In Serbia and Bosnia and Herzegovina, lower thermal generation is coinciding with weaker export revenues and stronger competition for regional buyers. The European Union’s Carbon Border Adjustment Mechanism (CBAM) is reducing the value of cross-border electricity sales, putting pressure on cash flow and investment funds used to maintain power stations and the mines that supply them.
The operating data do not point to a uniform fall in generation caused by CBAM alone. Commercial pressure, stronger hydropower production and coal supply problems are all contributing to the changes reported by utilities.
The Energy Community Secretariat recorded a 16% decline in scheduled electricity exports from the Western Balkans to the EU, to 3.223 TWh in the second quarter of 2026. Combined electricity trade in both directions fell by approximately 19% in the first half of the year, a broader measure that includes imports into the Western Balkans and transit-related trading.
Generation declines reflect market pressure and fuel constraints
Elektroprivreda Srbije (EPS) has identified one way CBAM is affecting the regional market. In its first-half operating results, the company said the mechanism had reduced regional exports to the EU, leaving more electricity surpluses to be sold on regional exchanges and pushing wholesale prices down.
EPS thermal generation fell by approximately 12% to 9.423 TWh in the first half of 2026, from 10.712 TWh in the same period of 2025. Hydro production rose by 9% to 5.307 TWh. The thermal figure includes combined heat and power generation, so it is not an exact measure of coal-fired output alone.
EPS said thermal units were in cold reserve for 8.2% of calendar time and reported 574.34 GWh of production reductions associated with operation at technical minimum. The company also linked weaker thermal output and increased procurement requirements to lower domestic coal production and poorer coal quality. As a result, the full decline in thermal generation cannot be attributed to CBAM.
The distinction has commercial implications: reducing dispatch at a technically available plant can be a response to low prices, while a lack of sufficient or suitable coal is an availability constraint that may force a utility to buy replacement electricity. Bosnia and Herzegovina presents a related but more complex picture. Thermal electricity injected into the Bosnian transmission grid fell 12.9% to 4.931 TWh in January-September 2026, while hydro injections rose 27.3% to 3.926 TWh. Total generation injections increased 2.6% to 9.849 TWh.
Declared commercial deliveries from Bosnia and Herzegovina to Croatia fell 38.5% to 946 GWh. Deliveries to all neighbouring systems declined 16.5% to 4.853 TWh, while receipts fell faster, by 32.8% to 2.742 TWh. The resulting net outward commercial balance rose 22% to 2.111 TWh. The country generated less thermal electricity while increasing its net commercial surplus, as stronger hydro production changed the balance between coal generation, imports and exports.
Plant-level conditions also vary. September thermal injections were only marginally below the previous year, while production at some individual facilities rose strongly. At Ugljevik, production interruptions have been linked to insufficient coal, difficulties accessing mining areas and equipment constraints. Those outages cannot reasonably be classified as a direct result of weaker EU export demand.
CBAM changes the net revenue from electricity exports
The legal obligation under CBAM rests with the authorised declarant importing electricity into the EU. Its economic effect can nevertheless pass upstream to Western Balkan generators through lower purchase offers, revised contract terms and reduced demand.
For exporters, the relevant calculation is increasingly: EU selling price – CBAM liability – cross-border costs – balancing – losses – trading costs = export netback. The European Commission’s published CBAM certificate price for third-quarter 2026 imports is €82.32 per tonne of CO₂, compared with €75.28/tCO₂ in the second quarter.
Based on published electricity default factors, the implied gross carbon burden is around €94.50/MWh for Bosnia and Herzegovina, €85.70/MWh for Serbia, €80.59/MWh for Montenegro and €73.02/MWh for North Macedonia. These are indicative default-based estimates of CBAM exposure before eligible deductions. They should not be read as the production cost of any individual generating unit.
The effect on an export margin can be substantial. If Serbian electricity sells into an EU market at an illustrative €120/MWh, gross CBAM exposure of around €85.70/MWh leaves €34.30/MWh before transmission capacity, balancing, losses and other commercial costs. If those additional costs total €5/MWh, the generator is left with around €29/MWh.
A coal unit with avoidable operating costs above that level has little commercial reason to produce additional electricity specifically for that export. At an EU selling price of €180/MWh, however, the remaining revenue rises substantially and exports can again become commercially attractive. CBAM does not necessarily stop electricity exports; it changes which operating hours remain profitable for export.
Montenegro illustrates revenue pressure before an output decline
Elektroprivreda Crne Gore (EPCG) estimated that CBAM reduced the value of its first-quarter electricity sales by approximately €13 million compared with the revenue those sales could have generated without the mechanism. The company nevertheless remained profitable, generation was significantly above plan, hydrological conditions were favourable and Pljevlja thermal power plant continued to operate.
The experience shows how CBAM can initially affect a utility’s earnings rather than its physical output. A generator may continue producing and exporting substantial volumes while receiving less revenue for the same electricity. A stronger incentive to reduce loading, delay starts or hold capacity in reserve emerges only when the netback falls below a plant’s avoidable operating costs.
Displaced exports can add pressure to regional coal generators
Electricity that is no longer attractive to EU buyers can be redirected to domestic or neighbouring markets. If Serbia, Bosnia and Herzegovina, Montenegro and North Macedonia have more electricity available domestically because some EU export opportunities have become uneconomic, regional supply rises relative to demand and wholesale prices can fall.
This creates a two-stage effect: CBAM first weakens the economics of EU exports, and the displaced electricity can then depress prices within the Western Balkan market. Coal generators may consequently lose operating hours even if a plant has never exported electricity directly.
The same dynamic can affect renewable generation. If hydro, wind or solar electricity cannot economically meet the requirements for favourable CBAM treatment, or cannot secure the necessary contractual and verification chain, it may also remain in regional markets. Additional renewable supply further reduces the residual demand available to coal generators.
Fewer profitable operating hours could raise coal system costs
The main structural consequence may be a gradual decline in annual utilisation rather than the immediate closure of coal-fired plants. Thermal capacity remains important for security of supply across much of the Western Balkans, particularly during winter peaks, dry hydrological periods and times when electricity imports are limited. Plants may nevertheless operate fewer hours for commercial export.
A plant can remain indispensable for system security while becoming harder to finance. Coal mines, maintenance programmes, environmental upgrades, staffing and debt service all involve substantial fixed costs. If annual production falls while most fixed expenditure remains unchanged, the cost burden per generated megawatt-hour increases.
For example, a one-third reduction in electricity production with fixed costs unchanged would raise fixed costs per MWh by 50%. This is a significant challenge for utilities including EPS, EPBiH, ERS and EPCG.
Investment assessments must separate three sources of value
Historically, electricity exports provided Western Balkan utilities with additional cash to help finance domestic generation fleets, mines, overhauls and investment. CBAM potentially weakens that model. A thermal plant may still be needed for reliable electricity supply even as export revenue previously used to help finance its capacity becomes less predictable.
Future investment assessments need to distinguish three value streams. The first is domestic security-of-supply value: what the coal plant saves the system by avoiding imports during periods of scarcity. The second is commercial export value: the margin left after CBAM and all cross-border costs.
The third is system flexibility value, including revenue from balancing, reserves, capacity availability or other services. A historic export margin should no longer automatically be carried into a coal mine expansion, power plant rehabilitation or life-extension model. The relevant question is how many profitable operating hours the plant can realistically achieve in a market where EU access increasingly carries an explicit carbon cost.
CBAM is unlikely to close Western Balkan coal plants overnight. Domestic electricity systems still need substantial thermal capacity, while hydrological conditions, weather, imports and network constraints can quickly increase the value of coal generation.
The mechanism is changing the commercial role of these plants. Coal-fired generation that previously served domestic demand and profitable EU exports may increasingly operate mainly when required by the domestic system or when regional prices are exceptionally strong. That means lower utilisation, fewer profitable export hours and weaker cash generation.
Western Balkan utilities may continue to need coal capacity for security of supply while losing part of the export business that helped finance the same mines and power stations. The pressure is therefore not only on electricity trade, but also on the ability to finance large thermal systems whose domestic strategic importance remains high as their external commercial value declines.
