Serbia’s prolonged drought has fundamentally changed the strategic importance of its hydropower portfolio. Extremely low Danube inflows at the Đerdap hydropower complex, which fell to around 1,500 cubic metres per second, pushed electricity production to the lowest levels recorded since the facilities entered operation.
Despite the technical availability of generating units, output was severely restricted by hydrological conditions. Đerdap 1 operated at approximately 20% of installed capacity, while Đerdap 2 operated at around 30%, demonstrating that installed generation capacity does not automatically translate into available electricity when water resources are limited.
The impact extended beyond hydropower generation. Lower Danube water levels reduced cooling capacity at the Kostolac thermal power complex, forcing some coal-fired units to reduce production by approximately one-third. At the same time, electricity consumption increased to 100–105 GWh per day, approaching winter peak levels of 110–115 GWh as demand for air conditioning increased during hot weather.
As a result, Elektroprivreda Srbije (EPS) faced a challenging combination of reduced hydropower availability, restricted thermal generation and elevated electricity demand. The situation highlighted the importance of flexible assets capable of balancing sudden changes in supply and demand.
The rehabilitated Bajina Bašta pumped-storage hydropower plant became one of the most valuable flexibility resources during the crisis. With reservoir levels at around 75%, the facility was able to absorb electricity during periods of lower prices, particularly during strong solar production hours, and return energy during morning and evening demand peaks.
Pumped storage does not create additional primary energy, as each pumping cycle consumes more electricity than the plant later generates. Its value lies in time-shifting electricity, providing balancing services, supporting system reserves and reducing exposure to high prices during periods of scarcity.
The same principle underpins Serbia’s plans for the future Đerdap 3 pumped-storage project. The country has launched a procurement process worth approximately €5.3 million for a general design, preliminary feasibility study, special-purpose spatial plan and strategic environmental assessment.
Current concepts envisage a reversible hydropower facility with between 1,200 MW and 2,400 MW of capacity and a hydraulic head of around 400 metres. The existing Đerdap 1 reservoir would serve as the lower basin, while potential upper reservoir locations include Pešača or Brodica on Severni Kučaj.
Đerdap 3 is not simply a new electricity generation project. Its economic model would need to combine several sources of value, including energy arbitrage, balancing services, reserve capacity, congestion management and potentially strategic capacity payments.
A purely merchant investment model would be difficult for a project requiring billions of euros in investment, a long development timeline and complex environmental approvals within the Đerdap National Park. Cooperation with Romania would also be essential because the project would interact with the shared Danube hydropower and navigation system.
The procurement structure will therefore be critical. A consortium led by Bechtel together with ENKA was the only applicant to qualify for the next phase of a government process designed to attract US participation, following six initial applications.
While a single qualified bidder may accelerate negotiations, it can also reduce competitive pressure during price formation. Serbia will need a transparent separation between feasibility studies, project development support, engineering-procurement-construction arrangements, financing and final investment decisions to ensure that the project is viewed by lenders as a bankable strategic asset.
Alongside large-scale storage development, modernisation of existing hydropower assets offers a lower-risk path to improving system resilience. EPS plans to invest €109.7 million in the upgrade of the Vlasinske hydropower cascade, supported by a €67 million EBRD loan, a €15.43 million EU grant and €27.26 million of EPS financing.
Previous upgrades at Bajina Bašta, Đerdap 1 and Zvornik increased Serbia’s installed hydropower capacity by a combined 172 MW. Such rehabilitation projects extend operating life, improve reliability and increase peak-generation capability without the permitting challenges associated with entirely new facilities.
The drought has provided a clearer picture of Serbia’s future electricity system. Expanding wind and solar generation will reduce dependence on fossil fuels and lower emissions, but their value will increase significantly when combined with energy storage, modernised hydropower, stronger interconnections and flexible demand management.
Đerdap 3 could become the flagship project of Serbia’s future flexibility strategy, but near-term resilience will depend on optimising existing assets, completing the Vlasinske upgrades, maintaining sufficient coal and fuel reserves and ensuring access to regional electricity markets during periods of simultaneous supply stress.
