The implementation of the European Union’s Carbon Border Adjustment Mechanism (CBAM) is reshaping the dynamics of electricity trading between Southeast Europe and the EU. For Serbia, where lignite remains the primary source of power generation, this mechanism has established a carbon price barrier that hinders the competitiveness of coal-based electricity in EU markets. In response, stakeholders are exploring the development of “CBAM-compliant electricity,” which involves generating power with low embedded carbon emissions suitable for export to the EU.
Serbia’s electricity infrastructure is heavily reliant on coal resources, with Elektroprivreda Srbije (EPS) operating approximately 4.4 GW of lignite-fired capacity. Major thermal power plants such as Nikola Tesla A and B and Kostolac B dominate this generation fleet, providing most of the country’s baseload electricity at relatively low domestic costs due to local lignite mining.
However, the combustion of lignite results in significant carbon dioxide emissions, often exceeding 1 tonne of CO₂ per MWh produced. When this carbon intensity is factored into exports under CBAM, it incurs a financial cost linked to the EU carbon price. With current EU carbon allowances trading between €70 and €90 per tonne of CO₂, Serbian coal-based electricity faces an implicit carbon cost that can surpass €70 to €80 per MWh, making it less competitive in export markets.
To create CBAM-compliant electricity, Serbia must reduce its carbon intensity for exports. This shift necessitates an increased reliance on low-carbon energy sources such as hydropower, wind, solar, and potentially energy storage solutions.
Currently, Serbia has a foundational capacity for this transition, boasting approximately 3 GW of hydropower, including significant facilities like the Djerdap I and Djerdap II hydroelectric plants along the Danube River. Electricity generated from these hydropower sources has a minimal carbon footprint and qualifies as CBAM-compliant for EU exports.
Nevertheless, hydropower alone cannot meet the export demands necessary to sustain Serbia’s historical trading position. Variability in hydrological conditions can lead to substantial fluctuations in generation output, compelling a return to coal during dry seasons.
The next phase in developing CBAM-compliant electricity involves expanding renewable energy capacity. The Serbian government has initiated renewable energy auctions aimed at fostering new wind and solar projects. Several auctions have already been launched, covering hundreds of megawatts of capacity, indicating potential rapid growth in wind and solar generation over the next decade.
Particularly promising wind resources are located in the Vojvodina region and eastern Serbia, where several large wind farms have commenced operations. Additionally, solar potential is significant in central and southern Serbia due to higher irradiation levels.
The long-term goal of these initiatives is to establish a renewable energy portfolio designated for export to EU markets. This exported electricity could be accompanied by guarantees of origin that certify its renewable nature and low emissions.
Energy storage solutions will likely be essential as well. Increasing reliance on wind and solar generation introduces variability in production; thus, battery storage or pumped hydro storage systems can help stabilize these fluctuations and ensure consistent electricity exports.
Serbia is also planning the development of the Bistrica pumped storage hydropower project, which aims to provide substantial storage capacity to balance renewable generation while facilitating cross-border trading.
Financing this transition will necessitate significant investment across renewable projects, transmission upgrades, and storage facilities—representing a multi-billion-euro investment cycle. International financial institutions, European development banks, and private investors are anticipated to play crucial roles in funding this infrastructure.
If successfully implemented, CBAM-compliant electricity exports could enable Serbia to maintain its position as a regional electricity supplier while aligning with EU climate objectives. Transitioning from coal-based exports to low-carbon electricity generated from renewables would also benefit domestic industries that increasingly require sustainable energy solutions to remain competitive in EU markets.
Over time, this shift could transform Serbia’s electricity sector from a coal-dominated system into a hybrid model that integrates renewable generation with hydropower flexibility and strategic storage capabilities.
