Montenegro’s electricity transmission operator, CGES, is preparing for a sharp fall in regulated revenue from 2027 after earning approximately €100 million more than projected from cross-border transmission capacity and the submarine electricity cable connecting Montenegro with Italy.
Under the regulatory methodology, the excess revenue generated between 2022 and 2025 must be reflected through lower transmission charges during the next regulatory period, covering 2027–2029. The adjustment should reduce the CGES component of electricity bills paid by households, businesses and other network users, while part of the benefit may also be allocated to domestic electricity producers.
The measure is not a conventional cash refund paid directly to consumers. The Regulatory Agency for Energy and Regulated Utilities is expected to deduct the accumulated excess from the amount CGES would otherwise be permitted to recover through network tariffs.
Spread evenly across the three-year period, a €100 million correction would be equivalent to approximately €33 million a year. The actual annual distribution may differ depending on the regulator’s final decision, the allocation between consumers and generators, and CGES’s approved operating costs, regulated asset base and investment requirements.
The total amount becomes clearer when the annual figures are combined. CGES generated excess revenue of approximately €34.5 million in 2022, €35.7 million in 2023, around €16 million in 2024 and €23.5 million in 2025. Approximately €9.5 million was already incorporated into reduced tariffs during 2025.
The remaining balance is therefore close to €100 million, although the definitive correction will be established by the regulator rather than CGES.
The excess was generated principally through congestion revenue and fees for allocating cross-border transmission capacity, including capacity on the approximately 600 MW Montenegro–Italy submarine interconnector. The cable links the Montenegrin transmission system with the Italian market and has transformed Montenegro into an electricity transit and trading hub between southeastern and western Europe.
When price spreads between Italy and the Balkans widen, traders are willing to pay more for scarce interconnection capacity. Those auction revenues can substantially exceed the conservative assumptions embedded in a transmission operator’s regulated-income calculation.
CGES’s gains were therefore produced by the commercial value of the network rather than by higher domestic electricity consumption. The cable and the supporting Lastva–Pljevlja transmission corridor allow electricity to move between Italy, Montenegro, Serbia and the wider Southeast European system.
The regulatory principle is that a transmission monopoly should not retain unlimited windfall earnings from infrastructure financed through regulated tariffs and supported by network users. Cross-border income should be used to maintain or expand interconnection capacity or reduce the charges collected from consumers and generators.
Montenegrin consumers previously financed part of CGES’s investment programme through electricity bills. The new correction effectively returns part of the infrastructure’s stronger-than-expected financial performance through lower future tariffs.
The mechanism also demonstrates the economic value of international interconnection. Without the cable and associated grid reinforcement, households would not receive the indirect tariff benefit now being discussed, while Montenegro would have less capacity to export renewable electricity or serve as a transit market.
The precise effect on an individual household bill remains uncertain. The €100 million represents a reduction in CGES’s permitted revenue across all transmission-system users rather than a direct household subsidy. It will be distributed across different customer categories, voltage levels and tariff components.
The final retail bill also includes the cost of electricity supplied by EPCG, distribution charges collected for CEDIS, network losses, renewable-energy items, taxes and other regulated components. A lower CGES charge could therefore be partly offset by changes elsewhere in the electricity bill.
The earlier €9.5 million correction applied in 2025 reduced CGES transmission charges, but its effect on the final consumer price was below 2 per cent because transmission represents only one component of the bill. The much larger correction planned for 2027–2029 should produce a more visible effect, although it will not translate euro-for-euro into household savings.
For CGES, the adjustment represents a substantial change in earnings rather than a simple accounting exercise. Management expects annual profit during the next three years to fall to between €1.4 million and €1.7 million, compared with approximately €21 million in 2025.
At the lower end, that would represent a profit reduction of more than 90 per cent. The decline would affect dividend capacity, internal financing and the company’s ability to fund grid investment without borrowing.
CGES responded to the anticipated correction by limiting its 2025 dividend. Although the company earned €21 million, shareholders approved a distribution of only €5 million, retaining the remainder to protect liquidity ahead of the new regulatory period.
The company’s ownership makes the dividend decision relevant beyond minority investors. The Government of Montenegro holds 55.38 per cent, Italy’s Terna owns 22.09 per cent, and Serbia’s transmission operator Elektromreža Srbije holds 15 per cent. Natural persons and smaller institutional investors hold the remaining shares.
A €5 million dividend implies approximately €2.77 million for the Montenegrin state, €1.10 million for Terna and €750,000 for EMS before any applicable tax treatment. A larger distribution would have increased immediate shareholder returns but reduced the capital available for transmission investment.
CGES expects to retain approximately €115 million in accumulated earnings after the dividend payment. At the end of 2025, it held around €55.3 million in cash.
These figures should not be treated as interchangeable. Retained earnings are an accounting measure accumulated over time, while cash represents liquidity available at a particular date. Part of the retained profit may already be embedded in substations, transmission lines, receivables and other assets.
The financial pressure arrives as CGES prepares its largest investment cycle in years. The company’s 2026–2030 investment plan totals €194.1 million, covering network modernisation, system reliability and the capacity required to connect a growing pipeline of wind, solar and battery-storage projects.
CGES estimates that it will need approximately €55.9 million in additional external financing to complete the programme. The projected gap begins at €2.6 million in 2027, rises sharply to €32.4 million in 2028, falls to €13 million in 2029 and reaches €7.9 million in 2030.
The timing indicates that the largest funding pressure will coincide with the middle of the tariff-correction period. It also suggests that planned construction expenditure accelerates during 2028, when internally generated cash flow is expected to be weakest.
Borrowing €55.9 million against a €194.1 million investment programme would mean that almost 29 per cent of planned capital expenditure must be financed externally. The share could rise where projects overrun, the regulatory return is reduced further or cross-border income weakens.
CGES should remain financeable because it operates strategic monopoly infrastructure, has substantial retained earnings and benefits from stable institutional ownership. Its shareholders include two major European transmission operators, while its investment programme may attract financing from the European Bank for Reconstruction and Development, the European Investment Bank and commercial banks.
Lower regulated earnings may nevertheless weaken debt-service coverage and increase the importance of predictable regulatory treatment. Lenders will examine whether the tariff methodology allows CGES to recover efficient operating costs, depreciation, financing costs and a reasonable return on new assets after the exceptional historical correction has been absorbed.
The regulator is also preparing methodological changes that could reduce CGES’s permitted income beyond the correction for excess revenue. The company has identified potential changes to the quality factor, the allowed return on regulated assets and the treatment of costs outside management control.
A lower allowed return reduces the earnings generated by every euro invested in substations, lines and control systems. Stricter quality factors can also expose the operator to penalties where service reliability, outages or network performance fall below regulatory targets.
Such incentives are intended to protect users from inefficient expenditure. Applied too aggressively during a large capital programme, they can create a circular problem: the operator loses the cash needed to strengthen the network and then faces quality penalties because investment has been delayed.
The challenge is particularly acute because Montenegro’s renewable-development pipeline is expanding faster than the operating grid. New generation capacity cannot be integrated simply by issuing construction permits. It requires connection studies, substations, transformers, reactive-power capability, protection systems, SCADA integration and sufficient transmission capacity under credible contingency conditions.
Wind projects require grid infrastructure capable of absorbing high production across broad regional weather patterns, often during winter and shoulder seasons. Their higher capacity factors and different generation profile make them systemically distinct from solar.
Solar development places greater pressure on midday network capacity and can create local congestion and curtailment as projects cluster around favourable connection points. Battery storage can reduce some of that pressure, but only when its operating incentives and grid connection are coordinated with system needs.
A delay in CGES investment would therefore move cost from the regulated network to renewable developers. Projects may face longer connection periods, higher curtailment assumptions and additional requirements for privately financed connection assets.
For lenders, a 12–18 month grid delay can reduce project equity returns through higher interest during construction, delayed power sales and extended development overhead. Even where the underlying renewable resource remains strong, a prolonged connection delay can weaken debt-service coverage and force sponsors to inject more equity.
The regulator must therefore distinguish between excess income that should properly be returned to consumers and capital required for approved, efficient network expansion. The €100 million correction reflects historical over-recovery, while the €194.1 million investment programme concerns future system needs. Treating both as part of the same distributable cash pool would undermine long-term tariff stability.
CGES’s unusually strong profits since the Italy interconnector became operational demonstrate that its regulatory forecasts underestimated cross-border revenues. Net profit rose from around €3.6 million in 2019 to €35.7 million in 2023, before moderating as partial corrections began.
This raises a second policy issue: whether large congestion revenues should be forecast more accurately and applied sooner. Delaying corrections produces temporary windfall profits followed by abrupt tariff reductions several years later. That creates volatility for consumers, shareholders and investment planning.
A smoother mechanism could update cross-border revenue assumptions annually or place excess income into a dedicated network-development account. Such an approach would reduce later tariff shocks while preserving funds for projects that expand cross-border capacity and integrate renewable generation.
The treatment also has implications for CGES’s market valuation. The company is listed on the Montenegro Stock Exchange, and investors must separate recurring regulated earnings from temporary congestion income. Profits earned during 2022–2025 were not entirely available for permanent distribution because a substantial part would later be reversed through the regulatory mechanism.
The limited 2025 dividend confirms that management and the board regard the excess revenue as economically encumbered. A high historical profit does not translate into a permanently higher dividend where the regulator is entitled to offset it against future tariffs.
The regulatory correction may also affect the government’s fiscal position. Montenegro benefits from CGES through dividends and its majority ownership, while consumers benefit through lower network charges. Returning excess income through tariffs shifts value from the state’s dividend stream towards households, businesses and electricity producers.
That redistribution can support disposable income and industrial competitiveness, but it also reduces the resources available to a state-controlled infrastructure company. The government may ultimately recover part of the difference through lower borrowing needs elsewhere in the economy or through stronger tax receipts from businesses facing reduced electricity costs.
Cross-border revenue itself may become less predictable. The EU’s Carbon Border Adjustment Mechanism introduces a carbon cost for electricity imported into the Union from carbon-intensive systems. This is not a direct fine imposed on CGES, but it can change trading flows and the value of capacity towards Italy.
Exports backed by coal-intensive generation may become less competitive once EU importers must account for embedded emissions. That could reduce use of the cable during some periods, narrow congestion income and increase the value of verifiable low-carbon electricity produced from hydro, wind and solar.
The effect will depend on regional prices, carbon values, the methodology used to determine electricity emissions and Montenegro’s progress towards market coupling and alignment with EU electricity rules. A decline in coal-related exports may be offset by growing renewable production and increased transit between neighbouring systems.
The cable’s strategic value therefore remains intact, but its revenue profile could change. Capacity income generated by volatile price spreads should not be treated as a guaranteed substitute for stable regulated revenue.
The €100 million adjustment ultimately reflects the success of an infrastructure investment that performed better than the regulator expected. Consumers are entitled to share that benefit, while CGES must enter the next cycle with far less profit and a substantially higher borrowing requirement.
The durable regulatory balance lies between immediate tariff relief and the cost of an underbuilt grid. Montenegro can reduce bills from 2027 while preserving investment only by ring-fencing approved capital expenditure, maintaining a financeable return on new assets and ensuring that the €55.9 million funding gap does not become a bottleneck for the country’s renewable-energy pipeline.
