Recent data from January to February 2026 highlights the significant impact of hydroelectric generation in South-East Europe, particularly in Serbia and Greece. The region experienced remarkable increases in hydro output, with Serbia’s production soaring by +186% and Greece’s by +155% compared to prior periods. This surge has momentarily shielded both markets from the volatility typically associated with gas price fluctuations.
In Serbia, the abundant hydro resources enabled the energy system to accommodate a demand increase exceeding +33% without triggering proportional price hikes. During peak demand hours, reduced reliance on imports helped maintain stability in SEEPEX prices, contrasting sharply with the more volatile pricing seen in Hungary and Romania. Similarly, in Greece, enhanced hydro output allowed for a reduction in gas usage during peak times, effectively mitigating exposure to TTF price volatility and narrowing price differentials with Italy.
However, the stabilizing effects of hydro power are not uniformly reliable. As noted by analysts, when reservoir levels are high, hydro can serve as an effective flexibility resource, quickly ramping up production and suppressing marginal prices. Conversely, as reservoir levels decline, this flexibility diminishes abruptly, leading to sudden shifts in market dynamics.
The situation in Romania during the same period exemplifies this asymmetry. With weaker hydro conditions, Romania faced rising electricity prices that exceeded €150/MWh, as the country had to revert to gas and imports due to insufficient hydro flexibility. This stark contrast between Romania and Serbia underscores the uneven influence of hydro resources across the region.
A critical risk factor lies in market perceptions regarding hydro conditions. Forward pricing curves often overestimate the sustainability of strong hydro months, resulting in under-hedging and mispricing of risks associated with potential reversion. As flows normalize or decline, markets may experience violent repricing adjustments.
The interplay between hydro power and other energy sources such as renewables and nuclear is also complex. High levels of hydro generation can lead to curtailment issues for nuclear plants due to their inflexibility. Conversely, during periods of low hydro output, balancing renewable intermittency becomes increasingly challenging, heightening reliance on gas resources.
From a broader system perspective, while hydroelectric generation offers valuable optionality during surplus conditions, it does not provide a dependable structural hedge against price volatility. The inherent unpredictability linked to climate variability further complicates long-term reservoir management strategies.
In conclusion, stakeholders in South-East Europe should consider hydroelectric power as a temporary mechanism for dampening volatility rather than a stable foundation for pricing strategies. As markets may appear stable during periods of high hydro output, they could be on the brink of abrupt price corrections once this support diminishes.
