The energy landscape in Southeast Europe (SEE) is undergoing a significant transformation as highlighted by the recent findings of the European Electricity Review 2026. This report signals a critical shift in the region’s power dynamics, particularly as wind and solar energy sources are projected to surpass fossil fuels in electricity production by 2025. The implications of this transition are profound for SEE, where traditional coal-centric systems are increasingly challenged by market integration and the influence of carbon pricing and renewable energy flows from other European nations.
In 2025, wind and solar generation accounted for more electricity than fossil fuels across the EU, with renewables nearing half of total output. However, this change has not been uniform. Northern and Western Europe have led the charge in renewable deployment, while SEE continues to rely heavily on lignite and aging coal infrastructure. This disparity has created a widening gap within the synchronized European market, where low-cost renewable energy is now dictating pricing structures, often sidelining domestic coal assets.
Countries such as Serbia, Bosnia and Herzegovina, North Macedonia, and parts of Bulgaria are experiencing immediate financial impacts due to this evolving energy landscape. Coal plants that previously operated as baseload sources are now encountering reduced operational hours and increased maintenance costs per megawatt-hour (MWh). Additionally, these plants face heightened exposure to carbon costs as market coupling introduces carbon-priced electricity into SEE’s pricing mechanisms, further diminishing the viability of lignite operations.
The review emphasizes a critical shift in price-setting dynamics, with solar energy achieving record outputs in 2025. This surge has flattened daytime electricity prices across Europe, while wind contributions have extended low-price periods into shoulder seasons and nighttime hours. For SEE systems that lack flexibility, this has resulted in increased operational stress on thermal units and higher opportunity costs for hydropower during dry spells when reservoirs cannot capitalize on price differentials effectively.
Hydropower remains a crucial stabilizing force in the region, particularly for Montenegro and Croatia. However, the review highlights an escalating risk: hydro variability is intensifying due to climate change impacts. In 2025, several basins in SEE reported uneven water inflows, leading to increased reliance on imports during peak demand periods. As EU renewables expand, these imports can be inexpensive during solar-rich hours but costly during times of system strain, exacerbating intraday price fluctuations. Without adequate storage solutions and demand response mechanisms, SEE grids remain vulnerable to these variations.
While deployment of wind and solar technologies within SEE accelerated between 2024 and 2025—led by Romania and Bulgaria’s solar expansions and Serbia’s advancement in onshore wind projects—the Ember review suggests that mere capacity growth is insufficient. The current market environment increasingly rewards flexibility over simple megawatt additions; thus, investments in battery storage solutions, fast-ramping gas facilities, and grid-scale demand response capabilities will be essential for value capture in a system dominated by variable renewable resources.
Structural constraints within SEE pose significant challenges to this transition. Transmission bottlenecks—both internal and cross-border—hinder the ability to export surplus renewable energy or import competitively priced power at scale. The shallow nature of balancing markets in certain areas further complicates matters, with ancillary services procurement still evolving. The review warns that without prompt infrastructure upgrades, SEE risks increased curtailment of domestic solar generation while simultaneously incurring high scarcity prices during evening demand peaks when flexibility options are limited.
The role of coal in SEE is shifting from being a primary source of baseload power to serving as contingency capacity. Several governments are reclassifying coal assets into cold-reserve or strategic reserve categories to maintain supply security through the late 2020s. The data presented by Ember supports this economic transition: operating coal plants fewer hours while keeping them available for emergency situations proves more cost-effective than maintaining uneconomic baseload operations amid a market increasingly influenced by zero-marginal-cost renewables. However, it is crucial that reserve payments remain transparent and time-limited to avoid deterring investments in cleaner flexibility solutions.
Gas is positioned as a transitional flexibility fuel rather than a primary growth driver. Despite an overall decline in EU gas generation in 2025—due to renewables displacing gas generation during many hours—the review indicates that new gas infrastructure should focus on peaking and balancing roles rather than mid-merit functions. Projects designed with expectations of high utilization may underperform as renewable penetration increases both locally and regionally.
The cross-border dimension is vital for understanding SEE’s evolving energy security landscape. Market coupling means that SEE increasingly reflects Europe’s decarbonization outcomes; fluctuations in German or Italian solar output directly affect SEE prices, while surges from Nordic wind ripple through interconnectors southward. Conversely, during continent-wide stress events such as cold snaps or low wind conditions, SEE becomes reliant on imported scarcity. This interconnectedness shifts the narrative around energy security from national capacity alone to encompass regional flexibility and interconnection quality.
Investment priorities must adapt accordingly: enhancing grid infrastructure and digitalization will transition from being mere enablers to key value creators within the market framework. Storage solutions—particularly batteries in the near term and pumped hydro where feasible—will be essential for effective price capture. Furthermore, market designs need to evolve to explicitly reward flexibility services rather than relying solely on energy prices; systems failing to adequately price flexibility risk incurring excessive costs associated with inefficient thermal dispatch.
For policymakers across SEE, aligning with the EU’s ongoing power transition is imperative; it is no longer a matter of choice but necessity driven by market forces. Delaying strategies for phasing out coal increases both fiscal liabilities and operational risks without enhancing competitiveness. Simultaneously accelerating renewable deployment without addressing flexibility needs could lead to higher rates of curtailment and volatility within the grid system. A coordinated approach towards investment across generation sources, grid enhancements, storage technologies, and market frameworks is essential for navigating this complex transition.
The Ember review fundamentally reshapes risk assessments for investors within the region’s energy sector. Merchant exposure for coal remains structurally negative while standalone renewable projects without integrated storage face risks associated with revenue cannibalization. Conversely, hybrid assets that combine generation capabilities with flexibility—such as wind paired with batteries or solar coupled with storage solutions—are positioned favorably within this changing landscape. Projects that enhance grid connectivity or provide balancing services are likely to command increasing strategic importance moving forward.
As Europe transitions away from fossil fuels anchoring its power system by 2025, Southeast Europe must confront this reality head-on despite its lagging pace of change. The findings from the European Electricity Review 2026 confirm that this transition is already influencing market dynamics within SEE. The pressing question remains not whether adaptation will occur but how swiftly regional institutions can align their infrastructure and capital allocations with an emerging paradigm where wind, solar energy, and operational flexibility dictate value creation.
