Montenegro’s undersea electricity link with Italy offers the country direct access to one of Europe’s higher-priced power markets, but an indicative CBAM default cost of almost €74/MWh threatens to block much of that opportunity unless exporters can establish verified installation-specific emissions.
Montenegrin electricity carries a national default factor of 0.979 tonnes of CO₂ per MWh. At the second-quarter CBAM certificate price of €75.28 per tonne, that translates into an estimated cost of €73.70/MWh for electricity imported into the European Union.
The charge is more than twice the average second-quarter price difference between Montenegro and Italy, which was about €27/MWh. In purely spot-market terms, the CBAM default cost can eliminate the entire commercial advantage of exporting through the interconnector.
Yet scheduled Montenegro-to-Italy exports recovered by around 19% year on year in the second quarter. The increase may reflect existing contracts, transit activity, plant conditions or expectations that the EU will revise its electricity methodology.
It does not remove the longer-term problem. Unless the exported electricity qualifies for actual-emissions treatment, Italy’s price premium will frequently be too small to cover the carbon charge.
Montenegro’s default factor is strongly influenced by the Pljevlja lignite power plant, even though the country also has substantial hydropower production and an expanding renewable pipeline.
That creates a mismatch between the national default and the emissions of an individual hydro, wind or solar plant. A zero-emission generator can still be treated as carbon-intensive if the EU importer cannot demonstrate that its electricity meets all conditions for using actual values.
Direct link does not remove evidence burden
The Montenegro-Italy cable provides a relatively clear cross-border route, but access to a physical interconnector is not enough to establish a CBAM actual-emissions claim.
The authorised EU declarant must hold a qualifying physical PPA with the named Montenegrin producer. Where an electricity trader intermediates the delivery, the documentation should form one controlled tripartite contractual structure.
The claimed production must match firmly nominated capacity within a period of no more than one hour. Metering data, schedules, imported quantities and contractual allocations must resolve to the same installation and declarant.
An accredited verifier must review monthly interim reports and certify that the required conditions were met. The final evidence must identify the authorised declarant and the quantity allocated to it.
This makes portfolio exports by EPCG or independent traders more difficult to classify as renewable actuals when hydro, wind, solar and thermal production are commercially aggregated.
To preserve installation-specific treatment, exporters will need controlled allocation rules that prevent the same renewable volume from being sold to several buyers, attached to multiple certificates or claimed simultaneously for domestic and export purposes.
EU reform could sharply improve competitiveness
The Commission has proposed revising electricity default factors so they reflect the whole national generation mix.
That would be especially important for Montenegro. Including hydropower and other renewables more fully in the calculation should produce a lower national factor than one driven mainly by fossil generation.
The proposal would also remove the requirement for actual-emissions claims to prove that no physical congestion existed between the installation and the EU at the hour of export.
The change would simplify deliveries across the Italy cable and over land-based routes because producers would no longer depend on evidence about network conditions they cannot control.
If the reform is adopted as proposed, the electricity provisions could apply retroactively from January 1, 2026. Until then, traders face uncertainty over whether current imports will ultimately be assessed under the existing or amended methodology.
This uncertainty affects more than short-term trading. Revenue forecasts for Gvozd, Gvozd 2 and Montenegro’s emerging solar portfolio increasingly depend on whether renewable electricity can be sold into Italy without inheriting the national thermal-generation factor.
GoO market could unlock additional value
The Commission’s proposal for mutual recognition of Guarantees of Origin between the EU and qualifying Energy Community countries could create a second opportunity for Montenegro.
The country’s electronic GoO registry is operational, and Montenegro issued about 1.35 million certificates in 2024. EU recognition could turn those certificates into a more marketable product for Italian utilities, corporate buyers and traders.
Montenegro would first need to meet the proposed conditions, including full implementation of EU-aligned renewable and electricity rules, registry reliability, double-counting controls, technical transfer tests and either AIB membership or equivalent independent oversight.
GoO recognition would strengthen renewable disclosure and corporate PPAs but would remain separate from CBAM actual-emissions verification.
A certificate can be transferred independently of the physical electricity. CBAM, by contrast, requires evidence that the electricity claimed by the authorised declarant was contracted, produced, nominated and imported through a qualifying chain.
The highest-value Montenegrin export would therefore combine three elements: physical renewable electricity delivered through the Italy cable, a recognised GoO and independently verified CBAM evidence.
Montenegro could also use verified renewable supply domestically. Tourism businesses, ports, data centres and industrial exporters may pay a premium for electricity with credible carbon and origin documentation, particularly as European banks and commercial partners tighten emissions requirements.
But the direct Italian connection remains the country’s most immediate strategic advantage. The cable provides access to a large EU market without the contractual complexity of several transit jurisdictions.
Whether Montenegro can monetise that advantage will depend less on the cable’s technical capacity than on the evidence attached to each exported megawatt-hour. Under CBAM, hydropower may be physically green, but it becomes commercially green only when the EU declarant and verifier can prove where it came from.
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