The electricity system across South-East Europe is undergoing a transformation that is subtle in headline statistics but profound in structural implications. For decades, the central concern of the region’s power sector was straightforward: ensuring sufficient generation capacity to meet demand. Today, that constraint is receding. Installed capacity—particularly in solar—has expanded rapidly, and the system is increasingly capable of producing more electricity than it can effectively utilize at certain hours. What is emerging in its place is a different, more complex challenge: a systemic deficit of flexibility.
The data from early April 2026 provides a precise snapshot of this transition. Total demand stood at 29,759 MW, while generation reached 26,197 MW, leaving a gap covered by imports. On the surface, this resembles the traditional adequacy problem. However, within the same day, the system experienced periods of excess generation, reflected in deeply negative prices, alongside periods of scarcity, where prices spiked above €200/MWh. This coexistence of surplus and deficit is not a contradiction—it is the defining feature of a flexibility-constrained system.
The roots of this transformation lie in the rapid expansion of renewable generation, particularly solar. With output reaching approximately 3,927 MW, solar has become a significant component of the generation mix. Yet its contribution is highly concentrated in time, creating pronounced peaks in supply during midday hours. Without sufficient mechanisms to shift this energy across the day, the system is forced to absorb it at low or negative prices, while still relying on dispatchable resources during evening peaks.
Hydropower, delivering around 6,859 MW, continues to play a central role in managing this variability. Its ability to ramp output up and down provides critical balancing capacity. However, hydro is not a limitless resource. Its availability is constrained by hydrological conditions, reservoir management and environmental considerations. As variability in river flows increases, hydro itself becomes a source of uncertainty rather than a fully stable anchor.
Thermal generation—coal and gas—fills the remaining gap. Despite representing a declining share of total generation, these units remain indispensable for system stability and continue to set the marginal price. Their role is evolving from baseload providers to flexible, peaking assets, but their importance has not diminished. This dual reliance on renewables for volume and thermal generation for stability defines the current phase of the transition.
The concept of a flexibility deficit captures this dynamic more accurately than traditional measures of capacity adequacy. The system has sufficient installed capacity in aggregate, but it lacks the ability to align supply with demand in real time. This misalignment manifests in several ways: intraday price volatility, increased reliance on imports, congestion in transmission networks and declining capture prices for renewable generators.
Cross-border flows partially mitigate these imbalances. The SEE region operates as an interconnected system, with electricity moving dynamically between countries in response to price signals. On the observed day, net imports of approximately 1,002 MW helped bridge the gap between generation and demand. However, this mechanism is increasingly constrained by transmission capacity and the growing synchronization of renewable generation patterns across Europe. When multiple regions experience similar conditions—high solar output or low wind—cross-border balancing becomes less effective.
Grid infrastructure emerges as a critical bottleneck in this context. The existing network was designed for a different generation paradigm, one characterized by centralized, dispatchable plants. The rise of distributed and variable renewable generation requires a more flexible and robust grid, capable of handling bidirectional flows and rapid changes in supply. Current constraints lead to congestion and curtailment, reducing the efficiency of the system and undermining the economics of new projects.
Battery storage is the most direct technological response to the flexibility deficit. By enabling the temporal shifting of energy, storage addresses the core mismatch between supply and demand. The economics of storage in SEE are increasingly compelling, driven by large intraday price spreads and multiple revenue streams, including arbitrage, balancing services and congestion management. Projects in Romania and neighboring markets are already moving at scale, signaling a broader shift in investment focus.
Demand-side flexibility represents an additional, largely untapped resource. Industrial processes, electric vehicles and heating systems can be adjusted to align with periods of high renewable output, reducing the need for peak generation and mitigating price volatility. However, the development of such mechanisms requires regulatory support, technological integration and changes in consumer behavior, all of which take time to implement.
The financial implications of this transition are significant. Investment is shifting from generation capacity toward flexibility assets and infrastructure. While solar and wind projects continue to attract capital, the highest returns are increasingly associated with assets that can respond to price signals and provide balancing services. Storage, grid upgrades and flexible generation are becoming central to investment strategies.
A realistic CAPEX envelope for the region over the next decade reflects this shift. Renewable generation will continue to require substantial investment, but grid expansion and storage deployment are likely to account for a growing share of total expenditure. Multi-billion-euro programs will be needed to upgrade transmission networks, while storage capacity is expected to scale from pilot projects to system-critical infrastructure.
This reallocation of capital also changes the risk profile of the sector. Generation projects face increasing exposure to price volatility and curtailment risk, while flexibility assets depend on the persistence of market spreads and regulatory frameworks. Investors must therefore adopt a more nuanced approach, evaluating projects within the context of the entire system rather than in isolation.
Policy frameworks are beginning to reflect these realities. The focus is shifting from capacity targets to system integration, with greater emphasis on grid planning, market design and support for flexibility. However, the pace of policy adaptation varies across the region, and misalignment between regulatory and market developments remains a challenge.
The transition from an energy deficit to a flexibility deficit also has broader economic implications. Electricity prices, influenced by volatility and fuel costs, affect industrial competitiveness and household affordability. Managing these impacts requires careful balancing of market signals and policy interventions, ensuring that the transition remains both economically and socially sustainable.
Looking toward the 2026–2030 horizon, the trajectory of the SEE power market will be defined by how effectively this flexibility deficit is addressed. Several scenarios can be envisaged. In a base case, gradual deployment of storage and incremental grid upgrades reduce volatility and improve system efficiency, but thermal generation remains a significant component of the mix. In a more accelerated scenario, rapid investment in storage and demand-side solutions leads to a faster transition toward renewable-driven pricing, reducing reliance on fossil fuels.
Conversely, a constrained scenario—where grid and storage investments lag behind generation growth—would result in increased volatility, higher curtailment and greater reliance on imports. This would undermine the economic benefits of renewable expansion and create additional risks for market participants.
The direction taken will depend on a combination of factors, including investment flows, policy decisions and technological developments. What is clear is that the traditional focus on capacity adequacy is no longer sufficient. The critical question is not whether enough electricity can be generated, but whether it can be delivered at the right time and place.
The SEE region stands at a pivotal point in this transition. The foundations of a renewable-dominated system are being laid, but the supporting infrastructure and market mechanisms are still evolving. The shift toward a flexibility-centric paradigm is both a challenge and an opportunity, reshaping the economics of the power sector and redefining the priorities for investment and policy.
In this emerging landscape, the value of electricity is increasingly determined by its timing, location and flexibility rather than its mere production. The system is moving from a model of scarcity to one of abundance, where managing variability becomes the central task. Addressing the flexibility deficit is therefore not just a technical requirement—it is the key to unlocking the full potential of the energy transition in South-East Europe.
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