Montenegro’s state utility Elektroprivreda Crne Gore (EPCG) has entered 2026 under direct financial pressure from the EU’s carbon border framework, with the first measurable impact already materialising in its export revenues.
In the first quarter alone, EPCG recorded a €13 million reduction in revenues linked to the implementation of the Carbon Border Adjustment Mechanism (CBAM), despite strong electricity sales and favourable hydrological conditions.
This marks a structural turning point rather than a temporary fluctuation. CBAM effectively introduces a carbon cost on electricity exports derived from fossil fuel generation, particularly targeting coal-based output such as that from Montenegro’s Pljevlja Thermal Power Plant.
Revenue erosion without pricing flexibility
The most immediate constraint for EPCG is that passing costs onto consumers is not currently an option. Management has indicated that electricity price increases are not being considered, effectively forcing the company to absorb the financial impact internally.
This creates a compression effect on margins. On one side, CBAM reduces achievable export prices; on the other, regulated domestic tariffs limit revenue recovery. The result is a narrowing financial corridor in which profitability depends increasingly on external variables such as hydrology and market spreads.
How CBAM transmits into losses
Although Montenegro is not directly exporting into the EU customs system in all cases, the mechanism operates indirectly through price formation across interconnected regional markets. Electricity prices in EU-linked markets are adjusted to reflect carbon costs, which in turn lowers the achievable selling price for exporters like EPCG.
In practical terms, the company sells electricity at a discount relative to what it would have achieved in a non-CBAM environment—hence the €13 million “lost value” in just three months.
At the same time, regional price dynamics further amplify the effect. Electricity prices in the Western Balkans have been reported to trade €20–70/MWh below EU levels, reducing export arbitrage opportunities and reinforcing downward pressure on revenues.
Coal exposure becomes a financial liability
The structural vulnerability lies in Montenegro’s generation mix. A significant portion of electricity production still depends on coal-fired generation at Pljevlja, making EPCG directly exposed to carbon pricing mechanisms.
Under CBAM logic, coal-based electricity effectively carries an embedded carbon cost that can approach EU ETS levels of €70–80 per tonne of CO₂, compared with significantly lower domestic pricing frameworks.
This creates a widening competitiveness gap. In simplified terms, electricity produced from coal in Montenegro is increasingly more expensive on a carbon-adjusted basis than renewable or low-emission generation within the EU.
Strategic response: shift in market and asset mix
EPCG’s short-term response is tactical: redirect exports toward non-EU regional markets where CBAM does not apply, and limit exposure to EU-linked price penalties.
However, this strategy comes with its own trade-offs. Regional markets are typically lower-priced and more volatile, meaning that avoiding CBAM does not necessarily restore margins.
The longer-term response is already visible in the investment pipeline. The company is advancing:
- commissioning of the Gvozd wind farm
- development of three large solar power plants
- preparation of documentation for the Kruševo hydro project
This signals a gradual pivot toward renewable generation and lower-carbon assets, driven not only by policy alignment but by direct financial necessity.
Broader system implications
The CBAM impact also interacts with recent operational shocks. In 2025, EPCG was forced to import 1,341 GWh of electricity worth €142 million, largely due to the extended outage of the Pljevlja plant and weak hydrology.
This highlights a dual exposure:
- import dependency during supply shocks, often at high prices
- export revenue erosion under CBAM, especially when coal generation dominates
Together, these dynamics compress the utility’s financial resilience and increase reliance on external financing or state support.
Transition is no longer optional
The €13 million quarterly impact is less important in absolute terms than in what it signals. CBAM is effectively pricing Montenegro’s energy transition delay into the market in real time.
Under current conditions, each megawatt-hour exported from coal carries an implicit penalty that cannot be passed on domestically and cannot be fully offset in regional markets. That transforms legacy assets from cash generators into margin-constrained operations.
Montenegro’s energy system is therefore entering a new phase where profitability is structurally linked to decarbonisation speed. The faster EPCG shifts its generation mix toward renewables and flexible assets, the faster it can restore export competitiveness within an increasingly carbon-priced European electricity market.
