Serbia’s 15% equity interest in Montenegro’s transmission system operator CGES is emerging as a key strategic asset supporting cross-border electricity trade, regional energy integration and long-term infrastructure development, with the investment providing institutional access to the transmission corridor linking the Western Balkans to Italy.
- Ownership supports regional transmission strategy
- Alternative export and import corridor
- Grid investment remains central
- Renewable deployment increases corridor importance
- Market integration and corporate governance
- Options for expanding cooperation
- Industrial policy and regional market development
- Security, procurement and long-term strategy
Held through state-owned transmission operator Elektromreža Srbije (EMS), the shareholding makes Serbia the third-largest shareholder in Crnogorski elektroprenosni sistem (CGES) behind the State of Montenegro, which owns 55.38%, and Italy’s Terna, which holds 22.09%.
Although the investment generates dividend income, its broader significance lies in providing Serbia with a long-term position within the company operating Montenegro’s transmission network, including the country’s connection to the Montenegro–Italy submarine interconnector. That position supports access to cross-border transmission capacity, electricity market integration and infrastructure planning associated with the Adriatic corridor.
Ownership supports regional transmission strategy
Serbia initially acquired approximately 10% of CGES before increasing its holding by a further 5 percentage points in early 2021, following the commissioning of the electricity cable linking Montenegro and Italy. The subsea interconnector connects the Montenegrin coast near Lastva with the Italian grid near Villanova. Its first operational phase provides approximately 600 MW of transfer capacity, while the broader concept allows for expansion toward 1,200 MW, subject to future investment, market demand and reinforcement of regional transmission infrastructure.
The investment gives Serbia a governance role within CGES but does not provide preferential access to transmission capacity. Cross-border capacity allocation remains subject to applicable market rules, while CGES must continue operating independently and on a non-discriminatory basis. Instead, the strategic benefit stems from participation in decisions affecting future network development, corridor reliability and transmission expansion connecting Serbia with Italy through Montenegro.
Alternative export and import corridor
The Adriatic route adds another direction for Serbian electricity flows alongside existing interconnections with Hungary, Romania, Bulgaria, Bosnia and Herzegovina, Croatia, North Macedonia and Montenegro. The additional trading route is commercially relevant because Italian wholesale electricity prices have frequently traded above those in Southeast Europe, allowing generators and traders greater flexibility in selecting export destinations after accounting for congestion costs, transmission charges and network losses.
As a regulated transmission system operator, EMS does not engage in speculative electricity trading. Its commercial interests are centred on network security, regulated infrastructure returns, cross-border transmission capacity and congestion revenues. The wider economic benefits extend to Elektroprivreda Srbije (EPS), renewable energy developers, electricity traders, industrial consumers, lenders financing energy projects and the Serbian state.
Serbia’s electricity system combines lignite-fired generation, the Đerdap hydropower complex, the Drina–Lim hydro portfolio and other generating assets operated by EPS, while private investors have expanded wind generation and continue developing solar and battery storage projects.
Generation conditions can vary significantly depending on hydrology, coal quality, thermal plant availability and seasonal demand, creating periods of both export surplus and import dependence. The Montenegro transmission corridor therefore provides value in both directions by supporting electricity exports during periods of excess production while also offering an additional import route from Montenegro, Albania, Bosnia and Herzegovina and Italy during supply shortages.
Grid investment remains central
The article argues that strengthening Serbia’s domestic transmission network toward Montenegro should become the first strategic priority because commercial transfer capacity is constrained by the weakest elements across interconnected systems. Accordingly, EMS should identify transmission lines, substations, protection systems and operational constraints limiting electricity flows toward Montenegro while coordinating investments with CGES projects, including reinforcement of the Pljevlja–Lastva 400 kV corridor, northern Montenegrin substations and associated cross-border infrastructure.
Rather than focusing solely on constructing new assets, investment programmes should quantify expected increases in secure transfer capacity under both normal operating conditions and contingency scenarios. The report notes that nominal capacity of high-voltage transmission lines may differ significantly from commercially available transfer capacity because of bottlenecks, loop flows, maintenance outages, contingency requirements and constraints elsewhere within interconnected networks.
Renewable deployment increases corridor importance
Serbia is progressing several gigawatts of proposed wind, solar and battery storage projects that could materially alter the country’s electricity balance over the coming years. Wind generation, concentrated mainly in Vojvodina and eastern Serbia, can produce electricity during evenings, nights and winter months, supporting exports to Italy when demand and prices remain favourable.
Solar generation presents different market dynamics as Serbia and neighbouring countries continue adding photovoltaic capacity, increasing the likelihood of lower midday electricity prices across interconnected markets. Battery storage and operational flexibility are therefore presented as essential components of future electricity exports, enabling renewable output to shift into higher-value evening periods while supporting balancing services and reducing curtailment. A reference development scenario envisages 2–3 GW of additional Serbian wind and solar capacity supported by 300–600 MW of battery storage during the next investment cycle.
Depending on technology choices, transmission requirements and financing conditions, combined investment in renewable generation and storage could total approximately €2.5 billion to €4.5 billion. A more ambitious scenario involving 4–5 GW of new renewable capacity would require accelerated transmission expansion, disciplined grid connection management and robust offtake arrangements. The report also estimates that transmission delays of 12–18 months could reduce project equity internal rates of return by approximately 1.5 to 4 percentage points, depending on financing structures, construction liabilities and project revenue models.
Market integration and corporate governance
The analysis identifies stronger integration of day-ahead, intraday and balancing electricity markets as another strategic priority, arguing that physical transmission infrastructure delivers maximum value only when accompanied by efficient market mechanisms.
It also highlights the introduction of negative electricity prices on SEEPEX from May 2026, reflecting market conditions already common across European electricity markets as renewable generation expands. The corridor is expected to support surplus management but not eliminate periods of negative pricing, reinforcing the importance of batteries, flexible hydropower, demand response and power purchase agreements capable of managing curtailment and price volatility.
Further cooperation between EMS, CGES and Terna could include coordinated security assessments, intraday transmission capacity management, outage planning, balancing-energy exchanges, digitalisation initiatives, cybersecurity and operational resilience. The report also calls for EMS to strengthen its role as a professional shareholder by focusing on investment efficiency, technical performance, financing costs, dividend sustainability and long-term corridor development.
Rather than maximising short-term dividend payments, the analysis suggests supporting a dividend policy aligned with investment needs, regulated cash flow and leverage, while reinvesting extraordinary earnings where they increase commercially valuable transmission capacity.
Options for expanding cooperation
The possibility of increasing EMS’s stake from 15% toward 20% is presented as one strategic option, although the report states that any larger holding should be linked to new transmission investment, stronger governance arrangements and measurable capacity expansion rather than share purchases for symbolic purposes. A primary capital increase supporting new transmission projects is identified as potentially more beneficial than acquiring shares from existing minority investors, provided Montenegro retains majority ownership and Terna’s shareholder rights remain protected.
The report also suggests that direct investment in Serbia’s domestic transmission network may generate higher returns than increasing the CGES stake, depending on comparative investment outcomes. Another option involves establishing a jointly financed special-purpose company through which EMS, CGES and potentially Terna could develop defined interconnection or transmission expansion projects. Such an approach could facilitate financing from institutions including the European Investment Bank (EIB), European Bank for Reconstruction and Development (EBRD) and the Western Balkans Investment Framework (WBIF) while directly linking investment to measurable infrastructure capacity improvements.
Industrial policy and regional market development
The report argues that additional export capacity should complement rather than replace domestic industrial electricity consumption. Long-term power purchase agreements with sectors including mining, metals, manufacturing, data centres and transport are identified as providing more stable revenue than reliance solely on spot market exports while also supporting compliance with European carbon regulations.
The Montenegro–Italy corridor provides generators with an alternative export destination when domestic electricity demand weakens or industrial buyers reduce consumption, potentially improving project bankability. Growing requirements associated with the Carbon Border Adjustment Mechanism (CBAM), guarantees of origin and verified electricity data also increase the importance of reliable metering, generation records and carbon accounting.
The report notes that EMS digital systems, SEEPEX market information, production forecasting and cross-border scheduling could contribute to a broader data framework supporting renewable electricity verification. Improved access to Italy could also strengthen Serbia’s regional trading position by attracting electricity traders, balancing providers and energy-service companies while reinforcing Belgrade and SEEPEX as commercial centres serving Central Europe, the Balkans and the Adriatic corridor. Higher cross-border flows could increase congestion revenues for EMS, although European electricity regulations generally require such income to be used for maintaining or expanding cross-border transmission capacity, ensuring availability or reducing network tariffs under defined conditions.
Security, procurement and long-term strategy
The report recommends that Serbia develop corridor-specific emergency procedures covering severe weather, generation outages, drought, cyber incidents and multiple infrastructure failures. Proposed measures include coordinated restoration plans, reserve-sharing mechanisms, black-start capabilities, communications protocols and arrangements supporting critical infrastructure within applicable regulatory frameworks. Cybersecurity cooperation between EMS, CGES and Terna is also highlighted as increasingly important because the Adriatic transmission corridor links several national electricity systems through critical digital infrastructure.
Future network expansion will require transformers, switchgear, protection systems, telecommunications equipment and software sourced internationally, making interoperability, compliance with European grid codes, spare-parts availability and supplier diversification important considerations. The report concludes that Serbia’s 15% ownership position should remain part of a broader regional transmission strategy combining domestic grid reinforcement, coordinated infrastructure investment with CGES, renewable integration, energy storage deployment and deeper market coupling.
While Montenegro retains majority ownership of CGES and Italy anchors the submarine interconnector through Terna, Serbia controls the largest electricity generation and transmission system feeding the corridor from the north. According to the analysis, maintaining the current shareholding while strengthening coordinated infrastructure and market development offers the strongest basis for expanding transmission capacity, improving project bankability and enhancing long-term access to European electricity markets.
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