EU recommendation shifts South-East Europe toward cross-border power purchase agreements as core investment tool

The European Commission’s latest push to remove barriers to power purchase agreements (PPAs), adopted on 22 April 2026, signals a decisive shift in how electricity investment is expected to be financed across South-East Europe. Rather than relying primarily on state guarantees, the framework points toward structured, long-term contracting between generators and industrial buyers—an approach that could reshape renewable build-out, storage deployment and industrial decarbonisation planning through the rest of the decade.

PPAs move from optional tool to financing backbone

At the centre of the recommendation is a new emphasis: PPAs are no longer treated as a niche contracting option but as a mechanism required to help deliver the EU’s 42.5% renewable energy target and at least a 55% emissions reduction by 2030. The Commission’s framing matters for markets on the EU’s periphery because South-East Europe is increasingly positioned not only to follow EU market design, but also to function as an extension of the EU’s clean power system—especially through cross-border contracting structures.

Contracting momentum already reflects the change

The Commission links its stance to observable market trends. In Europe, annual electricity contracted through corporate PPAs rose from 7.4 TWh in 2020 to 31.4 TWh in 2024, while deal counts increased from 60 to 276 over the same period. Solar photovoltaic assets have overtaken wind as the leading technology in these corporate contracts, and hybrid structures integrating storage are emerging as a defining feature of the next phase.

In this view, the acceleration is not only policy-driven. It also reflects how energy risk is being allocated and priced across systems—an issue that becomes more consequential where grid constraints and market depth remain limited.

Cross-border PPAs become a focal point for Serbia and Montenegro

The most consequential element for South-East Europe is the Commission’s explicit support for cross-border PPAs, including those involving Energy Community markets. These contracts—where electricity is purchased across national boundaries—are presented as a way to integrate neighbouring systems into the EU internal electricity market while unlocking investment in new generation capacity.

For Serbia and Montenegro, this places them at the intersection of two structural forces: rising EU demand for clean power and persistent regional price spreads that can make export-oriented generation economically attractive.

Scaling faces regulatory and credit frictions

The recommendation also stresses that scaling cross-border PPA markets requires addressing obstacles on multiple fronts. Regulatory barriers remain entrenched, including grid access constraints, slow permitting processes, inconsistencies in accounting rules and uncertainty around how guarantees of origin are treated.

In Serbia, transmission capacity expansion at the 400 kV level is still lagging project pipelines, which can translate into delayed financial close for renewable projects. Montenegro faces parallel limitations tied to system size and interconnection constraints that restrict how surplus generation can be monetised through long-term contracts.

Non-regulatory barriers are described as equally significant: buyer creditworthiness concerns, limited transparency and restricted contract standardisation. The Commission notes that these frictions are particularly acute in South-East Europe because large industrial offtakers—the backbone of PPA markets in Western Europe—are fewer and balance sheets can be weaker. Without credible counterparties, developers may struggle to secure financing even when resource potential is strong.

A layered risk-mitigation approach

To respond, the Commission encourages a layered approach to risk mitigation. Member States are encouraged to deploy state-backed guarantee schemes coordinated with the European Investment Bank’s 2025 counter-guarantee programme to underwrite payment risk for corporate buyers. The document suggests such mechanisms could be decisive for Serbia’s multi-gigawatt PPA pipeline given uneven but growing industrial demand across sectors such as metals, chemicals and data infrastructure.

Montenegro’s smaller industrial base may make it more dependent on export-linked contracts supported by international counterparties.

Contract design evolves with market volatility

The recommendation also highlights that PPAs themselves are becoming more complex in how they allocate exposure to price volatility, volume fluctuations and balancing costs—factors that influence bankability and ultimately investors’ returns. It distinguishes between physical and financial contracts and between pay-as-produced arrangements and baseload delivery profiles.

The Commission points out that developments such as shifting away from simple pay-as-produced structures toward shaped or hybrid designs are already visible in markets like Serbia where balancing mechanisms are still developing.

Price cannibalisation pushes demand for integrated solutions

A broader market dynamic runs through the recommendation: rapid renewable growth can lead to price cannibalisation and more negative price hours, eroding revenues for developers and complicating PPA negotiations. The Commission notes this phenomenon has begun appearing in parts of South-East Europe—particularly during periods of high solar output combined with limited export capacity.

The implication is that future projects will increasingly need integrated solutions combining generation with storage, demand response or flexible consumption agreements to stabilise revenues.

Blended support models aim to avoid crowding out private deals

The Commission addresses how PPA markets interact with state support schemes. It acknowledges that two-way Contracts for Difference (2w-CfDs), which provide price certainty by stabilising revenues, can reduce financing costs but may crowd out private PPA activity if poorly designed. The recommended direction is coexistence rather than substitution: hybrid models where part of output is contracted via PPAs while other portions benefit from state-backed mechanisms.

This blended approach is framed as particularly relevant where public budgets are constrained—offering a route to scale investment without overreliance on subsidies.

Multi-buyer structures and trading platforms could deepen liquidity

The document also promotes multi-buyer PPAs in which multiple smaller consumers aggregate demand to match large generation assets. This model is described as especially relevant for Serbia due to fragmented industrial consumption across sectors and regions; aggregators such as industrial parks, business associations or specialised intermediaries could create bankable offtake structures that individual companies might not achieve alone.

For Montenegro, multi-buyer approaches could help anchor export-oriented projects using combinations of domestic and foreign buyers.

Beyond contracting structures, the Commission supports development of market platforms for trading PPAs. By increasing transparency, standardising contracts and reducing transaction costs, such platforms could turn bespoke bilateral arrangements into more liquid instruments—an important consideration where regional market depth remains limited.

Guarantees of origin reforms link value to time and location

A less visible but significant reform concerns guarantees of origin used to verify renewable electricity attributes. The Commission advocates moving toward time granularity aligned with market intervals alongside full cross-border transferability. The practical effect described is that it ties renewable value more directly to temporal and geographical characteristics—raising the importance of storage and flexibility while reducing arbitrage opportunities linked to traditional certificate systems.

For developers in Serbia and Montenegro, this means project design needs attention not only on installed capacity but also on whether power can be delivered when—and where—it carries greater value.

Long-term contracting expands beyond electricity

The recommendation broadens long-term contracting beyond electricity by including hydrogen, biomethane and heating-and-cooling agreements. Although these markets remain nascent in South-East Europe today, their inclusion indicates where industrial decarbonisation demand may lead next: integrated energy projects combining generation, conversion steps and supply under long-term contractual frameworks.

A reconfigured investment model—and an urgent implementation test

Taken together, these elements point toward a fundamental reconfiguration of how capacity expansion is financed across the region: away from a paradigm dominated by state-driven build-out and regulated tariffs toward one where long-term private contracts underpin both financing decisions and risk management practices. In this model, government roles shift toward facilitating conditions for contracting while providing targeted support where needed.

The immediate consequence expected by investors would be faster project development pipelines tied particularly to cross-border PPAs—especially in Serbia where industrial demand alongside grid connectivity provides a foundation for scaling. Montenegro’s smaller domestic market suggests projects may be structured primarily around export contracts leveraging proximity to Italy and broader Adriatic dynamics. In both cases, success depends on aligning national frameworks with evolving EU requirements—particularly around guarantees of origin handling, permitting processes and risk mitigation tools.