The first quarter of 2026 confirms that hydropower in South-East Europe is no longer the stable, predictable balancing layer it once was. Instead, it is increasingly behaving as a climate-sensitive, high-impact variable, with direct consequences for price formation, cross-border flows and thermal dispatch.
Across Q1, hydrological conditions remained uneven, reflecting a broader European pattern of volatile precipitation and reservoir dynamics. This translated into inconsistent hydro output across the region, with some markets benefiting from short-term inflow improvements while others experienced sustained deficits. The Week 16 snapshot captures this fragmentation clearly: total hydro generation declined 3.45% week-on-week, with sharp reductions in Romania (-15.79%) and Bulgaria (-25.68%), partially offset by gains in Italy (+17.8%) and Croatia (+270%, from a low base).
The key shift is not the level of hydro output, but its predictability profile. Historically, hydro acted as a quasi-firm resource in SEE systems—flexible, dispatchable, and seasonally reliable. In Q1 2026, it increasingly behaved like a secondary renewable, subject to short-term weather variability and longer-term climate deviations. This erodes its traditional role as a dependable buffer against wind and solar fluctuations.
The system implications are significant. In periods of strong hydro availability, prices can compress rapidly as low-cost generation displaces thermal units. But when hydro underperforms—especially in combination with weak solar or uneven wind—the system tightens quickly, forcing reliance on higher-cost gas, lignite, or imports. This amplifies volatility rather than dampening it.
The interaction between hydro and wind is becoming particularly important. In Q1 2026, several markets experienced simultaneous wind and hydro weakness, creating compound supply gaps that could not be absorbed by existing flexibility resources. In such conditions, even modest demand levels can trigger disproportionate price increases, as seen in parts of SEE despite relatively stable consumption.
Looking ahead through 2026, hydro will remain a swing factor rather than a stabiliser. In a favourable scenario, improved inflows during late spring and early summer could temporarily ease system pressure and reduce reliance on thermal generation. However, the baseline expectation is continued variability, with hydro output fluctuating around historical averages but with wider deviations.
In a tighter scenario—characterised by below-average inflows or prolonged dry conditions—hydro deficits could become a major driver of price spikes, particularly during periods of low renewable output. This would reinforce the role of thermal generation and increase dependence on cross-border imports.
For market participants, the implication is clear: hydro must now be modelled as a probabilistic resource, not a deterministic one. Its contribution to system balance is still critical, but it can no longer be assumed to provide consistent support.
Thermal generation in SEE: Structural backbone under transition pressure in Q1 2026
Thermal generation remains the structural backbone of South-East Europe’s power systems in Q1 2026, but its role is evolving rapidly under the combined pressures of renewable expansion, carbon costs, and system flexibility requirements.
During Week 16, thermal output across the region remained broadly stable at 4,300 GWh (+0.18%), but internal shifts were pronounced: gas-fired generation increased 3.31%, while coal and lignite declined 3.35%.
This pattern reflects a broader Q1 trend: thermal generation is not disappearing—it is being reallocated across functions.
Gas-fired plants are increasingly operating as flexibility providers, responding to short-term fluctuations in renewable output. Their ability to ramp quickly makes them indispensable in systems with growing wind and solar penetration, particularly in Italy, Greece, and Hungary.
Coal and lignite, by contrast, continue to provide baseload stability, especially in markets with domestic resources. Serbia exemplifies this model, with lignite generation rising nearly 20% in Week 16, reinforcing its role as a core component of supply security.
Three distinct thermal archetypes are now visible across SEE:
- Gas-led flexibility systems (Italy, Greece): thermal generation is dominated by gas, with coal declining
- Coal/lignite-dominant systems (Serbia, parts of Western Balkans): thermal generation remains the primary supply pillar
- Hybrid systems (Romania, Bulgaria): a mix of gas, coal, hydro, and renewables provides diversified balancing
This diversity reflects structural differences in resource availability, policy frameworks, and market integration.
From a forward-looking perspective, thermal generation will remain essential through 2026–2030, but its utilisation profile will change. Gas plants will operate at lower capacity factors but higher marginal value, capturing revenues from balancing markets and price spikes. Coal and lignite plants will face increasing economic pressure from carbon costs, but will continue to operate where system reliability requires them.
The key risk is a flexibility gap. As renewable penetration increases, the demand for fast-response generation rises, but investment in new flexible capacity—particularly batteries—has not yet reached the scale required to fully replace or complement thermal assets.
In a base case scenario, thermal generation continues to stabilise the system, with gradual rebalancing toward gas. In a tighter scenario—characterised by hydro deficits or renewable shortfalls—thermal output increases, particularly from coal and lignite, reinforcing their continued relevance.
Nuclear in SEE and Europe: Stable baseload with limited regional expansion potential
Nuclear energy continues to provide low-cost, low-carbon baseload stability in the broader European system during Q1 2026, but its direct impact within South-East Europe remains constrained by limited capacity and slow expansion.
In Western Europe, improved nuclear availability—particularly in France—has contributed to greater system stability and reduced price volatility compared to previous years. This has indirect benefits for SEE through market coupling, as more stable baseload supply in Central Europe helps moderate cross-border price dynamics.
Within SEE, nuclear capacity is concentrated in a small number of countries:
- Romania (Cernavodă)
- Bulgaria (Kozloduy)
- Slovenia (Krško)
These plants provide critical baseload generation and support export capacity, particularly in Bulgaria and Slovenia. However, their overall share of regional generation is limited compared to hydro and thermal sources.
The defining characteristic of nuclear is its stability. Unlike hydro, wind, or solar, nuclear output is largely independent of weather conditions. Unlike gas, it is not exposed to fuel price volatility in the short term. This makes it an important anchor for system reliability and price stability.
However, nuclear’s limitations are equally important:
- It lacks short-term flexibility
- It requires long development timelines
- It involves significant capital investment and regulatory complexity
As a result, nuclear cannot respond to the rapid changes in supply and demand that now characterise SEE power markets.
Looking ahead, the role of nuclear in SEE will depend on policy decisions and investment frameworks. Life extensions of existing plants in Romania and Bulgaria are likely, maintaining current capacity levels. New projects, while discussed, face long timelines and financing challenges, meaning they will not materially impact the regional generation mix before the early 2030s.