The introduction of the Carbon Border Adjustment Mechanism (CBAM) is beginning to reshape the economics of electricity trade across Southeast Europe. For Serbia, whose electricity system remains dominated by lignite-fired generation operated largely by Elektroprivreda Srbije (EPS), the mechanism creates a structural divide between carbon-intensive electricity and low-carbon power capable of entering European Union markets without prohibitive costs.
Under CBAM, electricity imported into the EU is assigned an embedded carbon cost linked to the EU carbon price. Electricity generated from lignite—Serbia’s dominant fuel—typically emits close to 1 tonne of CO₂ per MWh, meaning exports effectively inherit a carbon price equivalent to the EU Emissions Trading System allowance price. With EU carbon allowances trading around €70–90 per tonne, the embedded carbon cost of coal-based electricity exported from Serbia approaches €70–80 per MWh. In practice this places Serbian coal electricity at a significant disadvantage in EU wholesale markets, where day-ahead prices in Central Europe often fluctuate between €70 and €120 per MWh.
This structural cost barrier has already changed trading behaviour. Electricity generated from lignite in Serbia has become economically uncompetitive in EU markets once the carbon component is added. As a result, coal-based exports have effectively lost access to EU buyers under normal market conditions.
Yet the same mechanism that blocks carbon-intensive electricity exports simultaneously creates a strategic opportunity for low-carbon electricity production. Electricity with minimal embedded emissions—particularly power generated from hydropower, wind or solar—can enter the EU market without the CBAM carbon cost penalty. This emerging category of power can be described as CBAM-compliant electricity.
In practical terms, CBAM-compliant electricity refers to electricity whose production carbon intensity is sufficiently low that its embedded emissions cost under CBAM becomes negligible. Hydropower, wind and solar generation fall within this category because their lifecycle carbon intensity is extremely low compared with coal.
Serbia already possesses a foundation for such exports. The country operates approximately 3 GW of hydropower capacity, including the large Djerdap I and Djerdap II hydroelectric plants on the Danube River, which together account for a significant share of the country’s low-carbon generation. Electricity from these facilities carries minimal carbon intensity and therefore faces no meaningful CBAM penalty when exported to the EU.
However, hydropower output fluctuates depending on rainfall and reservoir levels. To create a stable export platform for CBAM-compliant electricity, Serbia must expand its renewable energy portfolio. Wind and solar projects are therefore becoming central to the country’s emerging electricity export strategy.
Recent renewable energy auctions have begun to unlock new project pipelines. Wind farms in northern Serbia and eastern regions are among the most advanced developments, supported by favourable wind conditions and access to transmission infrastructure. Solar projects are also expanding rapidly, particularly in central and southern Serbia where solar irradiation levels are stronger.
The economics of these renewable projects are increasingly attractive in the context of CBAM. Because renewable electricity carries negligible carbon emissions, it can be sold into EU electricity markets without the carbon penalty applied to coal-based electricity. In effect, CBAM creates a carbon price premium for renewable electricity exports.
This premium arises because renewable producers compete in markets where coal-based electricity from outside the EU must internalise a carbon cost. As a result, renewable electricity produced in Serbia can become more competitive than coal-based electricity exported from the same system.
For private renewable producers, the situation creates a new commercial dynamic within the Serbian electricity market. Historically, electricity trading in Serbia has been dominated by EPS, which controls the majority of generation capacity and transmission coordination. Independent renewable producers have largely relied on domestic power purchase agreements or state-supported mechanisms.
The introduction of CBAM opens an alternative revenue pathway. Renewable electricity produced by private investors could potentially be exported to EU markets through cross-border electricity trading platforms or bilateral power purchase agreements with European buyers seeking low-carbon electricity supply.
European utilities and industrial companies increasingly demand electricity with certified low carbon intensity. This demand is driven not only by climate policy but also by corporate decarbonisation targets. As CBAM expands the cost gap between carbon-intensive and low-carbon electricity, European buyers are more likely to prioritise renewable imports.
Private renewable producers in Serbia could therefore monetise their electricity through export contracts with EU counterparties. These contracts could take several forms.
One possibility involves physical electricity exports through regional electricity exchanges or bilateral trading arrangements. Electricity produced by renewable projects could be sold into interconnected markets such as Hungary, Romania or Croatia, eventually reaching EU consumers through the integrated European power market.
Another pathway involves long-term cross-border power purchase agreements. European companies with decarbonisation commitments increasingly seek renewable electricity supply from nearby regions where renewable resources are abundant. Serbia’s wind and solar potential could therefore attract long-term contracts with EU industrial buyers.
A third model involves guarantees of origin. These certificates verify that electricity originates from renewable generation and allow buyers to claim low-carbon energy consumption even when electricity flows physically through integrated grids. Renewable electricity exported from Serbia could therefore carry additional value through its associated certificates.
The profitability of such projects depends on several variables. Wholesale electricity prices in Central Europe often fluctuate significantly depending on gas prices, renewable generation levels and weather conditions. However, the removal of coal-based competition through CBAM effectively raises the relative value of renewable electricity exports.
For example, if the EU wholesale price averages €90 per MWh and coal-based electricity from Serbia faces an effective CBAM penalty of €75 per MWh, renewable electricity produced in Serbia becomes dramatically more competitive in EU markets.
This dynamic creates a strong incentive for private investors to develop renewable electricity projects specifically designed for export. Investors could construct wind or solar farms connected to Serbia’s transmission system while targeting export markets where electricity prices and carbon premiums are higher.
Energy storage will also play an important role in enabling this export strategy. Renewable electricity production fluctuates depending on wind and sunlight conditions, while electricity demand varies throughout the day. Storage systems—particularly battery storage or pumped hydro—can help stabilise export flows and allow producers to sell electricity during high-price periods.
Serbia already plans to develop the Bistrica pumped storage hydropower project, which could provide large-scale storage capacity for balancing renewable generation and supporting cross-border electricity trading. Such infrastructure would improve the reliability of renewable electricity exports and increase their commercial value.
The transformation of electricity exports under CBAM also has broader implications for regional power markets. As coal-based electricity becomes less competitive in EU markets, trading flows across Southeast Europe may reorganise according to carbon intensity.
Coal-heavy electricity systems in the Western Balkans may increasingly trade electricity among themselves, while renewable-rich systems connect more closely with EU markets. Hydropower-dominated countries such as Albania and Montenegro may therefore gain strategic importance in cross-border electricity trading networks.
For Serbia, the strategic objective will be balancing its legacy coal generation system with the emerging economics of low-carbon electricity. Coal plants will likely remain essential for domestic supply stability during the transition period. Yet expanding renewable generation could gradually reposition Serbia as a supplier of CBAM-compliant electricity to European markets.
The transition will require significant investment in renewable capacity, transmission infrastructure and energy storage. It will also require regulatory adjustments to enable independent power producers to access export markets more easily.
If these conditions are met, private renewable electricity producers in Serbia could become major beneficiaries of the carbon border mechanism. What initially appeared as a barrier to electricity exports may ultimately become a catalyst for transforming the region’s electricity trading landscape and accelerating the expansion of low-carbon power generation.
Elevated by cbam.engineer