As Serbia approaches 2026, it faces a significant challenge that intertwines inflationary pressures with competitiveness in the global market. The European Union’s Carbon Border Adjustment Mechanism (CBAM) is transitioning from a reporting phase to one where embedded emissions will incur financial costs at the border. This mechanism directly impacts Serbia’s energy-intensive export sectors, including iron and steel, aluminum, cement, fertilizers, and electricity. Consequently, the concept of “green electricity” is evolving from a corporate social responsibility initiative to a crucial procurement strategy for maintaining access to EU markets.
Recent trade data indicates that goods subject to CBAM account for approximately 11.7% of Serbia’s total exports to the EU. Within this category, iron and steel exports represent about 4.5%, electricity 4.7%, aluminum 2.0%, fertilizers 0.5%, and cement 0.1%. It is important to note that these figures reflect trade shares rather than profit shares; the latter tends to be higher due to the substantial energy and carbon costs associated with these products.
The critical buyers under the CBAM framework are primarily EU-based industrial importers and original equipment manufacturers (OEMs), rather than local retail customers. These buyers will need to assess suppliers based on their ability to demonstrate lower embedded emissions consistently, backed by credible electricity sourcing and reliable delivery without unexpected price increases. Serbian exporters in energy-intensive industries are thus caught between two competitive pressures: they face EU producers who benefit from emissions trading system (ETS) pricing and decarbonization subsidies, while also contending with non-EU suppliers who may offer lower prices but will incur CBAM costs.
For Serbia’s heavy industries, securing green electricity contracts is a vital strategy that can be implemented before extensive technological upgrades are made. Transitioning to renewable energy sources can significantly reduce reported embedded emissions, particularly in sectors like steel and aluminum where indirect emissions are significant. This shift not only enhances competitiveness but also aligns with EU buyers’ increasing demands for transparency regarding electricity provenance.
To safeguard exports exposed to CBAM regulations, it is estimated that Serbia will need to procure between 1.5–2.5 terawatt-hours (TWh) of industrial green power annually by 2028–2030. This demand will primarily stem from major sectors such as steel, aluminum, and fertilizers, with potential additional requirements arising from cement production and fabrication driven by customer emissions disclosure needs. In an optimistic scenario, if EU buyers impose stricter supplier criteria, this demand could rise to between 3.0–4.0 TWh per year.
Meeting this demand through domestic renewable sources would require substantial infrastructure investments equivalent to approximately 650–750 megawatts (MW) of wind capacity or 1,200–1,400 MW of solar capacity, depending on operational efficiency factors. A balanced approach involving both wind and solar power along with energy storage solutions could provide a more resilient energy supply capable of delivering between 1.8–2.6 TWh while minimizing operational risks.
Capital expenditures for establishing such renewable energy projects in Serbia are influenced by current regional market conditions. Utility-scale solar installations typically range from €0.55–0.90 million per MW, potentially rising due to grid connection complexities. Onshore wind projects range from €1.20–1.80 million per MW based on various factors including site conditions and civil engineering requirements. A mixed energy portfolio may require an investment ranging from €1.1 billion to €3.2 billion depending on the scale of development.
The financial viability of these projects hinges on establishing long-term power purchase agreements (PPAs) that ensure bankable industrial off-take arrangements and recognition of renewable energy attributes by EU buyers. The most favorable structures tend to be long-term PPAs lasting 10–15 years that provide stability in cash flows for wind and solar investments.
Moreover, managing curtailment risks becomes essential for industries facing CBAM regulations as any reduction in expected renewable output can lead to significant economic losses due to compliance penalties and market volatility. Wind energy tends to exhibit more stable performance compared to solar due to its operational characteristics during different peak generation times.
Lastly, grid integration poses a critical challenge that must be addressed explicitly in project planning. Issues such as connection-node saturation can inflate costs disproportionately while voltage management becomes increasingly complex at larger scales of renewable deployment.
In summary, Serbian exporters targeting EU markets must prioritize the procurement of green electricity as an essential component of their operational strategy under the CBAM framework while ensuring their approach is realistic concerning system capabilities and market demands.
