The Energy Community Secretariat has published its first quarterly assessment of the EU Carbon Border Adjustment Mechanism (CBAM) for electricity imports, covering Q1 2026. The report states that CBAM is already changing electricity trading dynamics across Southeast Europe by creating measurable divergence between EU and non-EU market conditions. It also links these shifts to changes in arbitrage economics and market coupling, and to potential impacts on renewable investment signals in parts of the Western Balkans.
The assessment covers six Western Balkan Energy Community Contracting Parties: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. It also examines neighbouring EU markets including Hungary, Croatia, Bulgaria, Romania, Greece and Italy. The Secretariat says the findings provide operational evidence of CBAM’s effects on power flows, market spreads, interconnector usage, system operation and regional price formation after the definitive CBAM phase for electricity began on 1 January 2026.
Price convergence weakens between Western Balkans and EU zones
The report highlights a breakdown in the long-standing price convergence mechanism between Western Balkan markets and neighbouring EU electricity zones. It says that during Q1 2026 the weakening was sharp compared with earlier periods when markets moved in relatively synchronized patterns, particularly around the Hungarian benchmark. The Secretariat reports that day-ahead price spreads between WB6 markets and neighbouring EU zones widened to more than €30/MWh, about two to three times higher than in the same period of 2025.
The divergence is described as occurring despite exceptionally strong hydro generation across the region. The Secretariat states that CBAM-related costs appear to have neutralized much of the arbitrage opportunity that would normally arise when lower-cost Western Balkan systems export into higher-priced EU markets. It adds that electricity imports from non-EU systems became economically less attractive once CBAM certificate costs were included, even when physical electricity remained significantly cheaper than inside the EU.
Default emission factors drive different CBAM costs by country
The report provides country-level default emission factor estimates used for CBAM calculations for electricity imported into the EU during Q1 2026. Serbia’s average default factor is given as 1.041 tCO2eq/MWh, corresponding to an estimated CBAM cost of €78.45/MWh. Montenegro’s default factor is reported at 0.979 tCO2eq/MWh, equivalent to approximately €73.78/MWh, while Bosnia and Herzegovina is listed at €86.51/MWh.
Albania is reported as having a zero default emission factor, which the Secretariat says effectively exempts Albanian hydro exports from CBAM charges. The assessment describes this as creating a structural advantage under CBAM because Albania’s hydro-dominated generation mix allows exports into EU markets without additional carbon charges. It contrasts this with Montenegro’s position, where strong hydro output during Q1 did not remove commercial disadvantage because the country-level default emission factor still reflected coal-fired generation in the national system.
Montenegro–Italy interconnector shows reduced scheduled exports
The report cites the Montenegro–Italy submarine cable as an example of how CBAM-related distortions can affect cross-border trading outcomes. It states that Italy South recorded average Q1 2026 prices above €130/MWh, while Montenegro averaged €85.8/MWh. The resulting spread is described as about €43/MWh, which would typically be expected to support export growth from Montenegro into Italy.
Instead, the Secretariat reports that scheduled flows from Montenegro to Italy declined by more than 2,100 MWh/day, with physical flows also dropping materially. It concludes that CBAM charges absorbed most or all of the available arbitrage margin as a plausible explanation for these outcomes. The assessment adds that auction-clearing prices for cross-border capacity on the Montenegro–Italy interconnector remained almost unchanged compared with 2025 despite the increase in market spread.
Serbia sees volume declines linked to transit strategies
The report describes similar dynamics affecting Serbia’s trading activity through SEEPEX, which it identifies as the region’s largest power exchange. It says SEEPEX recorded an 11% decline in traded volumes during Q1 2026 even as several neighbouring exchanges expanded. The Secretariat links part of this decline to Serbia’s earlier role as a transit trading corridor between EU markets.
Before CBAM implementation, it says routes such as Hungary–Serbia–Bulgaria were commercially attractive for regional electricity trading. After CBAM introduction, those transit strategies became less economically viable due to regulatory uncertainty and financial implications associated with electricity crossing non-EU territory. The report describes this as contributing to partial rerouting of Southeast European electricity trading away from Western Balkan transit corridors toward “CBAM-free” pathways.
Trading patterns shift toward intra-WB6 and Albania-linked routes
The assessment reports increased intra-WB6 trading alongside changes in how traders use regional corridors. It states that some EU-EU corridors and Albania-linked routes gained strategic importance during Q1 2026. Exports from Albania into Greece are described as having surged, while Greece is reported to have increasingly acted as a redistribution hub toward Bulgaria and Italy.
The Secretariat also raises concerns about potential fragmentation between EU and non-EU electricity systems arising from CBAM treatment differences. It states that if such effects persist, low-carbon exporters such as Albania could benefit from privileged access to EU markets while coal-exposed systems including Serbia, Montenegro and Bosnia could face structurally weaker export economics regardless of actual hourly renewable production levels.
Renewables may face contract demands tied to embedded emissions
The report warns that uniform default emission factors could weaken incentives for renewable investment in jurisdictions where generation mixes are carbon-intensive under national averages. It says exported renewable electricity may still inherit national-level emission penalties even when generation is low-carbon at hourly level. The assessment connects this issue to ongoing debates around guarantees of origin, hourly matching, PPA structuring and physical traceability for low-carbon electricity exports from the Western Balkans into the EU.
It further states that if default national emission factors continue to dominate CBAM treatment, developers in Serbia, Montenegro and Bosnia may require additional contractual structures to preserve export competitiveness. The Secretariat lists potential needs including physically traceable renewable PPAs, hourly matched electricity sourcing frameworks, dedicated industrial offtake structures and pre-verification systems capable of demonstrating lower embedded carbon intensity than national averages.
Divergence between schedules and physical flows raises operational concerns
The report also addresses operational system stability by describing growing divergence between commercial schedules and physical electricity flows during Q1 2026. It says traders reduced commercial usage of certain WB6 transit corridors while physical flows continued according to network physics rather than commercial schedules. The Secretariat notes that transmission system operators depend on commercially scheduled flows for balancing and congestion management.
It warns that widening mismatch between commercial and physical flows could create additional operational stress for regional TSOs and potentially increase system costs and network tariffs. The assessment highlights a South-North corridor running from Greece through Albania and Montenegro toward Bosnia and Croatia as strategically sensitive in this context.
Hydrology drives generation changes alongside coal declines
The Secretariat reports that hydrology was a major factor during Q1 2026 while also stating that longer observation periods are needed before attributing all changes solely to CBAM effects. It reports regional hydro generation increased by 33% year-on-year from 16.70 TWh to 22.18 TWh. Albania is reported to have expanded hydro output by roughly 70%, while Greece recorded a 275% increase compared with the low base in 2025.
The report states coal generation fell by approximately 16%