Blog
South-East Europe’s power market is pushing investors toward portfolio finance, not single-asset bets
In South-East Europe, the electricity market is becoming harder to underwrite on a project-by-project basis. With grid constraints, price swings and uneven access increasingly determining outcomes, investors are redesigning their strategies around portfolio-level structuring—combining assets and contracts so that cashflows are less dependent on any single node or pricing regime.
Why merchant models are losing their edge
The shift is driven by a simple problem: the value of an asset can vary dramatically depending on where it connects and how the system behaves. A standalone solar project in a constrained location can deliver 5–7% equity IRR, reflecting curtailment of 20–30% and capture discounts of €15–25/MWh. Move the same type of project to a better-connected northern node near Subotica, and the potential rises to 10–12% IRR, with curtailment below 5%.
This dispersion cannot be diversified within a single asset. Instead, it has become an argument for building integrated portfolios that pair generation with flexibility and market participation.
A three-layer portfolio blueprint
Portfolio design in the region now tends to follow a layered approach intended to balance stability with upside. The first layer focuses on core generation in high-convergence areas—such as northern Serbia, western Romania or Hungarian border regions—where realised prices stay close to €80–90/MWh and output is steadier. These assets are positioned to support leverage, often using debt at roughly 65–75% with DSCR above 1.30x.
The second layer adds higher-return but more volatile components. Solar and wind projects in central or southern zones can target 12–15% IRRs, but only if volatility is managed rather than left exposed. Here, integration with storage becomes pivotal: a hybrid such as a 100 MW solar + 200 MWh battery, with combined CAPEX of €150–200 million, is described as capable of recovering curtailed output and shifting generation into higher-value periods—raising realised prices by €10–20/MWh while stabilising revenues.
The third layer brings flexibility and market-facing exposure through standalone batteries, trading portfolios and capacity rights. A 200 MWh battery operating in Greece or Bulgaria is cited as generating annual earnings of €15–30 million, with IRRs of 12–18%, depending on volatility. Capacity rights on corridors such as Bulgaria–Greece or Serbia–Hungary provide exposure to congestion rents—adding an income stream that resembles infrastructure returns.
This structure also reflects how traders operate across physical and financial dimensions: firms including MET Group, Axpo, GEN-I and EFT
A blended return profile aimed at downside protection
The objective is not simply higher headline returns but improved resilience. When these layers are combined correctly, the resulting blended profile can be more stable than any individual component. The article notes that diversified portfolios can reach equity IRRs in the 11–14% range, alongside lower volatility and stronger downside protection—an outcome that aligns with expectations from infrastructure-oriented investors seeking predictable cashflows with moderate upside.
Geography determines risk—and therefore portfolio design
Northern corridors linked to Hungary and Romania
Contracts help lock in base cashflows; financing follows the portfolio logic
A key mechanism behind structured yield is contract design. Industrial PPAs with counterparties such as Zijin Mining, HBIS Group and aluminium producers in Greece are cited as providing baseline income typically priced at about €65–85/MWh, with premiums tied to carbon compliance requirements. These agreements anchor cashflows—supporting higher leverage while reducing reliance on merchant outcomes for all revenue.
The remaining production can then be optimised through market participation, often coordinated by trading partners.
Lenders are also adapting. Rather than underwriting each project in isolation, financing structures increasingly consider portfolios directly—reflecting diversification benefits across assets. Debt facilities may be arranged at the portfolio level using tools such as cross-collateralisation and cashflow pooling so stronger assets can support weaker ones, which can improve overall leverage metrics and reduce financing costs.
The role of development finance institutions—and data tools for optimisation
The transition is supported by development finance institutions including the EBRD and EIB through flexible financing approaches and risk mitigation measures. Their involvement matters particularly for emerging markets inside the region where standalone projects may be difficult to fund without broader structuring.
