served mainly as a balancing resource alongside nuclear output. Despite this supportive role, OPCOM reported high average prices of €150.51/MWh for baseload and €176.60/MWh for peak periods, emphasizing that while hydropower can stabilize fluctuations in pricing, it does not inherently lower price levels under tight market conditions.
Montenegro presented an extreme case of hydropower’s dual role in market dynamics. With its limited number of hydro assets and heavy reliance on imports for marginal balance, Montenegro experienced significant price variability throughout January on MEPX—baseload prices ranged from €18.79/MWh to €156.24/MWh while peak days fluctuated between €26.12/MWh and €186.38/MWh. These variations were closely linked to dispatch decisions regarding hydro generation in conjunction with import availability; optimal alignment led to low clearing prices while misalignment resulted in rapid price adjustments due to a lack of thermal or gas-fired backup resources.
The regional impact of hydropower in January was thus asymmetric—it effectively reduced the frequency of scarcity events but did not diminish their economic value significantly. The persistence of peak prices exceeding €200/MWh across markets indicates that hydro reservoirs were retained for system security rather than maximized for price suppression purposes—a rational strategy given winter conditions where water retains option value.
From a trading perspective, hydro operators benefitted notably from the month’s dynamics; the disparity between off-peak prices near €60–70/MWh and peak prices surpassing €170–290/MWh enabled effective monetization strategies. Conversely, markets lacking robust hydropower resources faced structural premiums due to their inability to leverage flexibility effectively. Consequently, regions with substantial hydropower participation experienced lower volatility yet still engaged with broader scarcity pricing trends across South-East Europe.
The developments observed in January reinforce the notion that hydropower has evolved beyond being merely a low-cost energy source in South-East Europe; it has become an essential flexibility asset whose strategic management influences market scarcity pricing mechanisms and overall economic outcomes.
