Recent developments indicate a significant shift in this paradigm. The concept of baseload generation is becoming increasingly obsolete as the region’s energy landscape evolves towards valuing flexibility over continuity. Generation assets are now assessed based on their responsiveness and ability to stabilize the grid during peak demand or stress events rather than simply on their operational hours.
Data from the last two years highlight a notable decline in load factors for lignite and coal units, which previously operated at high annual utilization rates of 70–80 percent. Current trends show these plants are now frequently dispatched at only 40–55 percent capacity due to changing market dynamics that prioritize price formation driven by renewable energy sources. This has effectively transformed these coal plants from reliable baseload producers into residual suppliers that fill gaps when renewable output is insufficient.
The market dynamics are further complicated by the increasing penetration of wind and solar energy, which have begun to dictate marginal pricing throughout much of the year. When conditions favor renewable generation, thermal units are often sidelined, necessitating a rapid response from whatever assets remain available when renewables falter. As a result, flexibility has emerged as a key asset in this new environment.
Gas-fired generation exemplifies this shift in operational strategy. Traditionally expected to provide mid-merit or peak supply, gas plants are now functioning more as insurance against scarcity. They may operate for only a limited number of hours annually but play a critical role during periods of high demand or low renewable output. In instances where cross-border imports are constrained, gas units can set marginal prices that soar into the €150–250/MWh range during peak weeks and even higher under extreme conditions.
Hydropower’s role is also evolving; it is no longer merely a steady supplement but is increasingly viewed as a strategic reserve that can be optimized based on real-time price signals. Reservoir operators are adapting their strategies to preserve water during low-price periods and release it during peak demands or when imports are limited. However, this flexibility can be severely tested during drought years, leading to heightened volatility and reinforcing the importance of gas and import capabilities.
This shift towards optionality carries significant economic implications for the region’s electricity markets. Traditional cost recovery models for thermal plants face challenges as utilization rates decline below critical thresholds—4,000 hours per year is becoming less common, with many thermal units operating closer to 2,500–3,000 hours annually.
The tension within market designs arises from the fact that current electricity markets tend to reward energy produced rather than availability provided. As utilities report losses from essential thermal assets due to low utilization rates, there is an urgent need for frameworks that recognize the value of optionality in maintaining system reliability.
Some countries have begun exploring capacity mechanisms to address these issues while others depend on state-owned utilities to absorb financial losses without clear long-term solutions. The end of baseload dispatch necessitates an explicit strategy for compensating for optionality within South-Eastern Europe’s electricity markets.
As renewable energy sources continue to rise towards 30–40 percent of total annual generation in various SEE markets, reliance on flexible assets will grow more pronounced. Each incremental increase in variable renewables diminishes average load factors for thermal units while amplifying scarcity pricing events. Without mechanisms that adequately value availability and flexibility, investment signals may weaken precisely when system resilience becomes most critical.
In conclusion, South-Eastern Europe stands at a crossroads where its electricity markets must adapt swiftly to this structural transition away from baseload generation toward a model prioritizing security through diversified portfolios of flexible resources. The challenge lies in whether market structures and regulatory frameworks will evolve fast enough to embrace this new reality effectively.
