Montenegro’s electricity system has long relied on hydropower, a source that provides low-carbon generation and periods of surplus at relatively low operating cost. Yet recent debate increasingly underscores the hidden cost of this reliance: volatility. As hydrological conditions fluctuate more sharply, the economic consequences of depending on water inflows are becoming harder to ignore.
In wet years, hydropower supports exports and helps stabilize prices. During dry periods, the system quickly becomes a net importer, exposing the economy to regional price swings and procurement risks. This volatility affects not only the power sector but also inflation dynamics, public finances, and business confidence. Electricity imports in dry spells represent a direct drain on the trade balance and an indirect cost for households and firms.
The challenge is structural, not temporary. Climate variability has increased uncertainty around hydropower output, reducing the predictability that once supported planning. While annual averages may appear acceptable, intra-year swings are growing more pronounced, complicating system balancing and budget forecasting.
For the broader economy, the implication is clear. Electricity volatility leads to cost volatility. Energy-intensive sectors, from hospitality to manufacturing and transport, face fluctuating input costs that are difficult to hedge. For households, volatility ultimately feeds into price pressures, even under regulated tariffs.
Reducing this exposure requires diversification and flexibility. Hydropower will remain central, but without complementary sources and system balancing tools, it becomes a macroeconomic risk rather than a stabilizer. The hidden cost of volatility is not fully reflected in electricity prices, yet it shapes economic outcomes across the board.
