The introduction of the EU Carbon Border Adjustment Mechanism (CBAM) poses significant financial and structural challenges for Serbia’s electricity exports, particularly as the country aims to enhance its power sector through substantial investments in decarbonization and grid integration. With an installed capacity of approximately 9.0 GW and an annual gross generation of around 34–35 TWh in typical hydrological conditions, Serbia’s energy landscape is heavily reliant on lignite-fired thermal power plants, which contribute about 60–65 percent of total output. In contrast, hydropower accounts for 24–26 percent, with other sources including wind and gas making up the remainder.
In favorable export years, Serbia typically exports between 2.0–4.0 TWh of net electricity to regional markets such as Hungary, Romania, and Croatia. These exports generate significant revenue, estimated at €170–360 million annually, based on a conservative wholesale price range of €85–95/MWh. However, the implementation of CBAM introduces a carbon pricing mechanism that could substantially alter this financial landscape.
The carbon cost associated with Serbian electricity exports hinges on the emissions factor applied under CBAM. Utilizing a conservative estimate from the EU Emissions Trading System (ETS) of €80–100 per tonne of CO₂, Serbia’s average emissions intensity of approximately 0.55 tCO₂/MWh would result in a CBAM charge of €44–55 per MWh. For an estimated export volume of 3.0 TWh, this translates to an annual exposure ranging from €130–165 million, potentially absorbing up to 55 percent of gross export value under average market conditions.
This situation presents a critical risk as electricity dispatch is determined on a marginal basis rather than an annual average emissions profile. Consequently, during periods dominated by hydropower or wind—especially in spring and early summer—these low-carbon sources could face disproportionate taxation under CBAM, undermining the EU’s objectives to promote renewable energy generation.
The implications for capital markets are immediate, as new wind and solar projects in Serbia are being developed with capital expenditure (CAPEX) estimates ranging from €1.1–1.4 million per MW for wind to €0.55–0.75 million per MW for solar. The addition of battery storage further increases costs by approximately €0.35–0.55 million per MWh. These projects depend on favorable regional price dynamics to achieve internal rates of return (IRRs) between 8–12 percent. However, if CBAM-induced uncertainties lead to a reduction in expected export prices by even €10–15/MWh, project IRRs could fall by as much as 150–250 basis points, jeopardizing their financial viability.
The operational aspects of CBAM also introduce new ongoing expenses related to monitoring and verification processes. For instance, a mid-sized wind portfolio generating around 900 GWh annually may incur verification costs between €0.25–0.45 million per year, or approximately €0.30–0.50/MWh. While these costs may seem manageable relative to energy prices, they can become significant when combined with other operational expenses such as balancing costs and grid fees.
A key factor in navigating these challenges will be the verification pathway for green electricity under CBAM rules, which allows producers to declare actual emissions if verified by accredited independent bodies. This necessitates precise data collection at the installation level rather than relying on grid-average assumptions, requiring detailed documentation of emissions profiles for different energy sources.
The future trajectory for Serbia’s energy sector hinges on timely investments aimed at increasing the share of renewables in electricity production from about 30 percent today to 40 percent by 2030. Achieving this goal will necessitate an estimated investment of €6–8 billion over the next five years in generation, storage, and grid infrastructure. A delay in applying CBAM to electricity until 2028, along with advancements in hourly emissions attribution and domestic carbon pricing alignment, could mitigate risks while maintaining investment signals essential for growth.
The broader implications extend beyond Serbia; misalignment in CBAM timing could adversely affect regional electricity markets by increasing price volatility during peak demand periods and droughts. Therefore, careful sequencing rather than outright exemption from CBAM is crucial for sustaining both investment momentum and decarbonization efforts across Southeast Europe.
