The implementation of the European Union’s Carbon Border Adjustment Mechanism (CBAM) is reshaping the landscape of electricity trade in Southeast Europe, particularly impacting Serbia’s energy sector. As Serbia’s electricity generation predominantly relies on lignite, the introduction of CBAM has established a significant carbon pricing barrier that hampers the competitiveness of coal-derived electricity in EU markets. In light of this challenge, stakeholders are increasingly focusing on the development of “CBAM-compliant electricity,” which entails generating power with low embedded carbon emissions suitable for export to the EU.
Currently, Serbia’s energy infrastructure is heavily reliant on coal, with Elektroprivreda Srbije (EPS) operating around 4.4 GW of lignite-fired capacity. Major thermal plants like Nikola Tesla A and B and Kostolac B are central to this generation mix, providing the bulk of the country’s baseload electricity while benefiting from low domestic production costs due to local lignite mining.
However, the combustion of lignite results in substantial carbon dioxide emissions, often exceeding 1 tonne of CO₂ per MWh produced. Under CBAM regulations, this high carbon intensity incurs a financial burden linked to EU carbon prices, which currently fluctuate between €70 and €90 per tonne. Consequently, Serbian coal-based electricity faces an implicit carbon cost that can surpass €70 to €80 per MWh, rendering it economically unviable for export.
To address these challenges, Serbia must pivot towards reducing the carbon intensity of its electricity exports. This transition necessitates a strategic shift towards low-carbon energy sources such as hydropower, wind, solar energy, and potentially energy storage solutions.
Serbia has a foundational capacity for this transition, operating approximately 3 GW of hydropower resources. Notable facilities include the Djerdap I and Djerdap II hydroelectric plants along the Danube River, which are among the largest hydropower installations in Southeast Europe. The negligible carbon footprint associated with hydropower positions it as a viable source for CBAM-compliant electricity exports.
Nevertheless, relying solely on hydropower is insufficient to meet Serbia’s historical export volumes due to hydrological variability that affects generation output year-on-year. During dry seasons, reliance on coal generation tends to increase as hydropower production diminishes.
The next phase in developing CBAM-compliant electricity involves expanding renewable energy capacity. The Serbian government has initiated renewable energy auctions aimed at fostering new wind and solar projects. These auctions have already facilitated several hundred megawatts of capacity and indicate a promising pipeline for rapid growth in wind and solar generation over the coming decade.
Particularly favorable wind resources exist in regions such as Vojvodina and eastern Serbia, where several large wind farms are operational. Additionally, substantial solar potential is present in central and southern Serbia due to higher irradiation levels.
The long-term goal is to establish a diverse portfolio of renewable energy assets dedicated specifically to exporting electricity to EU markets. This exported power could be accompanied by guarantees of origin, ensuring that it comes from renewable sources with minimal carbon emissions.
Energy storage will play a crucial role in this evolving landscape. As the share of variable wind and solar generation increases, effective storage solutions like battery systems or pumped hydro storage will be essential for balancing supply and demand fluctuations, ensuring reliable electricity exports.
Plans are already underway for the Bistrica pumped storage hydropower project, which aims to enhance large-scale storage capabilities that can support both renewable generation stability and cross-border electricity trading.
Financing this transformation will require significant investment across renewable projects, transmission enhancements, and storage infrastructure—amounting to a multi-billion-euro investment cycle. The involvement of international financial institutions, European development banks, and private investors will be critical in funding these initiatives.
If executed effectively, exports of CBAM-compliant electricity could enable Serbia to sustain its position as a regional electricity supplier while aligning with EU climate objectives. Transitioning from coal-based exports to low-carbon electricity generated from renewables not only supports Serbia’s energy market but also benefits local industries that increasingly demand low-carbon power for competitiveness in EU markets.
This strategic shift could ultimately transform Serbia’s electricity sector from a predominantly coal-based system into a hybrid model that integrates renewable generation with hydropower flexibility and strategic storage solutions.
