EPS rebounds in 2025, but Serbia’s power mix and export weakness keep transition risks in focus

Elektroprivreda Srbije’s 2025 results mark a clear financial rebound after years of turmoil, yet they also highlight why Serbia’s power sector transition remains fragile. EPS returned to stronger profitability, but its operating model is still dominated by lignite and increasingly shaped by hydrology-driven system balancing rather than regional export surplus.

Profitability improves, though it is still below the 2023 peak

Serbian media reviewed EPS financial reporting showing net profit of between RSD 38.7 billion and RSD 42.3 billion (roughly EUR 330–360 million) for 2025. That compares with around RSD 24–26 billion in the prior year and represents a substantial step up from the deep operational and financial crisis that followed the collapse in 2021.

Even so, EPS’s earnings remain far below the extraordinary profitability recorded in 2023, when favorable hydrology and elevated regional electricity prices pushed earnings close to EUR 1 billion. The implication for investors is that while stabilization has improved, EPS has not yet returned to the conditions that previously maximized margins.

Lignite still drives generation as hydropower weakens

The company’s production portfolio continues to reflect an electricity system overwhelmingly dependent on lignite. Coal-fired thermal plants accounted for about 71.4% of total electricity generation in 2025. Hydropower and renewables contributed roughly 27.3%, while gas-fired generation remained marginal.

This mix became more consequential during another weak hydrological year. EPS reported hydroelectric output fell by around 20% year-on-year, with hydropower generation dropping to approximately 8.3 TWh versus more than 10 TWh in 2024 and roughly 12.6 TWh in 2023. With less water available, the system leaned more heavily on lignite thermal generation—particularly the TENT complex and other coal assets connected to the Kolubara mining basin.

Coal production improved, supporting costs and earnings

EPS also reported better coal output during the year. The company produced approximately 32.8 million tonnes of coal in 2025, above both 2024 and 2023 levels—an indication of continued efforts to stabilize the Kolubara mining system after years marked by underinvestment, operational disruptions, and imported coal dependency.

EPS additionally reduced external coal procurement costs compared with previous years, which supported profitability. Still, this appears more focused on securing supply reliability than shifting the underlying structure of Serbia’s power generation.

Export weakness points to a more defensive operating stance

A key constraint on earnings quality is EPS’s export position. Serbian reporting indicates that electricity exports fell sharply during 2025—almost halving—suggesting less surplus generation available for regional trading.

This matters because EPS’s record profitability in 2023 was strongly supported by export opportunities during periods of elevated regional prices. With reduced export capacity in 2025, EPS increasingly operated as a system-balancing provider rather than as a major regional merchant exporter.

Market purchases remain costly despite improved domestic supply

Alongside lignite reliance, EPS continued spending heavily on market purchases of electricity and balancing costs. Procurement expenses for electricity and system access reportedly rose to around RSD 185 billion in 2025 from RSD 167 billion a year earlier.

The higher figure underscores that even with improved domestic coal production, Serbia’s power system remains exposed to volatility in regional markets—an ongoing risk factor for future margins.

Transition investments delayed; debt burden persists

The investment picture adds another layer of pressure on long-term competitiveness. Total investments during 2025 reportedly reached only around RSD 52.7 billion—materially below planned levels and below execution in 2024.

The main reason cited was postponement of a strategic platform combining solar with battery storage: a planned “1 GW solar plus battery storage” initiative that EPS delayed until 2026 due to complex preparatory activities. The Hyundai Engineering–UGT Renewables project is described as intended to become a backbone for Serbia’s utility-scale renewable expansion and long-term flexibility strategy.

Without faster deployment of large-scale solar and battery systems, Serbia remains heavily dependent on aging coal infrastructure—especially during hydrologically weak years like those seen again in 2025.

Financially, EPS also carries significant liabilities even after improving profits. Long-term liabilities reportedly stood at around RSD 151.3 billion (nearly EUR 1.3 billion), linked to financing from international lenders including the EBRD as well as Japan and Chinese institutions.

Restructuring continues alongside operational stabilization

EPS’s recovery has been accompanied by workforce reductions as part of restructuring efforts. The company ended 2025 with fewer than 19,000 employees after more than 1,400 workers left—many through early retirement schemes.

A stronger balance sheet—but not yet a structural decarbonization shift

Taken together, EPS’s results underline a broader pattern across Southeast Europe: coal remains financially and operationally central even as renewable investment accelerates elsewhere or is planned ahead of time. In Serbia’s case, stronger profits in 2025 depended largely on lignite stability, improved coal mining output, and controlled operational costs rather than on structural decarbonization gains.

Serbia is positioning itself for future roles tied to solar development, battery storage deployment, and grid modernization while still relying on coal for more than two-thirds of electricity production—and postponing parts of its flagship renewable buildout through delays like those affecting the solar-plus-storage platform now pushed into implementation starting in 2026. For investors watching EPS into next year, that combination suggests an improved near-term financial footing alongside continued transition risk: moving from emergency stabilization toward deeper portfolio transformation will require both faster capital deployment and sustained progress beyond reliance on lignite during low-hydrology periods.