The introduction of the European Union’s Carbon Border Adjustment Mechanism (CBAM) in January 2026 is set to significantly impact Serbia’s electricity sector, primarily dominated by the state-owned utility Elektroprivreda Srbije (EPS). The mechanism will require a recalibration of electricity exports, financial strategies, and investment plans, focusing on carbon intensity as a critical factor.
Historically, Serbia has established itself as a key electricity exporter in the region, supplying Hungary, Romania, and Croatia with significant volumes. In recent years, net exports ranged from 2 to 4 terawatt-hours (TWh) annually, with Hungary receiving approximately 6.1 TWh, Romania about 2.4 TWh, and Croatia around 1.5 TWh in 2023. These exports were largely supported by coal-fired and hydropower generation. However, under the new CBAM framework, the cost structure now incorporates carbon pricing alongside traditional pricing models, imposing additional surcharges for lignite-based power ranging from €70 to €110 per megawatt-hour (MWh).
This shift in pricing dynamics is leading Serbia to transition from a volume exporter of baseload power to a more selective supplier focused on low-carbon electricity. Under typical market conditions where prices range from €80 to €120/MWh, the added costs associated with CBAM make large-scale coal-based exports less viable. Consequently, only low-carbon or renewable energy sources will be able to maintain competitiveness in cross-border trade.
Forecasts for 2024 indicate that Serbia’s electricity exports to the EU could reach approximately 9.18 TWh annually, incurring an estimated €612.5 million in CBAM-related costs—equating to about €66.7/MWh when adjusted for carbon pricing. This structural cost is expected to influence procurement strategies among EU buyers, who are now considering carbon-adjusted pricing in their purchasing decisions. As a result, there is a trend towards shorter contracts and a preference for cleaner energy sources.
The financial implications for EPS are significant. Historically reliant on export revenues to balance its books against lower domestic sales margins and high fixed costs from its aging coal fleet, EPS now faces pressure on these export margins due to potential price reductions of €10-15/MWh driven by uncertainties related to CBAM. Unlike other sectors that may experience a phased implementation of CBAM adjustments, EPS will face full rates starting January 2026, leaving limited time for adaptation.
Investment strategies within the sector are also being fundamentally altered due to CBAM’s influence. Projects previously designed with expectations of EU market access are now facing diminished internal rates of return (IRR) due to anticipated price drops associated with carbon adjustments. For capital-intensive projects tied to coal generation, this could push IRRs below acceptable thresholds unless supported by state guarantees or increased domestic tariffs.
As traditional lignite expansion projects become more challenging to finance amid rising concerns over carbon pricing and regulatory risks, investments are increasingly shifting towards renewable energy and grid modernization initiatives that align with CBAM compliance. This pivot aims to capitalize on EU demand for low-carbon generation.
In the medium term, CBAM is expected to drive Serbia’s power sector toward a cleaner and more diverse energy mix. EPS is being compelled to modernize its hydropower assets and expand renewable energy capacity while investing in systems for emissions monitoring and verification required under the new regulations.
For stakeholders in Serbia’s electricity market, it is becoming clear that the era of being viewed solely as a low-cost coal exporter is waning. The focus is shifting toward flexibility in low-carbon generation and resilience in grid operations—key attributes needed for successful integration into EU markets without incurring penalties under CBAM. As such, Serbia’s electricity strategy will increasingly hinge on balancing domestic stability with regional selectivity and compliance with EU market standards centered around carbon intensity metrics.
