CBAM’s first electricity quarterly review finds widening EU–non-EU price gaps across Western Balkans

The Energy Community Secretariat’s first quarterly assessment of the EU Carbon Border Adjustment Mechanism (CBAM) for electricity imports delivers an early warning for investors and market participants in Southeast Europe: CBAM is already reshaping how power is traded across the region. The report argues that, after the definitive CBAM phase for electricity began on 1 January 2026, measurable divergence is emerging between EU and non-EU electricity markets—altering arbitrage economics, weakening market coupling, and potentially distorting renewable investment signals in parts of the Western Balkans.

Scope: Western Balkan markets and neighboring EU zones

The document covers six Western Balkan Energy Community Contracting Parties—Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia—alongside neighboring EU markets including Hungary, Croatia, Bulgaria, Romania, Greece and Italy. Strategically, it moves beyond regulatory theory by presenting operational evidence of how CBAM is beginning to affect power flows, market spreads, interconnector usage, system operation and regional price formation since the start of the electricity CBAM phase.

Price convergence breaks down as spreads widen

The most significant finding is a sudden breakdown in the long-standing price convergence mechanism between the Western Balkans and neighboring EU electricity markets. Historically, Southeast European markets moved more in sync—particularly around the Hungarian benchmark. In Q1 2026, however, that convergence weakened sharply.

The report notes that day-ahead price spreads between WB6 markets and neighboring EU zones widened to more than €30/MWh during Q1 2026. That level was approximately two to three times higher than in the same period of 2025.

Hydro strength did not translate into export arbitrage

These divergence signals emerged despite exceptionally strong hydro generation across the region—conditions that would normally be expected to strengthen exports from lower-cost Western Balkan systems into higher-priced EU markets. Instead, CBAM-related costs appear to have neutralized much of that arbitrage opportunity.

The Secretariat repeatedly highlights that once CBAM certificate costs are included, electricity imports from non-EU systems became economically less attractive even when physical electricity remained significantly cheaper than inside the EU.

Country-level default emission factors drive competitiveness gaps

For Serbia and Montenegro in particular, the report quantifies how default emission factors translate into per-megawatt-hour CBAM burdens for imports into the EU during Q1 2026. Serbia’s average default emission factor was calculated at 1.041 tCO2eq/MWh, implying an estimated CBAM cost of €78.45/MWh. Montenegro’s default factor reached 0.979 tCO2eq/MWh (about €73.78/MWh). Bosnia and Herzegovina faced a higher burden at €86.51/MWh.

Albania stands out because its zero default emission factor effectively exempts Albanian hydro exports from CBAM charges under the report’s assumptions.

Montenegro–Italy interconnector shows arbitrage collapsing

The report points to the Montenegro–Italy submarine cable as a clear example of how those differences can distort commercial outcomes. In Italy South during Q1 2026, average prices were above €130/MWh; Montenegro averaged only €85.8/MWh—creating a spread of roughly €43/MWh.

Under normal conditions, such a gap would be expected to trigger strong export growth from Montenegro into Italy. Instead, scheduled flows from Montenegro to Italy declined by more than 2,100 MWh/day and physical flows also dropped materially.

The Secretariat concludes that CBAM charges absorbed most or all of the available arbitrage margin. It notes that auction-clearing prices for cross-border capacity on the Montenegro–Italy interconnector remained almost unchanged compared with 2025 despite the large increase in market spread—suggesting traders did not view the differential as commercially usable once CBAM costs were included.

This is presented as early real-world evidence that CBAM can directly alter the commercial value of major Southeast European transmission infrastructure.

Serbia sees liquidity pressure tied to transit strategies

Serbia experienced similar dynamics beyond bilateral interconnector effects. SEEPEX—the region’s largest power exchange—recorded an 11% decline in traded volumes during Q1 2026 even as several neighboring exchanges expanded.

The report links part of this decline to Serbia’s earlier role as a transit trading corridor between EU markets. Before CBAM implementation, routes such as Hungary–Serbia–Bulgaria were commercially attractive for regional electricity trading; after CBAM introduction, those transit strategies became less economically viable due to regulatory uncertainty and financing implications tied to electricity crossing non-EU territory.

Accordingly, Southeast European trading appears partially rerouted away from Western Balkan transit corridors toward “CBAM-free” pathways.

Trading patterns shift: intra-WB6 activity rises; Albania-linked routes gain

The Secretariat describes new trading structures emerging that bypass Serbia and other WB6 markets. Intra-WB6 trading increased while some EU-EU corridors and Albania-linked routes gained strategic importance.

Exports from Albania into Greece surged. At the same time, Greece increasingly acted as a redistribution hub toward Bulgaria and Italy.

Risk of fragmentation—and new requirements for renewable bankability

A central concern raised by the report is that CBAM may unintentionally increase fragmentation between EU and non-EU electricity systems if current patterns persist. The mechanism could create two parallel regional realities: low-carbon exporters such as Albania benefiting from privileged access to EU markets while coal-exposed systems such as Serbia, Montenegro and Bosnia face structurally weaker export economics regardless of actual hourly renewable production.

For renewable developers and investors, this changes what contracts may need to achieve bankability. The report warns that uniform default emission factors could weaken incentives for renewable investment in carbon-intensive jurisdictions because exported renewable electricity may still inherit national-level emission penalties.

This intersects with ongoing debates around guarantees of origin (GO), hourly matching approaches within power purchase agreements (PPAs), physical traceability requirements for low-carbon electricity exports from the Western Balkans into the EU—and how those elements interact with embedded carbon intensity claims.

Operational stress emerges when schedules diverge from physics

The quarterly review also flags operational system stability concerns. During Q1 2026, commercial schedules and physical electricity flows increasingly diverged: traders reduced commercial usage of certain WB6 transit corridors while physical flows continued according to network physics rather than commercial scheduling decisions.

This matters because transmission system operators rely on commercially scheduled flows for balancing and congestion management. The Secretariat warns that widening mismatches could add operational stress for regional TSOs and potentially increase system costs and network tariffs.

The document highlights sensitivity along a South-North corridor running from Greece through Albania and Montenegro toward Bosnia and Croatia. It cites June 2024 regional blackout circumstances triggered by simultaneous outages of 400 kV lines in Montenegro and Albania as an example of vulnerability under stressed conditions in heavily loaded systems with insufficient coordination.

Hydrology complicates attribution—but signals remain hard to ignore

The report emphasizes that hydrology was a major driver during Q1 2026: regional hydro generation rose by 33% year-on-year from 16.70 TWh to 22.18 TWh. Albania expanded hydro output by roughly 70%, while Greece recorded a dramatic 275% increase compared with its low base in 2025. Coal generation fell by about 16% across the region.

At the same time, it avoids attributing all observed changes solely to CBAM—stressing exceptional hydrological conditions mean longer observation periods are needed before definitive structural conclusions can be drawn.

A near-term compliance tool is already influencing long-term investment questions

The Secretariat’s core message is that CBAM is already beginning to reshape Southeast European electricity economics—even before many longer-term compliance structures fully develop across carbon alignment mechanisms for power sector participants. For Serbia, Montenegro and the wider Western Balkans, it frames an urgent strategic question: whether regional power systems—including TSOs, exchanges, traders, industrial exporters and renewable developers—can adapt quickly enough to prevent long-term fragmentation from becoming embedded into Southeast Europe’s electricity architecture.