CBAM’s electricity shock for Serbia: exports, EPS finances and the investment pipeline

When the European Union enters the full charging phase of its Carbon Border Adjustment Mechanism (CBAM) in January 2026, the consequences for electricity markets extend well beyond EU institutions. For Serbia—where power exports have long helped support the balance sheets of state utility Elektroprivreda Srbije (EPS)—CBAM turns carbon intensity into a decisive variable for both profitability and investment decisions.

From regional volume exporter to selective supplier

Serbia has positioned itself as a regional electricity hub, supplying power across borders into Hungary, Romania and Croatia. In recent years, net exports have largely ranged between 2–4 TWh per year, with Hungary taking about 6.1 TWh, Romania around 2.4 TWh and Croatia roughly 1.5 TWh in 2023, based on trade data.

Those flows have been underpinned by a generation mix that includes coal-fired output alongside hydropower. Under CBAM, however, the export proposition changes from “price only” to “price plus carbon cost.” For lignite-based Serbian generation, the mechanism is expected to translate into surcharges in the €70–110/MWh range, depending on the EU ETS price and assumed emission factors.

The behavioural shift is immediate in economic terms. Under “normal” price conditions of €80–120/MWh, large-scale coal-driven exports are no longer profitable enough to justify CBAM-related fees. As a result, Serbia is moving away from baseload volume exports toward a more selective model focused on flexibility and low-carbon supply—because electricity that is hydro-linked or renewable-based faces little or no CBAM-linked cost at scale.

The carbon price tag on Serbian exports

Analyses of trade patterns consistent with 2024-style flows estimate that electricity routed from Serbia into the EU totals about 9.18 TWh per year and carries annual CBAM-related costs of roughly €612.5 million. That implies an average CBAM-adjusted cost of about €66.7/MWh.

For buyers inside the EU, procurement logic shifts accordingly. Traders increasingly evaluate deals through “carbon-adjusted arbitrage,” meaning Serbian power will be purchased only when bid prices plus required CBAM certificates still leave room for margin. The knock-on effect described in the analysis is more selective sourcing, shorter-term contracting and reduced willingness to buy from the highest-emitting sources.

For Serbia, this means two linked outcomes: export volumes are likely to be compressed—particularly during low- and medium-price periods—and export value becomes concentrated in cleaner and more flexible generation profiles. The analysis also points to competitive pressure from Albania’s largely renewable generation mix as it becomes a more attractive partner for EU-facing deals.

Pressure on EPS financials

For EPS, CBAM’s financial implications are described as direct and growing because electricity exports have historically played a role in stabilising earnings—helping compensate for lower-margined domestic sales while supporting high fixed costs tied to an ageing coal fleet.

The analysis suggests that even an export-price reduction of €10–15/MWh—attributed to CBAM-linked uncertainty and buyer risk pricing—can erode EPS’s export-linked gross revenue and compress margins previously used to offset heavy capex needs and debt burdens.

A key difference highlighted for Serbia is timing: electricity exports are charged at full CBAM rates starting 1 January 2026 without an extended phase-in for the power sector. That leaves less time for EPS to adjust its asset base and pricing strategy than sectors such as steel or aluminium that saw gradual mechanisms layered onto existing carbon-pricing regimes.

Investment decisions rewritten by IRR risk

The most significant impact described is not confined to near-term profit-and-loss statements; it reshapes the investment pipeline itself. Many planned or greenfield projects linked to EPS were modelled with assumptions that some level of export optionality into EU markets would support returns.

With CBAM-driven price erosion of €10–15/MWh incorporated into forecasts, internal rates of return (IRR) are estimated to fall by about 1.5–2.5 percentage points. For capital-intensive coal-heavy projects, this can push expected returns toward or below bankability thresholds unless projects receive explicit state guarantees, higher domestic tariffs or dedicated decarbonisation grants.

The financing environment described in the analysis becomes more restrictive as lenders and rating agencies factor in carbon-price risk, regulatory uncertainty and stranded-asset risk while the EU tightens its climate framework. At the same time, projects aligned with renewables, hydro-linked flexibility and grid modernisation gain favour because they can be positioned as “CBAM-compliant” supply capable of meeting low-carbon demand tied to EU markets.

A longer-term rebalancing toward low-carbon power

Over the medium term, CBAM is portrayed as acting both financially and strategically—pulling Serbia’s power sector toward cleaner and more diversified generation. The utility is expected to modernise hydropower assets, expand wind and solar capacity, and invest in emissions monitoring and verification systems needed for CBAM-style reporting requirements.

For investors and policymakers, the central takeaway is that treating Serbia primarily as a cheap coal-linked exporter is becoming less viable as carbon intensity increasingly determines market access into Europe. The value proposition shifts toward low-carbon flexibility and grid resilience—assets that can deliver power without absorbing a carbon-penalty tax embedded in CBAM charging.

In practical terms, Serbia’s electricity strategy is likely to blend domestic stability with regional selectivity and EU-market compliance—using carbon intensity as the metric binding those objectives together. For EPS and the wider Serbian power ecosystem, CBAM is therefore not just a border charge; it is a recalibration of how business models are built around financing returns, asset choices and long-term competitiveness.