The surge in European gas prices triggered by geopolitical tensions and disruptions to global energy supply chains has revived an energy market dynamic that had gradually faded from prominence in recent years. As natural gas prices surged by more than 50% across European markets, utilities began reassessing the cost structure of power generation. The immediate result was a renewed shift toward coal-fired electricity generation, pushing international thermal coal prices 26% higher to approximately $133 per tonne.
For Southeast Europe, where coal remains a major component of the electricity generation mix, this development carries significant implications for regional electricity trading and cross-border power flows. While Western European countries have steadily reduced coal capacity as part of decarbonization strategies, many Balkan energy systems still rely heavily on lignite-fired power plants. These plants often operate as baseload generators supplying domestic electricity demand, but during periods of high gas prices they can become highly competitive sources of export electricity.
Coal plants in Serbia, Bosnia and Herzegovina, Bulgaria and Romania collectively represent one of the largest clusters of lignite generation capacity in Europe. Facilities such as Serbia’s Nikola Tesla complex, Bosnia’s Tuzla and Kakanj plants, and Bulgaria’s Maritsa East power stations produce electricity at costs largely determined by domestic lignite mining operations rather than imported fuels. This structural advantage can become particularly important when imported natural gas becomes expensive.
When gas prices rise sharply, gas-fired power plants experience an immediate increase in marginal generation costs. Electricity produced from gas becomes more expensive, pushing wholesale electricity prices upward across interconnected markets. In such circumstances, coal plants with relatively stable fuel costs may suddenly become competitive exporters of electricity into neighboring markets where gas-fired plants would otherwise set the marginal price.
This dynamic is not new to European electricity markets. Similar fuel-switching patterns occurred during the energy crisis that followed the Russian invasion of Ukraine in 2022, when several European countries temporarily increased coal-based electricity generation in response to extreme gas prices. However, the persistence of lignite capacity in Southeast Europe means that the region is particularly sensitive to these fuel-switching dynamics.
Electricity trading flows often respond rapidly to such shifts in marginal generation costs. When coal-based generation becomes cheaper than gas-fired electricity in neighboring markets, traders may export electricity from lignite-dominated systems toward markets where gas units set the marginal price. These cross-border flows can occur through interconnectors linking Serbia with Hungary and Romania, Bulgaria with Greece and Romania, and Bosnia with Croatia.
The economics of these trades depend heavily on the relative fuel costs and carbon pricing regimes across European markets. Coal plants typically face higher carbon emissions costs under the European Union Emissions Trading System. However, many Western Balkan countries are not yet fully integrated into the EU carbon market, meaning their lignite plants may operate without the same level of carbon cost exposure as power plants in EU member states.
This difference in carbon pricing regimes can create temporary competitive advantages for electricity exports from non-EU coal plants when gas prices rise sharply. Traders monitor these price spreads closely because they determine whether cross-border electricity flows will move northward toward Central Europe or remain within domestic markets.
The recent surge in coal prices reflects growing demand from utilities seeking alternatives to expensive natural gas. European and Asian power producers have increased purchases of thermal coal to ensure adequate fuel supplies in case gas prices remain elevated. Although coal prices have risen as a result of this demand, the relative increase has been smaller than the spike observed in gas markets, preserving coal’s temporary cost advantage in electricity generation.
For Southeast Europe, this situation reinforces the region’s role as a flexible electricity supply zone within the broader European power system. During periods of high gas prices or renewable generation shortfalls in Western Europe, electricity produced from lignite plants in the Balkans can help stabilize regional electricity markets by supplying additional power through cross-border trading.
However, the long-term outlook for coal in Southeast Europe remains uncertain. European climate policy and the gradual integration of Western Balkan electricity markets into EU regulatory frameworks are expected to introduce carbon pricing mechanisms that will increase the cost of lignite-based generation. Several countries in the region have also announced plans to reduce coal dependence over the coming decades.
Nevertheless, the current energy market shock illustrates that coal continues to play an important stabilizing role in the European electricity system. When gas markets experience sudden volatility, coal-fired power plants can act as a buffer that helps maintain electricity supply and moderate price spikes.
In Southeast Europe, this stabilizing function is particularly pronounced because lignite resources remain abundant and generation infrastructure is already in place. While the long-term trajectory of European energy policy points toward decarbonization and renewable expansion, short-term market dynamics still allow coal to influence electricity price formation and cross-border trading patterns.
As long as gas continues to determine marginal electricity prices across much of Europe, fuel-switching between gas and coal will remain an important mechanism shaping electricity markets. Southeast Europe, with its significant coal generation capacity and strategic location within interconnected European power networks, will continue to play a critical role in this balancing process.