The European Union’s Carbon Border Adjustment Mechanism (CBAM) is reducing the value of electricity sold abroad, adding pressure to cash flow and investment at coal-fired generators in the Western Balkans. Thermal generation has declined in Serbia and Bosnia and Herzegovina, while utilities report lower export revenues and stronger competition for buyers within the region. Operating data point to a mix of commercial pressure, increased hydropower output and coal supply problems, rather than a uniform fall in generation caused by CBAM alone.
Exports and thermal output face different pressures
The Energy Community Secretariat reported that scheduled electricity exports from the Western Balkans to the EU fell 16% to 3.223 TWh in the second quarter of 2026. Combined electricity trade in both directions declined by approximately 19% in the first half. That broader measure includes imports into the Western Balkans and transit-related trading.
For coal operators, a key commercial change is the revenue left after an EU buyer accounts for carbon costs. A power station may still be needed for domestic supply but lose the opportunity to produce additional electricity profitably for export. Fewer operating hours then remain to cover maintenance spending, mine development costs and debt service.
Elektroprivreda Srbije (EPS) identified this mechanism in its first-half operating results. The company said CBAM reduced regional exports to the EU, increasing electricity surpluses that were subsequently sold on regional exchanges and pushing wholesale prices lower. EPS’s thermal generation fell approximately 12% to 9.423 TWh, from 10.712 TWh in the first half of 2025, while hydro production rose 9% to 5.307 TWh.
The thermal total includes combined heat and power production, so it is not an exact coal-only measure. EPS also reported that thermal units were in cold reserve for 8.2% of calendar time, and that production reductions associated with operation at technical minimum amounted to 574.34 GWh. The company also linked weaker thermal generation and higher procurement requirements to lower domestic coal output and poorer coal quality, meaning the full decline cannot be attributed to CBAM.
The distinction matters commercially. Reduced dispatch at a technically available plant can be a response to low prices, while output lost because a unit lacks sufficient coal or fuel of adequate quality is an availability problem that may require the utility to buy replacement electricity. Bosnia and Herzegovina presents a similar, but more complex, mix of changes.
Bosnia and Herzegovina’s generation mix and trade balance
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. The shift in generation sources affected the balance between coal output, imports and exports.
Declared commercial deliveries to Croatia dropped 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. As a result, the net outward commercial balance increased 22% to 2.111 TWh, even as thermal generation declined.
Operating conditions also differed between plants and over time. September thermal injections were only marginally below the previous year, while output at some individual facilities increased strongly. At Ugljevik, however, production interruptions have been linked to insufficient coal, difficulties accessing mining areas and equipment constraints, rather than weaker EU export demand.
Carbon costs reduce the export netback
The legal obligation under CBAM falls on the authorised declarant importing electricity into the EU. Its economic effects can nevertheless reach Western Balkan generators through lower purchase offers, revised contract terms and reduced demand. For exporters, the relevant calculation is the EU selling price minus CBAM liability, cross-border costs, balancing, losses and trading costs; the remainder is the 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. Using 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 CBAM exposures before eligible deductions, not the production cost of an individual generating unit. The effect on an export margin can be substantial. At an illustrative EU selling price of €120/MWh, Serbian electricity facing gross CBAM exposure of around €85.70/MWh would leave €34.30/MWh before transmission capacity, balancing, losses and other commercial costs.
If those additional costs total €5/MWh, the generator would be left with around €29/MWh. A coal unit with avoidable operating costs above that level has little commercial reason to produce extra electricity specifically for export. At an EU selling price of €180/MWh, the remaining revenue would be substantially higher and exports could again become commercially attractive; CBAM therefore changes which hours are profitable for export rather than necessarily stopping exports.
Montenegro illustrates the effect on sales revenue
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 remained profitable, generation was significantly above plan, hydrological conditions were favourable and Pljevlja thermal power plant continued operating. The example shows that CBAM can affect utility earnings before it changes physical output.
A generator can continue producing and exporting substantial volumes while earning less for the same electricity. A stronger incentive to reduce loading, delay starts or keep capacity in reserve emerges only when the netback falls below the plant’s avoidable operating costs.
Regional supply adds competition for coal generators
Electricity that becomes less attractive to EU buyers can instead be directed to domestic or neighbouring markets. If Serbia, Bosnia and Herzegovina, Montenegro and North Macedonia have more electricity available domestically because some EU export opportunities are uneconomic, regional supply rises relative to demand and wholesale prices can decline. CBAM can therefore weaken the economics of EU exports first, with displaced electricity then putting pressure on prices within the Western Balkan market.
This effect can reduce coal operating hours even when a plant has not exported electricity directly. It can also apply to renewable generation: if hydro, wind or solar electricity cannot meet the requirements for favourable CBAM treatment, or secure the necessary contractual and verification chain, it may remain in regional markets. Additional renewable supply further reduces the residual demand available to coal generators.
The structural consequence may be fewer profitable operating hours rather than the immediate closure of coal-fired plants. Coal plants remain important to security of supply across much of the Western Balkans, particularly during winter peaks, dry hydrological periods and times of limited electricity imports. They may, however, run 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 involve substantial fixed costs. If annual production falls while most fixed spending remains unchanged, costs per generated megawatt-hour rise; a one-third reduction in electricity production with unchanged fixed costs would increase fixed costs per MWh by 50%.
This creates a significant challenge for utilities including EPS, EPBiH, ERS and EPCG. Historically, electricity exports gave Western Balkan utilities an additional source of cash to help finance domestic generation fleets, mines, overhauls and investment. CBAM may weaken that model by making export revenues less predictable even where thermal plants remain necessary for reliable supply.
Investment assessments must separate plant value streams
Future investment assessments need to distinguish three sources of value. Domestic security-of-supply value is what a coal plant saves the system by avoiding imports during periods of scarcity; commercial export value is the margin left after CBAM and all cross-border costs. System flexibility value covers revenue from balancing, reserves, capacity availability or other services.
A historic export margin should no longer automatically be included in a coal mine expansion, power plant rehabilitation or life-extension model. The relevant question is how many profitable operating hours a plant can realistically achieve in a market where access to the EU increasingly carries an explicit carbon cost.
CBAM is unlikely to close Western Balkan coal plants overnight. Domestic electricity systems still require substantial thermal capacity, while hydrological conditions, weather, imports and network constraints can quickly raise the value of coal generation. But coal-fired generation that once 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 could mean lower utilisation, fewer profitable export hours and weaker cash generation. Western Balkan utilities may still need coal capacity for security of supply while losing part of the export business that helped finance the same mines and power stations. The issue is therefore not only electricity trade, but also whether utilities can continue financing large thermal systems whose domestic strategic importance remains high as their external commercial value declines.