Danube Drought Raises Serbia’s Electricity Import Exposure

Record-low water levels on the Danube are increasing pressure on Serbia’s electricity system, reducing hydroelectric generation at the same time that summer consumption is approaching winter-like levels and neighbouring power markets are experiencing their own supply constraints.

The impact is most visible at Đerdap 1, Serbia’s largest hydropower facility, where output has declined to around 5,000 MWh per day, approximately one-third of normal production. Prolonged drought conditions and repeated heatwaves have significantly reduced Danube flows, with Elektroprivreda Srbije (EPS) reporting that electricity generation during May and June 2026 was the lowest recorded for those months since the plant started operating in 1970.

Hydropower losses increase replacement costs

The decline in hydroelectric output creates a direct financial challenge because hydropower is among the lowest-cost and most flexible generation sources in the EPS portfolio. Each lost megawatt-hour must be replaced through increased production from Serbia’s ageing lignite-fired power plants, other domestic generation facilities or electricity purchases on regional wholesale markets.

At current production levels, the implied shortfall at Đerdap 1 may approach 10,000 MWh per day compared with average output. Based on the Serbian day-ahead electricity price of approximately €113 per MWh at the end of July, the market value of the missing generation is close to €1.1 million per day. This figure does not represent EPS’s direct import costs, as the company can balance supply through its broader generation portfolio, including contracted electricity and other power plants. However, it illustrates the financial exposure created when low-cost hydroelectric production is replaced during a period of elevated regional prices.

Regional drought affects neighbouring electricity markets

The hydrological situation is affecting the wider Danube basin, creating additional pressure on regional electricity supply. The same river system used by Đerdap for power generation also provides cooling water for major nuclear and thermal facilities in Romania and Hungary. Reduced water availability has forced output reductions at Cernavodă nuclear power plant in Romania and Paks nuclear power station in Hungary, while thermal plants have also faced cooling-related constraints.

Cernavodă’s two reactors have a combined capacity of approximately 1,400 MW and normally contribute around one-fifth of Romania’s electricity generation. Hungary’s Paks facility has installed capacity of about 2,000 MW and supplies close to half of Hungary’s domestic electricity production. With Paks operating at significantly reduced capacity and facing the possibility of a temporary shutdown, two of Serbia’s key neighbouring electricity markets have become potential major importers at the same time Serbia may require additional supply.

Regional competition pushes electricity prices higher

The interconnected European electricity system allows Serbia to access imports, but available transmission capacity does not guarantee affordable power during simultaneous regional shortages.

Hungary, Romania, Bulgaria, Croatia and Serbia are competing for replacement electricity during the same period of high temperatures and low water availability. Cross-border capacity, transmission congestion and hourly availability of solar, wind, gas and coal generation are determining market access and pricing.

Wholesale prices have already reflected the tightening conditions. Hungary’s average day-ahead electricity price increased from approximately €132 per MWh to €158 per MWh in one day, representing a rise of around 20%. Serbia’s comparable price increased from €104 per MWh to €113 per MWh, an increase of about 8%. The resulting €45 per MWh price difference between Hungary and Serbia reflects the severity of Hungary’s supply deficit and the value of available cross-border transmission capacity. Further reductions in regional nuclear output, continued drought or congestion during peak hours could increase pressure on Serbian prices.

Renewables help daytime supply but do not solve evening demand

Solar generation is providing some support during midday hours, when high levels of sunlight increase production across Southeast and Central Europe. Wind generation can also contribute additional supply, although its availability is less predictable during prolonged summer heat periods.

Renewable generation alone does not eliminate evening supply risks. Solar output falls rapidly after sunset while households and businesses continue operating air-conditioning systems, creating a sharp increase in demand at a time when conventional generation resources are under pressure. Serbia’s limited electricity storage capacity has therefore become a significant factor. Without utility-scale batteries or sufficient dispatchable reserves, the system must cover the evening decline in solar output through thermal generation, hydroelectric reserves or imports.

Low river levels affect thermal plants and logistics

The drought is also affecting Serbia’s thermal generation assets. Low Danube levels have placed additional pressure on cooling systems at the Kostolac power complex.

Reduced river levels are disrupting transport operations as well, with barges operating at significantly lower loads. The Danube remains an important logistics route for fuel and industrial commodities, meaning the hydrological situation is affecting not only electricity generation but also fuel supply chains and industrial logistics.

EPS maintains supply stability amid higher costs

EPS has stated that electricity supply remains stable, supported by its wider generation portfolio, including the Nikola Tesla and Kostolac lignite plants, other hydropower facilities and market purchases. Maintaining physical supply, however, does not eliminate the financial consequences. The company is replacing low-cost hydroelectric production with a combination of more expensive lignite generation and electricity purchased at regional market prices.

A prolonged period of this substitution could affect EPS’s cash flow, working capital requirements and annual financial performance. If an illustrative 10,000 MWh daily hydro shortfall continued for a full month and was valued at €100–€150 per MWh, the gross market exposure would range between approximately €30 million and €45 million.

Actual electricity import spending could be lower because EPS can increase output from other plants, but additional thermal production also brings higher fuel consumption, maintenance costs and environmental expenses. Increased operation of older units may accelerate technical wear and increase outage risks during the winter period.

Tariff policy faces pressure from higher system costs

The electricity market situation is also intersecting with Serbia’s regulated household tariff policy. The government has already announced another adjustment of residential electricity prices during 2026, broadly linked to inflation, while the existing block-tariff structure is also under review. Household consumption is currently divided into three tariff zones: the green zone for usage up to 350 kWh per month, the blue zone from 351 kWh to 1,200 kWh, and the red zone above 1,200 kWh.

The previous tariff adjustment increased regulated electricity prices by 6.6%, while reducing the red-zone threshold from 1,600 kWh to 1,200 kWh increased the effective burden on higher-consumption households. EPS cannot independently determine household electricity prices. The company may propose adjustments, but regulated tariffs remain subject to Serbia’s institutional approval process and wider energy policy decisions.

Investment in storage and renewable capacity becomes more important

The longer-term challenge reflects Serbia’s continued dependence on hydropower and ageing lignite generation capacity. During wet years, hydroelectric production supports EPS margins and can create export opportunities. During dry periods, the situation reverses as the company loses low-cost generation, increases thermal output and may need to compete for electricity imports in a constrained regional market.

EPS’s investment programme includes development of 1 GW of solar capacity combined with 200 MW of battery storage, while private-sector wind, solar and storage projects are also progressing. The current hydrological crisis highlights that renewable capacity alone is insufficient. Serbia’s electricity system requires additional storage, demand-response mechanisms, improved forecasting capabilities and reliable cross-border capacity alongside new renewable generation. The immediate pressure remains concentrated in wholesale markets. Continued low Danube flows could further reduce regional nuclear availability, limit Serbian hydroelectric production and constrain thermal generation at facilities such as Kostolac.

Summer electricity demand is increasingly becoming a second annual stress period for Serbia, alongside winter consumption driven by heating demand. Rising use of air conditioning is changing the traditional seasonal pattern of electricity consumption. For EPS, the drought represents a test of system resilience. The company may continue maintaining physical supply balance, but with a more expensive generation mix and reduced flexibility in a regional market facing increasing climate-related volatility.