Montenegro has one of the Western Balkans’ best physical routes into the European Union electricity market. The problem is that Europe’s new carbon border regime has made using it considerably more expensive.
The Montenegro-Italy subsea interconnector provides a direct trading corridor into one of Europe’s higher-priced electricity markets. Yet the first months of the EU Carbon Border Adjustment Mechanism show how quickly the advantage of infrastructure can disappear when carbon accounting is added to the trade.
Energy Community data for the first quarter of 2026 illustrate the problem. The average price spread between Montenegro and southern Italy was around €43/MWh, theoretically providing a strong incentive to export westwards. But Montenegro’s CBAM electricity default factor of 0.979 tonnes of CO2 per MWh translated at the period’s carbon price into an estimated €73.78/MWh CBAM cost.
The carbon charge was therefore larger than the underlying electricity-price advantage.
Commercial schedules from Montenegro towards Italy fell by roughly 2,100 MWh a day, while physical flows fell by about 1,400 MWh a day, according to the Energy Community Secretariat. (energy-community.org)
That creates an obvious opportunity for Montenegro’s wind, solar and potentially hydro generators.
If renewable producers can replace the national default with verified actual emissions, their electricity could regain much of the competitiveness that CBAM has removed.
The catch is that being renewable is not enough.
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The European Commission’s latest guidance, including its Aug. 24 verifier guidance and Aug. 27 CBAM Registry manual, is making clear that low-carbon electricity needs an audit trail almost as sophisticated as the physical infrastructure carrying it.
For Montenegro, that could eventually create two electricity markets: ordinary renewable power and CBAM-verifiable renewable power.
The cable is valuable, but not enough
Montenegro’s position is unusual.
Unlike many electricity producers in the Western Balkans that must reach the EU through several interconnected systems, Montenegro has the high-voltage direct-current connection linking its transmission network with Italy.
That should make the country particularly well suited to selling renewable electricity into Europe.
CBAM complicates the proposition.
Under the existing EU rules, electricity imported from Montenegro is generally assigned the country default unless the authorised CBAM declarant can demonstrate that the conditions for using actual emissions have been satisfied.
The Regulation allows actual emissions where the electricity is covered by a PPA between the authorised CBAM declarant and the third-country producer, the necessary physical-network conditions are met, the producing installation emits no more than 550 gCO2/kWh, firm interconnection capacity has been nominated by the relevant transmission operators, and the nomination and generation relate to the same period of no longer than one hour.
The fulfilment of those conditions must also be certified by an accredited verifier, supported by at least monthly interim reporting. (EUR-Lex)
This means the Italy cable solves only part of the equation.
It provides the physical route. It does not automatically demonstrate that a particular megawatt-hour exported through the interconnector was produced by a particular Montenegrin wind or solar farm.
That link has to be demonstrated through contracts, meters, nominations and verification.
Montenegro’s default creates a particularly large prize
The economics make the distinction important.
A default factor of 0.979 tCO2/MWh bears little resemblance to the direct operating emissions of a wind farm, solar plant or hydroelectric generator.
Yet without qualifying for actual emissions, renewable electricity exported from Montenegro can effectively inherit the carbon characteristics of the broader national electricity system.
That system includes substantial renewable generation but also thermal production.
CBAM therefore creates a mismatch between the physical emissions of individual renewable assets and the regulatory emissions applied to their exports.
For renewable producers, solving that mismatch could be valuable.
The first-quarter Montenegro-Italy example is instructive. A €43/MWh wholesale-price arbitrage was overwhelmed by an estimated CBAM burden of almost €74/MWh under the default methodology. (energy-community.org)
If a renewable generator can demonstrate a much lower actual emission value, part of that destroyed arbitrage potentially comes back.
It is unlikely that the generator would capture the entire avoided CBAM cost. Traders, EU buyers, transmission constraints, verification costs and competition among producers would divide the value.
But the potential pool is large enough to change PPA economics.
A Montenegrin wind or solar plant capable of delivering verified electricity could therefore become commercially more valuable than an otherwise similar project selling electricity without the corresponding evidence package.
That is a significant change in how renewable assets should be assessed.
Resource quality, CAPEX, balancing exposure and wholesale prices remain important. But verifiability is becoming another asset characteristic.
The real product is electricity plus evidence
The emerging CBAM product is not simply a megawatt-hour.
It is a megawatt-hour accompanied by evidence establishing where it was produced, when it was produced, who purchased it, how it was nominated and whether it travelled under conditions meeting the EU methodology.
For a Montenegrin renewable project, the operational chain increasingly looks like:
settlement meter and SCADA → hourly production ledger → PPA allocation → CGES nomination and capacity evidence → Montenegro-Italy transmission records → EU declarant → CBAM verification.
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Weakness at any point can undermine the actual-emissions claim.
A generator may have excellent SCADA data but no contractual mechanism allocating specific hourly production to the EU declarant.
The PPA may be correctly structured but nomination records may not reconcile with plant output.
Or the volumes may match but the transmission evidence may not satisfy the physical-network test required by the EU rules.
This explains why the Commission’s new verification guidance matters.
Accredited verifiers are not being asked merely to sign off a carbon number. They are expected to examine the underlying monitoring system, controls and supporting records.
The Commission published dedicated verification and accreditation guidance on Aug. 24, while accredited CBAM verifiers are able to obtain Registry access from Sept. 1, 2026. Formal verification reports for the 2026 reporting year can be issued from January 2027. (Taxation and Customs Union)
The Aug. 27 Registry manual extends that operating architecture to installations outside the EU, accredited verifiers and EU declarants. (Taxation and Customs Union)
For Montenegrin producers, pre-verification therefore needs to start before the formal verification engagement.
PPAs will have to do more work
The biggest commercial impact could emerge in PPA design.
Traditional renewable PPAs allocate price, volume, balancing risk, settlement, profile risk and guarantees of origin.
A CBAM-focused contract needs to go further.
It needs to preserve the connection between the generator and the authorised EU declarant.
That could mean defining qualifying volumes, hourly allocation procedures, access to production and nomination data, rights for accredited verifiers, responsibility for supplying Registry information and controls against double counting.
The structure becomes more complicated when a producer sells through an intermediary.
Traders remain important to the Montenegro-Italy corridor and can provide market access, balancing and cross-border services. But portfolio trading also creates another layer through which the identity of the electricity must be preserved.
That creates a potentially interesting market tension.
Aggregating generation generally makes electricity trading more efficient.
CBAM actual-emissions verification rewards traceability.
The most commercially efficient trading structure may therefore not always be the easiest structure to verify.
Renewable producers and traders will have to design models that achieve both.
Guarantees of origin cannot bridge the gap
Guarantees of origin will remain useful, but they do not solve the CBAM problem.
A GoO establishes the renewable attribute attached to electricity. It does not prove that the electricity claimed by an EU CBAM declarant satisfies the required PPA, physical-network, nomination and hourly-matching conditions.
That distinction is particularly relevant for Montenegro because an active renewable market could otherwise assume that certified green electricity should naturally receive a low CBAM value.
EU rules do not make that assumption.
The Commission instead demands a stronger relationship between the generating installation and the imported electricity.
A future Montenegrin renewable product may therefore need two layers.
The first is the conventional renewable attribute represented by the GoO.
The second is a CBAM evidence package containing the contractual, metering, nomination, transmission and verification information necessary to support actual emissions.
The second layer could become much more valuable than the first.
Verifier capacity could become a bottleneck
There is another constraint.
Not every carbon auditor can verify electricity for CBAM purposes.
The EU accreditation framework contains a specific LI activity group for electricity imported into the customs territory of the Union. Indirect emissions are covered separately under activity group LII. (EUR-Lex)
That means generic GHG verification competence or EU ETS experience does not automatically establish that a verifier holds the appropriate CBAM scope.
Montenegrin generators planning exports to Italy should therefore check accreditation at the beginning of the process rather than at the end.
As demand for verification grows across the Western Balkans, suitably accredited electricity verifiers could become scarce.
That makes early pre-verification commercially useful.
A producer can identify broken evidence chains, incomplete meter records or unsuitable PPA clauses before an EU-accredited verifier starts formal work.
The alternative is considerably more expensive: discovering after the reporting period that historical evidence needed for an actual-emissions claim cannot be reconstructed.
Montenegro has another possible route
Montenegro also has a longer-term strategic option unavailable through project-level verification alone.
CBAM legislation envisages a temporary electricity exemption for certain third countries whose electricity markets become integrated with the EU through market coupling, provided a demanding set of additional conditions is met.
Those conditions include implementation of EU electricity-market legislation, a Commission-approved roadmap, commitment to climate neutrality, substantial alignment with EU climate policy and movement towards carbon pricing equivalent to the EU ETS. An electricity-sector emissions trading system with an EU-equivalent price would ultimately have to be implemented by Jan. 1, 2030. (EUR-Lex)
Montenegro has made important progress on the electricity-market side.
The Energy Community Secretariat reports that Montenegro has notified full transposition of the Electricity Integration Package across the relevant regulations and directives. The verification process began on March 3, 2026, and the Secretariat communicated its assessment to the European Commission on May 15. As of the Energy Community’s July status update, the Commission opinion was still outstanding. (energy-community.org)
The Italy-Montenegro capacity calculation region already formally links CGES and Terna, while work on the corresponding market methodologies continues. (energy-community.org)
But electricity-market integration should not be confused with an automatic CBAM exemption.
The Regulation requires all exemption conditions to be fulfilled and assessed by the Commission. Market coupling alone is insufficient. (EUR-Lex)
Montenegro therefore effectively has two strategic tracks.
The country can pursue deeper EU electricity-market integration and carbon-price alignment at national level.
Individual generators can simultaneously build the evidence infrastructure needed to qualify for actual emissions.
The second route matters now.
CBAM could alter Montenegro’s renewable investment case
The consequences extend beyond existing electricity exports.
Montenegro is entering a new investment cycle in wind and solar generation. For those projects, the Italy cable has traditionally been presented as a major strategic advantage because it offers access to the Italian market.
CBAM changes the calculation.
Having transmission access to Italy is valuable, but access without carbon traceability may no longer provide the same commercial upside.
Developers should therefore increasingly treat CBAM readiness as part of project development rather than an environmental reporting issue.
Metering architecture should support hourly evidence.
SCADA systems should retain auditable historical records.
Commercial systems should distinguish electricity allocated to different buyers.
PPAs should preserve verification rights.
Trading arrangements should capture nomination evidence.
Guarantees of origin should be reconciled with physical electricity allocations to avoid inconsistent or duplicate claims.
And the entire chain should ultimately be capable of being presented to an EU-accredited verifier.
This also matters for lenders.
A renewable project whose investment case relies heavily on Italian exports should be tested under at least two scenarios: electricity exported using Montenegro’s default CBAM factor and electricity qualifying for actual emissions.
The revenue difference could be material.
That turns CBAM from a compliance issue into a bankability assumption.
The Italy cable is becoming a carbon-data cable too
Montenegro spent years building an electricity bridge across the Adriatic.
CBAM is demonstrating that physical infrastructure alone no longer determines the value of that bridge.
The Energy Community has already found that CBAM distorted electricity trade across the Western Balkans during the first half of 2026 and that renewable producers are encountering practical difficulties proving eligibility for actual emission values. (energy-community.org)
Montenegro is perhaps the clearest example.
Its electricity can physically reach a major EU market through one of the region’s most strategically important interconnectors. Yet a default carbon factor can eliminate a price differential that would otherwise encourage the trade.
That makes verified renewable electricity potentially valuable.
A Montenegrin wind or solar generator able to connect its meter, PPA, hourly output, CGES nomination, cross-border capacity and EU buyer into a single auditable chain could possess something more commercially useful than a conventional green-power contract.
It would have electricity whose low carbon intensity can actually be recognised at the European border.
The difference matters because CBAM does not reward electricity for being green. It rewards electricity whose greenness can be proved within the prescribed trading chain.
For Montenegro, that could turn the next stage of renewable development into a race not simply to build wind and solar capacity, but to build CBAM-verifiable generation capable of using the Italy connection without inheriting the carbon cost of the national default.
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