The electricity markets in Southeast Europe are shaped by a distinctive generation mix that continues to rely heavily on traditional energy sources. Unlike Western European nations where renewable energy predominates, the region’s power supply is characterized by a significant contribution from hydropower, coal, and gas plants. This reliance on conventional fuels has profound implications for price formation and market stability.
Current data indicates that hydropower constitutes approximately 30% of total generation, with regional output surpassing 11,500 MW. Coal-fired power plants contribute around 6,783 MW, while gas plants add about 5,390 MW. Additionally, nuclear generation accounts for roughly 5,524 MW. Although solar and wind energy are gradually increasing their share in the energy mix, they still play a secondary role compared to hydropower and thermal generation.
Coal remains a pivotal player in the marginal pricing landscape. With API2 coal futures currently trading at about $106/t, the marginal costs of coal-generated electricity range between €70 and €85/MWh, contingent on plant efficiency and carbon pricing. In contrast, gas-fired plants face higher marginal costs due to escalating fuel prices and carbon allowances, which complicate their competitiveness.
Natural gas prices at the Austrian CEGH hub have recently hovered around €33/MWh, while EU carbon allowances are near €70/t. These factors elevate the marginal cost of gas generation to between €85–100/MWh, often making it less economical than coal under current market conditions.
The variability introduced by hydropower is a critical factor in the regional supply balance. During periods of high water levels, hydro plants can deliver substantial amounts of low-cost electricity, thereby diminishing reliance on coal and gas. Conversely, during droughts or low water levels, thermal plants must increase their output to meet demand, which can lead to higher electricity prices.
The Danube river system is particularly influential in determining hydropower output across Southeast Europe. Fluctuations in river flow directly impact the generation capacity of several large hydropower facilities, which in turn affects electricity prices across interconnected markets.
Carbon pricing mechanisms also influence the economic viability of different fuel sources. As EU carbon prices escalate, coal becomes less competitive relative to natural gas and renewables. However, current carbon prices have not yet reached levels sufficient to eliminate coal from the energy mix entirely in Southeast Europe.
The interplay between fuel markets and electricity pricing remains intricate. Market participants must closely observe fluctuations in coal, gas, and carbon prices to anticipate changes in marginal generation costs. Variations in any of these inputs can significantly alter the dispatch order of power plants, thereby impacting price dynamics throughout the region.
As renewable energy capacity continues to expand, the influence of fossil fuels on price formation may gradually diminish. Nevertheless, coal and gas plants will likely continue to play a vital role in grid stability during periods when renewable output is low. A thorough understanding of their marginal cost structures will be essential for accurate forecasting of electricity prices in Southeast Europe moving forward.
