Electricity price formation in Southeast Europe remains strongly influenced by the region’s generation mix and the relative costs of marginal fuels. Unlike many Western European markets where renewable generation dominates, Southeast Europe still relies heavily on a combination of hydropower, coal and gas plants to meet demand.
Recent system data show that hydropower accounts for roughly 30% of total generation, with output exceeding 11,500 MW across the regional system. Coal plants contribute around 6,783 MW, gas plants about 5,390 MW, and nuclear generation approximately 5,524 MW. Solar and wind generation together provide a growing share of the energy mix but remain secondary sources compared to hydro and thermal plants.
Coal continues to play a central role in marginal price formation. With API2 coal futures trading around $106/t, coal plants in Southeast Europe often produce electricity at marginal costs between €70 and €85/MWh, depending on efficiency and carbon costs. Gas-fired plants, by contrast, face higher marginal costs due to fuel prices and carbon allowances.
Natural gas benchmarks at the Austrian CEGH hub recently traded near €33/MWh, while EU carbon allowances remained close to €70/t. These inputs push the marginal cost of gas generation toward €85–100/MWh, making gas plants more expensive than coal under many conditions.
Hydropower introduces significant variability into the supply balance. When water levels are high, hydro plants can generate large volumes of low-cost electricity, reducing the need for coal and gas generation. During dry periods, however, thermal plants must operate more frequently, pushing prices upward.
The Danube river system plays a particularly important role in determining hydro output across the region. Changes in river flow directly affect generation at several large hydropower plants, influencing electricity prices across multiple markets simultaneously.
Carbon pricing policies also shape the economic competitiveness of different fuels. As EU carbon prices rise, coal plants become less competitive relative to gas and renewables. However, current carbon prices have not yet reached levels high enough to fully displace coal generation in Southeast Europe.
The interaction between fuel markets and electricity prices therefore remains complex. Traders must monitor coal, gas and carbon prices closely to understand how marginal generation costs are evolving. Changes in any of these inputs can shift the dispatch order of power plants, altering price dynamics across the region.
As renewable capacity expands, the role of fossil fuels in price formation may gradually decline. However, coal and gas plants will likely remain essential for balancing the grid during periods of low renewable output. Understanding their marginal cost structures will therefore remain critical for forecasting electricity prices in Southeast Europe.
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