The European Union’s Carbon Border Adjustment Mechanism (CBAM) is reducing the value of cross-border electricity sales from the Western Balkans, affecting cash flow and funds used to maintain power stations and coal supply. In Serbia and Bosnia and Herzegovina, lower thermal generation is occurring alongside weaker export revenues and more competition for regional buyers. Utility operating data also show that changes in generation are not uniform across countries or plant types.
Commercial pressure, stronger hydropower output and coal supply problems are cited alongside CBAM-related effects. The Energy Community Secretariat recorded a 16% decline in scheduled electricity exports from the Western Balkans to the EU, to 3.223 TWh in the second quarter of 2026. Over the first half of the year, combined electricity trade in both directions fell by approximately 19%, including imports into the region and transit-related trading.
Thermal output changes alongside hydropower gains and fuel constraints
Elektroprivreda Srbije (EPS) said CBAM reduced regional exports to the EU in its first-half operating results. EPS reported that more electricity surpluses were redirected to regional exchanges, with wholesale prices pushed down. The company linked part of the thermal output decline to factors beyond CBAM.
EPS thermal generation fell by approximately 12% to 9.423 TWh in the first half of 2026, from 10.712 TWh in the same period of 2025. Hydro production rose by 9% to 5.307 TWh. EPS noted that its thermal figure includes combined heat and power generation, so it is not a direct measure of coal-fired output alone.
EPS reported that thermal units were in cold reserve for 8.2% of calendar time. It also recorded 574.34 GWh of production reductions associated with operation at technical minimum. The company linked weaker thermal output and higher procurement requirements to lower domestic coal production and poorer coal quality, limiting how much of the decline can be attributed to CBAM.
The company drew a distinction between commercial dispatch decisions and availability constraints. Reducing dispatch at a technically available plant can follow low prices, while insufficient or unsuitable coal can force procurement of replacement electricity. In Bosnia and Herzegovina, thermal injections into the transmission grid fell 12.9% to 4.931 TWh in January-September 2026, while hydro injections rose 27.3% to 3.926 TWh.
Total generation injections in Bosnia and Herzegovina increased 2.6% to 9.849 TWh over the same period. Declared commercial deliveries from Bosnia and Herzegovina to Croatia fell 38.5% to 946 GWh, while deliveries to all neighbouring systems declined 16.5% to 4.853 TWh. Receipts fell faster, by 32.8% to 2.742 TWh, lifting net outward commercial balance by 22% to 2.111 TWh.
The country generated less thermal electricity while increasing its net commercial surplus as stronger hydro production altered the balance between coal generation, imports and exports. Plant-level conditions varied: September thermal injections were only marginally below the previous year, while some individual facilities increased output. At Ugljevik, production interruptions were linked to insufficient coal, difficulties accessing mining areas and equipment constraints rather than weaker EU export demand.
CBAM certificate prices feed into export netback calculations
The legal obligation under CBAM lies with the authorised declarant importing electricity into the EU, but effects can pass upstream through lower purchase offers, revised contract terms and reduced demand for exporters. For exporters, the calculation increasingly depends on EU selling price minus CBAM liability and cross-border costs including balancing, losses and trading costs, producing an export netback figure.
The European Commission’s published CBAM certificate price for third-quarter 2026 imports was €82.32 per tonne of CO₂, compared with €75.28/tCO₂ in the second quarter of 2026. Using published electricity default factors, implied gross carbon burden estimates were around €94.50/MWh for Bosnia and Herzegovina, €85.70/MWh for Serbia, €80.59/MWh for Montenegro and €73.02/MWh for North Macedonia.
The estimates were described as indicative default-based exposure before eligible deductions rather than production costs for specific generating units. The impact on margins can be large: if Serbian electricity sells into an EU market at an illustrative €120/MWh, gross CBAM exposure of around €85.70/MWh leaves €34.30/MWh before transmission capacity, balancing, losses and other commercial costs.
If those additional costs total €5/MWh, the generator is left with around €29/MWh under that example margin structure. A coal unit with avoidable operating costs above that level has limited commercial reason to produce additional electricity specifically for such exports. At an EU selling price of €180/MWh in the same framework, remaining revenue rises substantially and exports can become commercially attractive again.
EPCG estimates earnings impact while maintaining operations
Elektroprivreda Crne Gore (EPCG) estimated that CBAM reduced the value of its first-quarter electricity sales by approximately €13 million. The company said it remained profitable during the period because generation was significantly above plan and hydrological conditions were favourable.
EPCG also reported that Pljevlja thermal power plant continued operating through the quarter despite CBAM-related revenue pressure estimates provided by the utility itself. The experience described indicates that CBAM can affect earnings before physical output changes become visible in operating data.
A generator may continue producing and exporting substantial volumes while receiving less revenue for each unit sold if netbacks fall due to carbon charges and related costs. Incentives to reduce loading, delay starts or hold capacity in reserve emerge when netback declines below a plant’s avoidable operating costs.
Displaced sales shift regional prices affecting coal generators
If electricity becomes less attractive to EU buyers under revised margin economics, it can be redirected toward domestic or neighbouring markets within Southeast Europe. The source data describe a scenario where Serbia, Bosnia and Herzegovina, Montenegro and North Macedonia have more electricity available domestically because some EU export opportunities become uneconomic.
In that case, regional supply rises relative to demand and wholesale prices can fall across local markets where displaced volumes compete with existing demand patterns. The resulting two-stage effect is described as CBAM weakening EU export economics first, followed by displaced electricity depressing prices within Western Balkan markets.
The same mechanism can affect coal generators even if they have never exported directly into EU markets through contracts tied to those flows. Renewable generation can also face similar constraints if hydro, wind or solar cannot meet requirements for favourable CBAM treatment or cannot secure contractual and verification chains needed for those benefits.
The addition of renewable supply into regional markets reduces residual demand available for coal generators under conditions where carbon-linked export economics change buyer behaviour elsewhere in Europe.
Lower utilisation risks higher fixed-cost burden for coal fleets
The main structural consequence described is a gradual decline in annual utilisation rather than immediate closure of coal-fired plants across Western Balkan systems. Thermal capacity remains important for security of supply during winter peaks, dry hydrological periods and times when imports are limited.
A plant can remain indispensable for system security while operating fewer hours for commercial export under shifting price signals tied to carbon costs and cross-border competition. Coal mines, maintenance programmes, environmental upgrades, staffing and debt service involve substantial fixed costs that do not scale down automatically with lower output levels.
If annual production falls while most fixed expenditure remains unchanged, fixed costs per generated megawatt-hour increase as utilisation declines across a fleet rather than only at individual plants.
An example provided was that a one-third reduction in electricity production with fixed costs unchanged would raise fixed costs per MWh by 50%. The challenge was described as relevant for utilities including EPS (Serbia), EPBiH (Bosnia and Herzegovina), ERS (Kosovo) and EPCG (Montenegro).
Investment decisions separated into security-of-supply, export margin and flexibility value
The source data describe how historically electricity exports provided additional cash used to finance domestic fleets, mines, overhauls and investment across Western Balkan utilities as part of their funding model under earlier market conditions.
Future investment assessments were said to need separation into three value streams: domestic security-of-supply value tied to avoiding imports during scarcity; commercial export value defined as margin after CBAM impacts plus cross-border costs; and system flexibility value including revenue from balancing services, reserves or capacity availability.
A historic export margin should not automatically be carried into models for coal mine expansion or power plant rehabilitation or life-extension decisions when EU access increasingly carries an explicit carbon cost component affecting netbacks over time.
The mechanism was described as unlikely to close Western Balkan coal plants overnight because domestic systems still require substantial thermal capacity while hydrological conditions, weather patterns, import availability and network constraints can quickly change operational value for coal generation.
The source data also describe a shift in how these plants operate commercially: generation serving both domestic demand and profitable EU exports may increasingly run mainly when required by domestic system needs or when regional prices are exceptionally strong.
This implies lower utilisation alongside fewer profitable export hours and weaker cash generation even where thermal capacity continues contributing to security-of-supply needs within national systems as external commercial value declines under CBAM-linked margin changes.