Renewable electricity producers in Serbia and Montenegro are assessing two distinct ways to participate in Europe’s industrial decarbonisation market: exporting electricity directly to the EU under the Carbon Border Adjustment Mechanism (CBAM), or supplying domestic manufacturers whose products are sold to EU customers.
The routes can both offer commercial opportunities, but they operate under different regulatory requirements. Electricity exported across the EU border is subject to rules governing the importing declarant, while the relevance of domestic renewable electricity purchases depends on the emissions methodology applicable to the manufacturer’s specific products.
Electricity exports and industrial power purchases face different rules
When electricity is physically exported to the EU, the relevant EU importing declarant bears the CBAM obligation. If the importer cannot demonstrate that the requirements for actual-emissions treatment have been met, the applicable default methodology for electricity generally applies.
A domestic power purchase agreement (PPA), by contrast, does not constitute an electricity import into the EU. The renewable electricity may still affect a manufacturer’s energy costs, emissions accounting and decarbonisation claims, but its impact on CBAM liability depends on the legal methodology for the products being exported.
This distinction prevents domestic renewable electricity procurement from being treated as automatically equivalent to qualifying low-carbon electricity imported into the EU.
Indirect emissions treatment differs across CBAM sectors
The regulatory distinction is particularly important because covered products do not all face the same treatment of indirect emissions during CBAM’s definitive phase.
Indirect emissions from electricity consumption are included in the embedded-emissions calculations for covered cement and fertiliser products. For the covered iron, steel and aluminium goods identified in Annex II, CBAM currently accounts only for direct emissions.
Although the EU has examined possible future extensions, steel and aluminium manufacturers cannot assume that signing a domestic renewable PPA immediately reduces the CBAM certificates required for their exports. Their immediate CBAM exposure remains largely linked to direct process emissions and, where relevant, emissions associated with precursor inputs.
For cement and fertiliser producers, electricity sourcing can have a more direct bearing on product embedded-emissions calculations. Recognition nevertheless depends on the applicable actual-value criteria, allocation rules, verification requirements and prescribed methodology.
A Guarantee of Origin (GoO) or commercial claim that electricity is green does not automatically establish eligible actual indirect emissions. Plant-level process records, metering data and contractual documentation remain important to determining what can be recognised.
Domestic PPAs offer commercial benefits beyond CBAM
Domestic industrial PPAs can provide renewable generators with long-term local revenue while reducing exposure to cross-border transmission capacity and the administrative and carbon-cost complications associated with electricity imports into the EU.
For manufacturers, these contracts can improve electricity-cost predictability and support corporate decarbonisation objectives. A steel mill, for example, may value renewable electricity for energy security and emissions targets even when its immediate CBAM liability is driven primarily by direct production emissions and relevant precursor inputs.
The commercial rationale for domestic renewable procurement therefore does not depend entirely on whether the PPA produces an immediate reduction in CBAM obligations.
Export revenues must be compared with domestic contract risks
Export-oriented independent power producers may benefit from higher EU price benchmarks and, where the relevant requirements are met, the potential value of actual-emissions treatment. However, they must also account for balancing, cross-border delivery, verification and contractual protection against carbon-related risks.
Domestic industrial offtakers may offer an alternative with fewer border-related costs, but their creditworthiness, electricity demand profiles and contract indexation arrangements can differ from those of export-oriented buyers.
Developers should consequently compare net risk-adjusted revenues, rather than selecting a market solely on the basis of headline electricity prices. The expected export premium must be assessed alongside delivery costs and the risk that some volumes may not qualify for the intended CBAM treatment.
Utilities and private suppliers face a more segmented PPA market
State-owned utilities, including EPS in Serbia and EPCG in Montenegro, as well as independent suppliers and trading companies, can structure domestic industrial offers around physical electricity delivery, separate renewable certificates, contract duration and documentation supporting the buyer’s reporting obligations.
However, these components should not be marketed as a single product that is automatically “CBAM-compliant”. The regulatory significance of a renewable PPA depends on the transaction and the products manufactured by the buyer.
Where an industrial customer produces several categories of CBAM-covered goods, the same electricity contract may have different implications for each product line because the applicable emissions rules are not uniform across sectors.
The resulting corporate PPA market is likely to become more segmented. Electricity exported directly to the EU requires import-specific contractual and nomination evidence, while electricity supplied to domestic industry requires reliable delivery and, where relevant, product-specific documentation for indirect emissions.
Producers capable of serving both markets may improve their commercial resilience, provided that their contracts and financial models preserve the distinction between the two routes.
