Serbia’s electricity sector recorded a marked contraction in the second quarter of 2026, with weaker hydrological conditions and the European Union’s Carbon Border Adjustment Mechanism (CBAM) affecting power generation and cross-border sales. Electricity production decreased 8.8% year on year in Q2, while electricity exports fell by approximately 45%. The decline contrasts with broader economic expansion during 2026 and reduces the contribution of the power sector to Serbia’s external trade.
Hydrology and carbon costs weigh on electricity exports
Hydrological conditions are a major factor behind the reduction in electricity production. Lower water availability limits hydroelectric generation, increasing the potential reliance on thermal power plants.
At the same time, CBAM is changing the economics of electricity exports to the European Union. Carbon-intensive generation faces a growing cost disadvantage compared with lower-emission electricity, making the carbon content of exported power an increasingly important factor in cross-border trade. The combination of weaker hydrology and changing carbon-related costs has affected a sector that previously generated significant foreign-currency revenues for Serbia when domestic electricity production conditions were favourable.
Energy trade deficit reaches €2bn
The pressure on electricity production and exports comes as Serbia’s energy position remains dependent on external supplies. The country recorded an energy trade deficit of around €2 billion in the first half of 2026. Energy-sector activity is expected to weaken during 2026 before gradually recovering in subsequent years as structural reforms advance and renewable-generation capacity expands. The shift also gives renewable investment a direct economic dimension. New low-carbon generation increasingly affects export competitiveness, generation margins and Serbia’s external balance, rather than being limited to environmental policy.
Renewable capacity, grids and storage become central
Serbia’s electricity market is entering a phase in which carbon intensity carries a direct monetary value in cross-border electricity trade. The country increasingly requires additional renewable generation capacity, grid reinforcement, energy storage and system flexibility to maintain the conditions needed for electricity exports. Without those investments, the role of electricity in the external sector is increasingly shaped by domestic supply security rather than its previous contribution as an export industry.0
