Montenegro’s electricity connection with Italy was built around a straightforward commercial proposition: buy electricity in the lower-priced Western Balkans and sell it into the higher-priced Italian market. The EU’s Carbon Border Adjustment Mechanism has changed that calculation by inserting an emissions cost that can be considerably larger than the underlying power-price spread.
For electricity imported from Montenegro using the applicable national default value, the carbon factor in the second quarter of 2026 was 0.979 tonnes of CO₂ equivalent per MWh. With CBAM certificates priced at an average of €75.28 per tonne, the implied adjustment reached approximately €73.70/MWh.
The average Italian price was only around €27/MWh above Montenegro during the quarter. An importer applying Montenegro’s default value would therefore face a carbon cost almost three times larger than the wholesale-price advantage available across the border.
That does not mean the interconnector became commercially irrelevant. Scheduled exports from Montenegro to Italy recovered by around 19% year-on-year in the second quarter, even though the theoretical carbon wedge remained substantial. The recovery suggests traders were considering factors beyond the immediate day-ahead spread, including contract structures, expectations of regulatory amendments, portfolio positions and the possibility of demonstrating lower actual emissions.
Montenegro’s generation mix makes the problem unusually complex. Hydropower and wind can produce electricity with very low operational emissions, but the country also depends on the Pljevlja lignite-fired power plant. During the second quarter, Montenegro produced approximately 0.52 TWh, with output rising 89% from a low comparative base and being driven primarily by Pljevlja, which had been offline in the corresponding period of 2025.
CBAM’s default methodology does not simply reward an individual renewable generator because it has zero direct emissions. Unless the conditions for using actual emissions are satisfied, the importer faces the national default value associated with the exporting country.
For renewable producers, this turns traceability into a commercial asset. A wind or solar project seeking access to an EU buyer must build an auditable chain connecting the generating installation, metered production, contractual delivery, cross-border nomination and the importing declarant.
A guarantee of origin alone is insufficient. Guarantees of origin establish the renewable attribute of a volume of electricity, but CBAM requires a stronger relationship between the electricity generated and the electricity imported. Physical power-purchase agreements, time-matched generation records, interconnection evidence, metering hierarchies and verified emissions documentation become part of the transaction.
This creates a new distinction between ordinary renewable electricity and CBAM-qualified renewable electricity. Two generators may produce the same physical product, but the one with a complete evidence chain may command a higher netback because the EU importer can avoid or reduce the default carbon charge.
The issue is particularly important for EPCG, future private wind and solar developers, traders using the Italy route and industrial buyers seeking renewable electricity with defensible emissions claims. The value no longer lies solely in the megawatt-hour. It also lies in the quality of the data and contracts attached to it.
Uncertainty remains because EU institutions are considering amendments to the electricity methodology. Proposals under discussion include calculating national default factors using the complete electricity mix rather than only its fossil-fuel component and relaxing some conditions for the use of actual emissions, including the no-congestion criterion.
If adopted, the amendments could apply retroactively from 1 January 2026. For Montenegro, a whole-system calculation would probably produce a lower default factor because hydropower and wind account for a significant share of generation. But it would not eliminate exposure while coal remains part of the mix.
Traders must therefore price two regulatory scenarios simultaneously. Under the existing default factor, an implied cost of almost €74/MWh can close most conventional export opportunities. Under a revised factor or an accepted actual-emissions route, renewable electricity could retain meaningful access to the Italian premium.
This uncertainty affects PPAs and project finance. A developer cannot assume that an Italian wholesale price automatically translates into project revenue. The contract must specify who bears CBAM costs, who supplies and verifies emissions data, what happens if actual values are rejected, and whether the price is adjusted following regulatory changes.
The same questions apply to balancing and replacement electricity. A renewable producer may deliver less than forecast and buy power from the market to settle its position. If replacement volumes cannot be traced to the qualified installation, their treatment may differ from the contracted renewable output. The MRV system must therefore distinguish production, nominated delivery, imbalance volumes and guarantees of origin.
EBRD’s Montenegro strategy identifies CBAM exposure, alignment with the EU Emissions Trading System and electricity-market coupling as central priorities. Market coupling could improve price formation and cross-border efficiency, but it will not by itself resolve the carbon-accounting problem. Montenegro must also align its carbon-pricing framework and develop credible plant-level reporting.
The Italy cable is consequently moving from simple geographical arbitrage towards carbon-adjusted contractual trading. Its future utilisation will depend on the interaction between wholesale spreads, EU ETS prices, national default factors, hydrology, Pljevlja’s output and the ability of renewable generators to demonstrate actual emissions.
For Montenegro, the commercial prize is substantial. If it can separate verified renewable exports from the carbon intensity of the wider system, the cable could become a premium route for clean electricity. If it cannot, a default charge approaching €74/MWh will continue to transfer much of the Italian price advantage from exporters to the EU carbon mechanism.
