Renewable electricity producers in Serbia and Montenegro are evaluating two routes to engage Europe’s industrial decarbonisation market: exporting electricity directly to the EU under the Carbon Border Adjustment Mechanism (CBAM), or supplying domestic manufacturers whose products are sold to EU customers. The two pathways can create commercial opportunities, but they rely on different regulatory requirements. In cross-border electricity flows, the relevant obligations sit with the EU side, while the effect of domestic renewable purchases depends on the emissions methodology applied to specific products.
CBAM obligations differ between electricity exports and domestic PPAs
When electricity is physically exported to the EU, the CBAM obligation is borne by the relevant EU importing declarant. If the importer cannot demonstrate that conditions for actual-emissions treatment have been met, the applicable default methodology for electricity generally applies. By contrast, a domestic power purchase agreement (PPA) does not constitute an electricity import into the EU. The renewable electricity may still influence a manufacturer’s energy costs, emissions accounting and decarbonisation claims, but CBAM liability depends on the legal methodology for the exported products.
This distinction means domestic renewable procurement is not automatically treated as equivalent to qualifying low-carbon electricity imported into the EU. The regulatory separation is intended to reflect differences in how CBAM applies across transactions. As a result, renewable generation contracted domestically may not translate directly into reduced CBAM exposure for exports without meeting product-specific requirements.
Indirect emissions rules vary across covered CBAM sectors
The regulatory distinction matters because covered products do not all receive the same treatment of indirect emissions during CBAM’s definitive phase. Indirect emissions from electricity consumption are included in embedded-emissions calculations for covered cement and fertiliser products. For covered iron, steel and aluminium goods identified in Annex II, CBAM currently accounts only for direct emissions. The EU has examined possible future extensions, but steel and aluminium manufacturers cannot assume that signing a domestic renewable PPA will immediately reduce certificates required for their exports.
For steel and aluminium producers, immediate CBAM exposure remains largely linked to direct process emissions and, where relevant, emissions associated with precursor inputs. For cement and fertiliser producers, electricity sourcing can have a more direct bearing on embedded-emissions calculations. Recognition depends on applicable actual-value criteria, allocation rules, verification requirements and prescribed methodology. A Guarantee of Origin (GoO) or a commercial claim that electricity is green does not automatically establish eligible actual indirect emissions.
Plant-level process records, metering data and contractual documentation remain important for determining what can be recognised under the applicable approach. This documentation requirement applies regardless of whether renewable claims are supported by GoO instruments or commercial statements. The ability to substantiate eligible emissions treatment therefore depends on what can be verified for specific transactions and product lines.
Commercial drivers for domestic PPAs beyond immediate CBAM impacts
Domestic industrial PPAs can provide renewable generators with long-term local revenue while reducing exposure to cross-border transmission capacity constraints. They can also reduce administrative and carbon-cost complications associated with importing electricity into the EU. For manufacturers, these contracts can improve electricity-cost predictability and support corporate decarbonisation objectives. A steel mill may value renewable electricity for energy security and emissions targets even when its immediate CBAM liability is driven primarily by direct production emissions and relevant precursor inputs.
The commercial rationale for domestic renewable procurement therefore does not depend entirely on whether a PPA produces an immediate reduction in CBAM obligations. Export-oriented independent power producers may instead benefit from higher EU price benchmarks and, where requirements are met, potential value of actual-emissions treatment. At the same time, they must account for balancing needs, cross-border delivery arrangements, verification processes and contractual protection against carbon-related risks.
Comparing export premiums with contract risks
Domestic industrial offtakers may offer an alternative with fewer border-related costs, but their creditworthiness, electricity demand profiles and contract indexation arrangements can differ from those of export-oriented buyers. Developers are expected to compare net risk-adjusted revenues rather than selecting a market solely based on headline electricity prices. The expected export premium must be assessed alongside delivery costs and the risk that some volumes may not qualify for intended CBAM treatment.
A segmented PPA market involving EPS and EPCG
State-owned utilities including EPS in Serbia and EPCG in Montenegro can structure domestic industrial offers around physical electricity delivery. Such offers can also include separate renewable certificates, contract duration terms and documentation supporting buyers’ reporting obligations. Independent suppliers and trading companies can similarly structure offers using these components. However, these elements should not be marketed as a single product that is automatically “CBAM-compliant,” because regulatory significance depends on the transaction details and the products manufactured by the buyer.
Where an industrial customer produces multiple categories of CBAM-covered goods, the same electricity contract may have different implications across product lines because emissions rules are not uniform across sectors. The corporate PPA market is therefore likely to become more segmented as requirements diverge between routes. Electricity exported directly to the EU requires import-specific contractual and nomination evidence, while electricity supplied to domestic industry requires reliable delivery and, where relevant, product-specific documentation for indirect emissions.
Producers able to serve both markets may improve commercial resilience if their contracts and financial models preserve distinctions between exporting under CBAM-linked obligations and supplying domestic manufacturing through PPAs that affect accounting under applicable methodologies.