Montenegro’s state-owned utility Elektroprivreda Crne Gore (EPCG) has entered a new financial reality in 2026, with the European Union’s Carbon Border Adjustment Mechanism (CBAM) already translating into direct and indirect revenue losses of €13 million in the first quarter alone.
The figure, covering the period from January to March 2026, marks one of the first concrete financial signals of how CBAM will affect Western Balkan electricity exporters—particularly those still reliant on coal-based generation.
At its core, CBAM functions as a carbon cost equalisation mechanism. It effectively imposes a CO₂-linked levy on imported electricity into the EU, penalising generation sources with high emissions intensity. For Montenegro, where roughly 40–45% of electricity output still originates from the coal-fired TPP Pljevlja, the exposure is structural rather than cyclical.
The immediate impact has not been limited to explicit tax payments. EPCG’s management highlights a more complex transmission channel: CBAM is compressing export prices and eroding competitiveness across regional markets, forcing electricity produced from coal to be sold at discounted levels.
This price distortion is already visible in regional spreads. Electricity prices in Western Balkan markets are trading €20–70/MWh below EU levels, reflecting CBAM-adjusted expectations and buyer reluctance to absorb future carbon costs. The result is a structural margin squeeze on exporters like EPCG, even when CBAM is not directly invoiced.
Operationally, EPCG has responded by redirecting sales toward regional (non-EU) markets, attempting to avoid CBAM exposure where possible and only exporting surplus volumes to the EU when necessary. This shift effectively fragments the market strategy, prioritising volume stability over price optimisation.
The deeper issue lies in cost structure misalignment. Montenegro’s domestic carbon pricing remains at approximately €24 per tonne of CO₂, while EU ETS benchmarks fluctuate between €70 and €80 per tonne. This gap eliminates any competitive buffer when exporting into the EU, forcing producers to absorb the full carbon differential without transitional relief mechanisms.
From a system perspective, the implications extend beyond quarterly earnings. EPCG estimates that, under current parameters, annual CBAM-related costs could reach up to €191 million, a figure that would materially reshape Montenegro’s external balance given that electricity accounts for more than 35% of total exports.
The first-quarter loss must therefore be read as an early-stage signal rather than an isolated event. It coincides with a period of favourable hydrology and increased generation, with output rising to approximately 1,204 GWh in Q1, up nearly 40% year-on-year. Even under these supportive conditions, the company recorded losses linked to CBAM—highlighting how resilient the cost pressure is.
What makes the situation more complex is regulatory uncertainty. The final CBAM calculation methodology for 2026 remains under refinement, and the first actual financial settlements are expected to materialise in 2027, retroactively covering 2026 exports. This creates a scenario where current trading decisions are being made without full visibility on final cost exposure.
EPCG has, for now, avoided passing these costs directly onto domestic consumers, explicitly stating that electricity price increases are not currently under consideration. However, the company does not exclude tariff adjustments in the event of external shocks, particularly if energy markets tighten due to geopolitical developments.
The structural tension is increasingly clear. On one side stands a legacy generation base anchored in coal, providing baseload stability but carrying escalating carbon liabilities. On the other, a rapidly evolving European market framework is pricing emissions at levels that fundamentally undermine the economics of that same baseload.
The €13 million loss recorded in the first quarter does not yet capture the full magnitude of this transition. It represents the opening phase of a broader realignment—one that will ultimately determine whether EPCG can maintain export relevance, or whether Montenegro’s electricity sector must accelerate its shift toward renewable generation and EU-aligned carbon pricing to preserve competitiveness.
