Montenegro’s electricity sector is feeling the early economic effects of the EU Carbon Border Adjustment Mechanism, with the country’s main power utility EPCG reporting losses of around 13 million euros in the first quarter. The pressure is linked to how the mechanism reprices carbon costs for electricity produced from carbon-intensive sources ahead of broader EU trade compliance impacts. For policy makers and industry stakeholders, the case highlights how CBAM-linked dynamics can quickly translate into balance-sheet stress even before wider decarbonisation projects fully take hold.
Coal dependence meets CBAM-linked repricing
A central factor is Montenegro’s reliance on coal-fired generation, particularly output from the Pljevlja thermal power plant. EPCG’s exposure to coal-based electricity reduces its competitiveness in export markets as CBAM effectively penalizes carbon-intensive production. The result is an indirect but tangible squeeze on achievable electricity prices compared with levels inside the EU.
While CBAM is designed to address carbon leakage concerns across covered sectors, electricity remains a key interface for cross-border pricing and compliance risk. In Montenegro’s case, the challenge is not only about domestic costs but also about how export revenues respond when buyers price in higher carbon-related burdens. That dynamic matters for any exporter operating alongside EU ETS-aligned pricing signals.
Cost pass-through avoided, but market risks persist
EPCG has so far avoided passing additional costs on to households, according to company officials. However, they acknowledge that price increases remain a possibility if geopolitical tensions—especially in the Middle East—continue to disrupt energy markets. This creates a policy-relevant tension between maintaining social affordability and absorbing carbon-linked cost pressures.
To manage exposure, EPCG has been prioritizing electricity sales within the Western Balkans, where CBAM rules do not apply. Exports to EU markets have been limited to surplus volumes, reflecting an operational response to pricing differentials created by the mechanism’s early influence.
Regional price gaps and emissions trading misalignment
Market pricing already reflects the mechanism’s impact, with electricity prices in the region reported to be between 20 and 70 euros per MWh lower than in the EU. That gap limits export revenues and increases the importance of how domestic producers price carbon internally versus how EU buyers account for it. The situation is further complicated by the absence of a national emissions trading system aligned with the EU ETS.
With local carbon prices around 24 euros per ton while EU levels remain significantly higher, competitive distortions persist for producers selling into or near EU markets. For importers and traders, this means contract pricing and sourcing decisions can shift quickly when carbon cost assumptions diverge across jurisdictions. For EU producers under the EU ETS, it also underscores why border measures are intended to align incentives across supply chains.
Surplus sales continue amid uncertainty
Operationally, EPCG managed to place all available surplus electricity on the market in early 2026. Sales reached 486 GWh valued at 49.9 million euros in the first quarter, compared with 345 GWh worth 42.8 million euros a year earlier. Favorable hydrological conditions also lifted total production to approximately 1,204 GWh, representing a strong year-on-year increase.
Even with these volumes, uncertainty remains elevated because future performance depends heavily on regional electricity prices and potential adjustments to CBAM rules. EPCG expects continued pressure on export revenues, particularly from coal-based generation, keeping decarbonisation investment central to its risk management approach.
Decarbonisation pathway anchored in Pljevlja modernization
To adapt to carbon-cost exposure, EPCG is advancing modernization efforts at TPP Pljevlja while accelerating a broader transition toward renewable energy sources. The company plans investments of 800 to 950 million euros by 2035 aimed at reducing exposure to carbon costs and strengthening long-term sustainability.
Although CBAM implementation is underway as an early system affecting trade-related pricing dynamics for covered goods and services, this Montenegro snapshot shows how electricity exporters can face near-term financial strain when their generation mix remains carbon-intensive. The combination of regional price differentials, lack of ETS alignment domestically, and coal-based exposure creates a clear compliance-and-competitiveness challenge that will likely shape investment priorities across Europe’s decarbonising industrial landscape.
Synthesis: EPCG’s reported first-quarter losses of around 13 million euros in early 2026 reflect how CBAM-linked repricing can translate into lower export competitiveness for coal-dependent electricity producers. With regional prices reported 20 to 70 euros per MWh below EU levels and local carbon pricing around 24 euros per ton versus higher EU benchmarks, exporters face persistent revenue pressure unless generation emissions intensity falls through modernization and renewable expansion planned through 2035.