The Energy Community Secretariat’s first quarterly assessment of the EU Carbon Border Adjustment Mechanism (CBAM) for electricity imports says the mechanism is already altering trading dynamics across Southeast Europe. The report argues that CBAM has created measurable divergence between EU and non-EU electricity markets, affecting arbitrage economics and market coupling. It also links the early effects to potential impacts on renewable investment signals in parts of the Western Balkans.
The assessment covers the six Western Balkan Energy Community Contracting Parties: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. It also examines neighbouring EU markets including Hungary, Croatia, Bulgaria, Romania, Greece and Italy. The Secretariat frames the findings around the period after the definitive CBAM phase for electricity began on 1 January 2026.
Q1 2026 price convergence weakens between WB6 and EU zones
The report highlights a breakdown in the long-standing price convergence mechanism between Western Balkans markets and neighbouring EU zones. It says Southeast European markets had previously moved in relatively synchronized patterns, particularly around the Hungarian benchmark. During Q1 2026, that convergence weakened sharply.
According to the assessment, day-ahead price spreads between WB6 markets and neighbouring EU zones widened to more than €30/MWh. The Secretariat estimates this was roughly two to three times higher than in the same period of 2025. It attributes the divergence to CBAM-related costs reducing the economic value of imports from non-EU systems.
The report notes that strong hydro generation across the region would normally be expected to support exports from lower-cost Western Balkan systems into higher-priced EU markets. Instead, it says CBAM certificate costs appear to have neutralized much of that arbitrage opportunity. The assessment repeatedly states that imports became economically less attractive once certificate costs were included, even when physical electricity remained significantly cheaper than inside the EU.
CBAM default factors raise estimated import costs in Serbia and Montenegro
The Secretariat’s analysis points to differentiated CBAM treatment based on default emission factors used for electricity imported into the EU. For Serbia, it reports an average default factor of 1.041 tCO2eq/MWh, implying an estimated CBAM cost of €78.45/MWh for Q1 2026 imports into the EU. For Montenegro, it reports a default factor of 0.979 tCO2eq/MWh, equivalent to approximately €73.78/MWh.
Bosnia and Herzegovina is reported as facing the highest burden at €86.51/MWh. Albania is described as retaining a zero default emission factor, which effectively exempts Albanian hydro exports from CBAM charges. The Secretariat links these differences to changes in regional competitiveness during Q1 2026.
The report identifies Albania as structurally advantaged under CBAM because its hydro-dominated generation mix supports exports into EU markets without additional carbon charges. It says Montenegro remained commercially disadvantaged despite strong hydro output in Q1 because the country-level default emission factor still reflects coal-fired generation within the national system.
Montenegro–Italy interconnector shows reduced scheduled exports
The assessment cites the Montenegro–Italy submarine cable as a clear example of how CBAM-related distortions can affect cross-border flows. It reports that Italy South recorded average Q1 2026 prices above €130/MWh, while Montenegro averaged €85.8/MWh. This produced a regional spread of approximately €43/MWh.
The Secretariat says that under normal market conditions such a spread would typically support stronger export growth from Montenegro into Italy. Instead, it reports scheduled flows from Montenegro to Italy declined by more than 2,100 MWh/day, with physical flows also dropping materially during Q1 2026.
The Secretariat concludes that CBAM charges absorbed most or all of the available arbitrage margin in this case. It adds that auction-clearing prices for cross-border capacity on the Montenegro–Italy interconnector remained almost unchanged compared with 2025 despite the large increase in market spread. The report uses this pattern to indicate traders did not view the differential as commercially usable after CBAM costs were included.
SEEPEX volumes fall as transit trading becomes less viable
The assessment describes similar dynamics affecting Serbia’s role in regional trading corridors. It reports that SEEPEX, described as the region’s largest power exchange, recorded an 11% decline in traded volumes during Q1 2026 while several neighbouring exchanges expanded. The Secretariat links part of this decline to Serbia’s earlier importance as a transit trading corridor between EU markets.
Before CBAM implementation, it says routes such as Hungary–Serbia–Bulgaria were commercially attractive for regional electricity trading. After CBAM introduction, it reports those transit strategies became less economically viable due to regulatory uncertainty and financial implications associated with electricity crossing non-EU territory.
The report describes a partial rerouting of Southeast European electricity trading away from Western Balkan transit corridors toward “CBAM-free” pathways. It says intra-WB6 trading increased while some EU-EU corridors and Albania-linked routes gained strategic importance during Q1 2026.
New routing patterns shift exports toward Greece and redistribution via Greece
The Secretariat reports increased exports from Albania into Greece during Q1 2026. It also says Greece increasingly acted as a redistribution hub toward Bulgaria and Italy as trading structures changed across the region. The assessment frames these shifts as relevant for future grid investment and regional market integration.
The document also raises concerns about potential fragmentation between EU and non-EU electricity systems if CBAM effects persist. It describes a scenario where low-carbon exporters such as Albania benefit from privileged access to EU markets while coal-exposed systems including Serbia, Montenegro and Bosnia face structurally weaker export economics regardless of actual hourly renewable production.
Default emission factors could affect renewable project bankability
The Secretariat warns that uniform default emission factors may weaken incentives for renewable investment in carbon-intensive jurisdictions because exported renewable electricity may still inherit national-level emission penalties. It links this concern to ongoing debates around guarantees of origin, hourly matching, PPA structuring and physical traceability for low-carbon electricity exports from the Western Balkans into the EU.
The assessment also states that if default national emission factors continue dominating electricity CBAM treatment, developers in Serbia, Montenegro and Bosnia may increasingly require additional contractual structures to preserve export competitiveness. It lists physically traceable renewable PPAs, hourly matched electricity sourcing frameworks, dedicated industrial offtake structures and pre-verification systems capable of demonstrating lower embedded carbon intensity than national averages.
Divergence between commercial schedules and physical flows raises operational concerns
The report raises issues around operational system stability during Q1 2026. It says commercial schedules and physical electricity flows increasingly diverged during the period even as traders reduced commercial usage of certain WB6 transit corridors. It adds that physical flows continued according to network physics rather than commercial schedules.
The Secretariat states transmission system operators depend on commercially scheduled flows for balancing and congestion management. It warns that widening mismatch between commercial and physical flows could create additional operational stress for regional TSOs and potentially increase system costs and network tariffs.
South–North corridor highlighted after June 2024 blackout context
The document highlights the South–North corridor running from Greece through Albania and Montenegro toward Bosnia and Croatia as strategically sensitive. It references a June 2024 regional blackout triggered by simultaneous outages of 400 kV lines in Montenegro and Albania. The Secretariat uses this event as an example of vulnerability under heavily loaded conditions with insufficient coordination.
Hydrology drives generation changes alongside coal declines in Q1 2026
The assessment describes hydrology as a major factor during Q1 2026 while noting that longer observation periods are required before attributing all changes solely to CBAM effects. It reports regional hydro generation increased by 33% year-on-year from 16.70 TWh to 22.18 TWh. Albania is reported to have expanded hydro output by roughly 70%, while Greece recorded a 275% increase compared with the low 2025 base.
The report also states coal generation fell by approximately 16% across the region during Q1 2026. While it emphasizes exceptional hydrological conditions, it maintains that market signals are increasingly difficult to ignore given observed changes in spreads, transmission economics, market liquidity, route selection, renewable competitiveness and system operation across Southeast Europe.
