The implementation of the Carbon Border Adjustment Mechanism (CBAM) is significantly transforming the electricity market landscape in Southeast Europe (SEE). Initially perceived as a trade policy primarily affecting sectors such as steel and cement, CBAM is now emerging as a crucial factor influencing electricity trading dynamics, cross-border power flows, and investment in renewable energy across the region.
As we approach 2026, the ramifications of this mechanism are becoming increasingly evident. The traditional drivers of electricity trading between EU and non-EU Balkan systems—price spreads, fuel costs, and transmission availability—are being supplemented by carbon intensity as a key commercial variable. This shift is altering the economic viability of lignite generation and renewable energy exports, reshaping balancing infrastructure and interconnection strategies throughout SEE.
Data from the Energy Community indicates a significant decline in commercial electricity exchanges between the EU and the Western Balkans, with a reported drop of approximately 25% in Q1 2026. This decline highlights that price differences alone can no longer sustain previous trading patterns; instead, carbon-related costs are increasingly determining competitiveness in the market.
Historically, electricity trading in SEE was largely dictated by generation cost structures. Countries like Serbia and Bosnia and Herzegovina capitalized on lignite-based electricity when domestic production costs were competitive. Romania balanced its energy mix with nuclear, hydro, and thermal sources. Meanwhile, Greece’s reliance on gas pricing shaped its market dynamics. However, CBAM is fundamentally changing this paradigm by making carbon exposure a critical factor influencing regional power flows.
The internalization of carbon costs within European market structures is diminishing the competitiveness of carbon-intensive generation relative to renewable-heavy systems. Consequently, electricity imports tied to high-emission sources are encountering increasing friction due to policy mechanisms, buyer preferences for lower emissions, environmental social governance (ESG) requirements, and financing conditions.
This transition poses particular challenges for countries in the Western Balkans. Serbia’s reliance on lignite generation from EPS thermal plants remains significant, while Bosnia and Herzegovina continues to depend heavily on coal. Kosovo’s electricity mix is among the most carbon-intensive in Europe. Although these nations have historically benefited from lower domestic production costs compared to gas-heavy EU markets, this advantage is eroding under carbon-adjusted market conditions.
As renewable energy systems achieve lower marginal production costs during favorable weather conditions—such as solar oversupply in Greece or Bulgaria—the economic space for carbon-intensive baseload exports diminishes further. Consequently, CBAM intensifies pressures on these markets by highlighting carbon intensity within broader EU trade frameworks.
This evolving landscape creates a structural divide within SEE electricity markets. Nations that can effectively integrate renewable generation with robust balancing infrastructure and interconnection capabilities are positioned to gain strategic advantages. Conversely, those reliant on lignite exports face heightened risks associated with declining competitiveness and financing challenges.
Romania appears well-positioned during this transition due to its combination of nuclear baseload power, hydropower flexibility, and expanding renewables sector. Future developments such as Black Sea offshore wind projects could enhance its low-carbon export capabilities further.
Greece’s rapid expansion of solar energy coupled with LNG-backed balancing infrastructure also enhances its standing as a lower-carbon flexibility market within the Balkans. Despite facing volatility challenges, Greece’s trajectory aligns more closely with Europe’s overarching decarbonization goals.
Serbia finds itself at a crossroads; while it benefits from strong transmission geography and an emerging renewable pipeline—including approximately 4.54 GWh of planned battery storage linked to EMS agreements—the heavy dependence on lignite still significantly impacts its overall system carbon intensity. The future competitiveness of Serbia’s electricity sector will increasingly hinge on how swiftly it can integrate renewables and modernize its grid infrastructure.
The Trans-Balkan Corridor emerges as a strategically vital project in this context. Originally viewed as a modernization initiative for regional transmission networks, it is evolving into an essential component of a low-carbon balancing architecture connecting Serbia with Montenegro and Bosnia and Herzegovina.
In this new framework, interconnections not only facilitate electricity mobility but also play a critical role in determining carbon positioning within markets. A renewable-focused system with strong transmission access can export low-carbon electricity to higher-value markets while carbon-heavy systems lacking adequate balancing capabilities may find their operational potential increasingly constrained despite available generation capacity.
Hydropower resources are gaining strategic importance under these conditions; countries like Albania and Montenegro stand to benefit from their reservoir systems which provide dispatchable low-carbon flexibility amid growing demand for renewables-driven solutions.
Montenegro’s submarine cable connecting directly to Italy enhances this dynamic further by linking its hydro and wind resources with EU demand for low-carbon electricity flows.
The rise of battery storage technology intersects with these market evolutions driven by CBAM-related pressures. Storage solutions that stabilize intermittent generation improve reliability for low-carbon electricity flows while simultaneously preserving renewable value during periods of volatility—thus indirectly bolstering overall carbon competitiveness across SEE markets.
Industrial demand trends reinforce these shifts as manufacturers in Serbia, Romania, and Greece increasingly pursue renewable-backed electricity contracts to mitigate their exposure to carbon emissions within European supply chains. Industries such as automotive suppliers and metals producers are facing mounting pressure to demonstrate reduced embedded emissions through their operations.
This growing emphasis on renewable power purchase agreements (PPAs) reflects broader adaptation strategies in response to CBAM requirements while simultaneously creating a reinforcing cycle: industrial decarbonization drives renewable demand; increased volatility heightens the value of storage solutions; declining competitiveness for carbon-intensive generation becomes evident; all underscoring the strategic relevance of transmission integration within evolving markets.
The implications extend beyond economic considerations; they encompass geopolitical dimensions as well. Europe’s energy transition increasingly intersects with industrial strategies aimed at achieving strategic autonomy through low-carbon electricity systems capable of supporting industrial decarbonization efforts—a scenario that could marginalize coal-heavy systems unless they undergo rapid modernization efforts.
Despite these pressures, transitions across SEE remain uneven due to ongoing reliance on lignite for stability and affordability within many markets alongside incomplete renewable balancing infrastructures. Political resistance against coal transitions persists across several nations which suggests that while CBAM’s effects may unfold gradually rather than through abrupt disruptions—its directionality towards increased emphasis on carbon intensity alongside price differentials is unmistakable.
The future landscape of Southeast Europe’s electricity market will likely favor those who can adeptly navigate these shifts toward low-carbon flexibility rather than merely relying on traditional baseload generation volumes.
