The introduction of the Carbon Border Adjustment Mechanism has not only altered price signals and competitiveness across Southeast Europe’s electricity markets, it has begun to redraw the physical and commercial map of power flows across the region. The first quarter of 2026 reveals a decisive shift away from traditional trading corridors, particularly those that relied on the Western Balkans as a transit bridge between European Union markets. In their place, a new geography of electricity trade is emerging—one increasingly defined by carbon efficiency, regulatory exposure, and the avoidance of CBAM-related costs.
For years, the Western Balkans functioned as a critical transit zone within the broader Southeast European grid. Electricity did not simply flow into or out of these markets; it passed through them, linking EU systems in a chain of arbitrage-driven transactions. Routes such as Hungary–Serbia–Bulgaria or Croatia–Serbia–Romania were not incidental—they were central to the way traders optimised flows across price differentials. The region’s interconnectors were valued not only for bilateral trade but for their role in multi-leg arbitrage strategies that spanned several markets.
This model has begun to fragment. In Q1 2026, commercially scheduled cross-border exchanges between the Western Balkans and the EU declined by approximately 25% compared to the same period in 2025. The contraction was not symmetrical. Flows from the EU into the Western Balkans fell sharply—by −40.7%—while flows in the opposite direction declined more modestly. This imbalance resulted in a shift in the region’s net trade position, with the Western Balkans moving from a net importer to a net exporter of electricity by approximately 1.35 TWh. However, this shift was driven less by increased export activity and more by the collapse of imports from the EU.
The reduction in EU-to-WB6 flows is closely linked to the disruption of transit-based trading strategies. Under CBAM, uncertainty regarding the treatment of electricity passing through non-EU countries has made such routes less attractive. Traders face the risk that electricity transiting through the Western Balkans could be subject to carbon costs, even if it originates and is consumed within the EU. This regulatory ambiguity has been sufficient to discourage the use of WB6 corridors for intra-EU trade, leading to a reconfiguration of flows towards routes that remain entirely within EU jurisdiction or involve low-carbon systems.
As a result, the role of the Western Balkans as a transit hub is diminishing. Electricity that would previously have flowed through Serbia or Bosnia and Herzegovina is increasingly rerouted through alternative corridors. These include direct EU-to-EU interconnections, as well as pathways that incorporate low-emission systems capable of avoiding CBAM costs. The emergence of these “CBAM-efficient” routes represents a fundamental change in how the regional grid is utilised.
One of the most notable beneficiaries of this shift is Albania. With a hydro-dominated generation mix and a default emission factor effectively equal to zero, Albania occupies a unique position in the CBAM framework. It can export electricity into the EU without incurring carbon costs, making it an attractive source of supply in a carbon-constrained trading environment. In Q1 2026, Albania significantly increased its scheduled exports across all borders, including flows to Greece, Kosovo, and Montenegro. The net effect was a redistribution of approximately 1.2 TWh of electricity compared to the same period in 2025.
This Albanian surplus did not remain confined to immediate neighbours. It was transmitted through Greece and onward into EU markets such as Bulgaria and Italy. Greece itself, benefiting from a substantial increase in hydro generation, became a key intermediary in this process. Flows from Albania to Greece increased markedly, and from there, electricity moved northward and westward into the broader EU system. This south-to-north corridor, anchored by low-carbon generation, has gained prominence as an alternative to traditional transit routes through coal-heavy systems.
The rise of such corridors highlights a broader trend: the optimisation of trade routes based on carbon exposure rather than purely economic or physical considerations. Traders are increasingly selecting pathways that minimise CBAM costs, even if those routes are longer or less direct. This behaviour introduces a new dimension to grid utilisation, where the shortest or most efficient path is not necessarily the most economically viable once carbon pricing is taken into account.
At the same time, intra-regional trading within the Western Balkans has intensified. As cross-border exchanges with the EU become more constrained, markets within the region are turning inward, increasing trade among themselves. This shift reflects both the availability of surplus generation—particularly hydro—and the reduced attractiveness of exporting to the EU under CBAM conditions. The result is a more interconnected intra-WB6 market, albeit one that is less integrated with the EU.
This inward shift has implications for price formation and market liquidity. Increased intra-regional trading can support liquidity and enhance price discovery within the Western Balkans, but it does not fully compensate for the loss of access to higher-priced EU markets. The net effect is a redistribution of trading activity rather than an expansion, with potential consequences for revenue generation and market depth.
The reconfiguration of trade corridors is also evident in the performance of specific interconnectors. The Montenegro–Italy submarine cable provides a particularly striking example. Despite offering a direct link between a lower-priced WB6 market and a higher-priced EU market, utilisation of this interconnector declined in Q1 2026. Scheduled flows from Montenegro to Italy fell by over 2,100 MWh per day, while physical flows decreased by approximately 1,400 MWh per day. This occurred even as the price spread between the two markets widened significantly. The explanation lies in CBAM costs, which effectively erased the economic advantage of exporting across this corridor.
This pattern underscores a key point: the value of interconnectors is no longer determined solely by price differentials and capacity constraints. It is increasingly influenced by the regulatory environment, particularly the carbon costs associated with cross-border trade. Interconnectors that link low-carbon systems to the EU retain or even increase their value, while those connecting high-emission systems face declining utilisation and reduced economic relevance.
The divergence between commercial schedules and physical flows adds another layer of complexity to this reconfiguration. While traders adjust their schedules to minimise CBAM exposure, electricity continues to flow according to the physical characteristics of the grid. This has led to situations where increased scheduled exports along certain corridors are not matched by corresponding changes in physical flows. For example, increased commercial exports from Albania to Greece were not fully reflected in physical flows along that route, as electricity continued to move through Montenegro and Bosnia and Herzegovina towards EU markets.
This mismatch between commercial intent and physical reality introduces inefficiencies into the system. Transmission system operators must manage flows that do not align with scheduled transactions, increasing the risk of congestion, loop flows, and operational instability. The reconfiguration of trade corridors, therefore, has implications not only for market participants but also for the technical operation of the grid.
From an investment perspective, the changing geography of trade raises important questions about the future of infrastructure development. Projects that were conceived under the assumption of stable arbitrage flows may need to be reassessed in light of CBAM-induced changes. Interconnectors that once promised strong congestion revenues may see reduced utilisation, while new opportunities may emerge in corridors that connect low-carbon systems or bypass high-emission regions.
The broader strategic implication is that Southeast Europe’s electricity network is evolving from a system optimised for economic efficiency to one increasingly shaped by carbon policy. The traditional logic of trade—buy low, sell high, and move electricity along the most efficient path—is being supplemented, and in some cases overridden, by the need to manage carbon exposure. This shift does not eliminate the role of market forces, but it alters the framework within which they operate.
Looking ahead, the persistence of these trends will depend on several factors. Greater clarity on the treatment of transit flows under CBAM could restore some of the attractiveness of WB6 corridors for intra-EU trade. Adjustments to emission factor methodologies could reduce the disparity between systems and mitigate some of the distortions currently observed. At the same time, the development of carbon pricing mechanisms within the Western Balkans could align incentives and reduce the asymmetry between EU and non-EU markets.
However, even with such adjustments, the underlying direction of change is unlikely to reverse entirely. Carbon pricing is now a central component of electricity market design, and its influence on trade patterns will continue to grow. The reconfiguration observed in Q1 2026 is therefore best understood not as a temporary anomaly but as the early stage of a longer-term transformation.
For market participants, adapting to this new geography of trade will require a reassessment of strategies, from route optimisation and portfolio management to infrastructure investment and risk assessment. For policymakers, the challenge will be to ensure that the pursuit of decarbonisation does not come at the expense of market efficiency and system stability. The balance between these objectives will shape the future of Southeast Europe’s electricity markets, as the region navigates the intersection of energy integration and climate policy.
Elevated by virtu.energy