The integration of electricity markets within the Energy Community countries is hindered by various structural barriers, as highlighted in a recent report from Energy Traders Europe. This report, titled Compendium on Obstacles to Electricity Trading in Energy Community Countries, outlines the ongoing fragmentation of electricity markets across Albania, Bosnia and Herzegovina, Montenegro, North Macedonia, Serbia, Ukraine, Moldova, and Georgia. Despite over a decade of aligning with European Union electricity legislation, the region continues to grapple with inefficiencies in cross-border trading.
The collective installed generation capacity of these countries exceeds 80 GW, with approximately 30 GW located in the Western Balkans and over 50 GW in Ukraine prior to the war’s impact on its energy infrastructure. The generation mix is predominantly composed of hydropower, coal, and nuclear resources, while wind and solar capacities are seeing rapid growth through various investment initiatives.
However, cross-border trading volumes remain significantly lower than those observed within the EU internal electricity market. Key factors contributing to this isolation include limited market coupling and transmission capacity. The report identifies regulatory inconsistencies and administrative barriers as critical obstacles that prevent full integration with EU electricity markets.
While the Energy Community countries have adopted the EU Third Energy Package, which aims to liberalize electricity markets and promote independent regulation, the implementation of these rules varies significantly across nations. In many instances, government intervention in pricing and dispatch remains prevalent, with state-owned utilities dominating wholesale trading. This situation diminishes market liquidity and restricts opportunities for independent traders.
Albania exemplifies the challenges faced by hydropower-dependent systems; over 95 percent of its electricity generation comes from hydropower plants. This reliance makes Albania’s supply vulnerable to climatic conditions, leading to net exports during wet years and substantial imports during dry spells. The establishment of the ALPEX power exchange, which operates alongside Kosovo, aims to enhance price transparency and trading liquidity. However, it has yet to achieve significant cross-border market coupling with EU neighbors due to existing transmission constraints.
Bosnia and Herzegovina’s electricity market is further complicated by its division between two political entities that maintain separate regulatory frameworks. The country has around 4.3 GW of coal-fired capacity and 2.5 GW of hydropower capacity but lacks a unified electricity exchange, resulting in reduced market transparency and predominantly bilateral trading practices.
Montenegro’s strategic geographic position includes a connection to Italy via a 1,000 MW submarine cable, facilitating potential access to broader EU markets. Yet, domestic market liquidity remains constrained due to administrative hurdles that complicate cross-border operations.
North Macedonia has made strides towards market liberalization with approximately 1 GW of lignite-fired capacity complemented by growing solar generation. Despite improvements in price transparency through its national exchange, alignment with EU balancing market rules is still incomplete.
Serbia stands out as the largest electricity market in the Western Balkans with about 8.5 GW of installed capacity. The introduction of the SEEPEX power exchange has supported day-ahead trading; however, a considerable portion of transactions continues to occur through bilateral contracts rather than via exchanges.
The Ukrainian electricity system was historically significant within this framework before the war disrupted operations; it had more than 50 GW of generation capacity and was synchronized with the continental European grid as of March 2022. Nevertheless, ongoing infrastructure damage limits cross-border trading capabilities.
Moldova plays a crucial role in regional flows despite its smaller system size, heavily relying on imports from Romania and Ukraine while progressing slowly in market reforms. Georgia also faces challenges with its hydropower-dominated system—over 80 percent of its generation comes from hydroelectric sources—resulting in seasonal trading patterns influenced by hydrological conditions.
The absence of full EU market coupling remains one of the most significant barriers to effective electricity trading across the region. Unlike the EU’s automated coupling systems that optimize cross-border flows efficiently, Energy Community markets depend largely on bilateral mechanisms that fail to respond adequately to price signals.
Additionally, transmission constraints limit trading opportunities as interconnectors often operate near their technical limits during peak demand periods. This congestion prevents cheaper electricity from reaching higher-priced markets, leading to increased overall system costs.
The development of balancing markets also lags behind due to differences in design and participation rules across countries. Low liquidity persists as many exchanges are still nascent with limited international participation. Administrative barriers further complicate operations for traders navigating diverse licensing regimes across borders.
The European Union continues to prioritize electricity market integration within the Energy Community as regional trading becomes increasingly vital amid rising renewable generation and demand growth. The report emphasizes that overcoming regulatory barriers, enhancing transmission infrastructure, and implementing effective market coupling are essential for achieving a fully integrated electricity market across Southeast Europe.
