Montenegro has one of the strongest renewable electricity positions in Southeast Europe and one of the region’s most direct physical gateways into the European Union. Yet the first months of the EU Carbon Border Adjustment Mechanism have shown that neither abundant hydropower nor a direct submarine connection with Italy automatically makes Montenegrin electricity commercially low-carbon at the EU border.
CBAM is creating a new distinction in Montenegro’s power market between electricity that is renewable in physical terms and electricity whose low emissions can be demonstrated, traced and verified under EU rules.
That distinction matters for two increasingly important markets.
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The first is electricity exported from Montenegro itself, principally through the Montenegro–Italy interconnector, where electricity enters the EU as a CBAM good and the EU importer or authorised CBAM declarant carries the CBAM obligation.
The second is electricity sold domestically by Montenegrin renewable generators to industrial consumers producing goods for export to the EU. In that case electricity does not cross the border as the CBAM good. Instead, its emissions may form part of the embedded emissions of the manufactured product, depending on the product’s CN classification and the applicable CBAM methodology.
The same hydro, wind or solar installation can potentially serve both markets, but the evidence chain required for each is different.
This is becoming strategically important as Montenegro expands renewable capacity. The government reported that renewable sources accounted for 67.19% of electricity consumption in 2024, while the country’s adopted National Energy and Climate Plan targets at least 50% renewables in total final energy consumption by 2030. For 2026, the government’s Energy Balance projected electricity production of around 3,798 GWh and an overall surplus of approximately 398 GWh, supported by the return of the Pljevlja thermal plant, increased solar generation and new renewable capacity.
The problem is that CBAM does not price Montenegrin electricity according to the individual generating technology unless a qualifying actual-emissions claim can be established.
That has already produced one of the clearest examples of CBAM changing electricity-market economics anywhere in the Western Balkans.
During the first quarter of 2026, the average day-ahead price difference between Montenegro and southern Italy was approximately €43/MWh, strongly favouring exports from Montenegro. Under conventional market conditions, such a spread would normally attract substantial flows through the submarine interconnector.
Instead, exports weakened.
The Energy Community Secretariat calculated Montenegro’s applicable electricity default emission factor at 0.979 tCO₂/MWh. With an average EU ETS price of €75.36/tCO₂ during the quarter, that translated into an indicative CBAM exposure of approximately €73.78/MWh.
The carbon component was therefore considerably larger than the underlying Montenegro–Italy wholesale spread.
Scheduled Montenegro-to-Italy flows fell by more than 2,100 MWh per day compared with the first quarter of 2025, while physical flows fell by approximately 1,400 MWh per day, according to Energy Community analysis based on ENTSO-E data.
The implication is significant.
Montenegro can physically generate a large share of its electricity from hydro, wind and solar, but electricity entering Italy may nevertheless be economically treated through a national default factor reflecting the carbon intensity of the wider Montenegrin electricity system, including the Pljevlja lignite-fired power plant.
The individual renewable megawatt-hour therefore does not automatically inherit its plant-level emissions profile when it crosses the EU border.
For a Montenegrin renewable generator, this changes the commercial proposition.
Previously, exporting renewable electricity to Italy primarily required competitive generation, access to transmission capacity, trading arrangements, balancing capability and potentially renewable certificates.
Under CBAM, there is another question: can the EU importer demonstrate that the electricity is eligible to use actual embedded emissions rather than Montenegro’s default value?
That question turns evidence into part of the electricity product.
The EU importer carries the liability, but Montenegro must provide the evidence
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For electricity imported into the EU, the formal CBAM responsibility sits on the EU side.
Electrical energy is a CBAM good under CN 2716 00 00. Where transmission capacity is allocated explicitly, the party holding that capacity and nominating the electricity for import can become the authorised CBAM declarant for the transaction.
That may be an electricity trader rather than the Montenegrin generator itself.
The commercial chain could therefore look like:
Montenegrin RES producer → Montenegrin or regional trader → cross-border capacity and nomination → Italian/EU importer or trader → authorised CBAM declarant → accredited CBAM verifier.
The legal obligation may sit with the EU declarant, but much of the evidence required to justify actual emissions originates upstream in Montenegro.
The producer controls the identity and characteristics of the generating installation. It controls generation and meter data. It holds information concerning the technology and emissions of the installation. It is a party to, or sits behind, the relevant PPA. Other participants then control nominations, transmission capacity, cross-border schedules and import records.
No single participant necessarily possesses the entire CBAM evidence chain.
That is why a renewable producer cannot simply issue an annual certificate stating that electricity came from a hydro, wind or solar plant and expect an Italian declarant’s verifier to accept zero or near-zero emissions.
Under the current CBAM framework, actual emissions for imported electricity represent an exception to the use of default values and must satisfy specific conditions.
These include a qualifying PPA with the third-country electricity producer, applicable network conditions, generation below the regulatory 550 gCO₂/kWh threshold, and firm cross-border nomination matched against generation over periods not exceeding one hour, together with independent verification.
The Commission has proposed simplifying these requirements, including allowing PPAs involving intermediaries where a verifiable contractual relationship links the generator, intermediary parties and importer or authorised declarant. It has also proposed removing one of the current network-congestion tests while retaining an hourly relationship between nominated electricity and production in relevant cases.
For Montenegro this potential change is particularly important.
The Montenegro–Italy route is not simply a generator selling directly to an industrial consumer on the other side of the Adriatic. Real electricity trading frequently involves suppliers, portfolio managers, cross-border traders and other intermediaries.
Allowing those commercial structures while preserving traceability would make the CBAM actual-emissions route considerably more compatible with the way the interconnector is actually used.
But it would not remove the underlying evidence requirement.
It would shift the emphasis from a simple bilateral contract toward a verifiable contractual and physical chain.
The interconnector changes from transmission infrastructure into a CBAM evidence chain
The approximately 600-MW first phase of the Montenegro–Italy submarine link gave Montenegro a direct physical electricity connection with one of Europe’s largest power markets.
CBAM adds another dimension to that infrastructure.
The value of the cable can no longer be evaluated simply through the Montenegro–Italy day-ahead spread.
A trader considering an export must increasingly assess something closer to:
Italian power price minus Montenegro power price minus transmission costs minus balancing and losses minus CBAM exposure.
If electricity falls back on the Montenegrin default factor, the CBAM component can overwhelm an otherwise attractive wholesale spread, as the first-quarter data demonstrated.
But a renewable MWh supported by a verifier-accepted actual-emissions pathway could have radically different economics.
CBAM is therefore capable of creating two prices for electricity originating from the same national system.
One is the value of an ordinary MWh exported under the applicable default emissions.
The other is the value of a MWh for which plant-specific emissions can be successfully demonstrated.
This is why Montenegro’s renewable investment cycle increasingly has to consider verification readiness alongside bankability, grid connection and route-to-market.
New wind, solar and hydro projects designed partly around exports into Italy should increasingly ask at development stage who will own the PPA, who will trade the electricity, who will hold cross-border capacity, how hourly data will be preserved, what information will flow to the EU declarant and how the accredited verifier will eventually obtain sufficient evidence.
A project can be technically excellent and genuinely renewable yet still lose part of its EU market advantage if that evidence chain is missing.
The Energy Community reported in July that renewable developers across the Contracting Parties are already facing practical difficulties demonstrating eligibility for actual emission values, creating regulatory uncertainty and additional compliance costs.
For Montenegro, those difficulties are particularly material because Italy provides a direct and visible test of the difference between renewable generation and CBAM-qualified renewable electricity.
Montenegro has a structural contradiction: a green system with a carbon-heavy default
This issue is magnified by Montenegro’s unusual generation structure.
The country has very substantial renewable generation, dominated historically by hydropower and increasingly supplemented by wind and solar. At the same time, the Pljevlja thermal plant remains significant enough to influence the national carbon intensity used in the electricity default.
Montenegro therefore illustrates a central weakness in the application of country-level defaults to electricity.
Two megawatt-hours can be generated at the same time: one by a hydro plant with very low direct emissions and another by lignite-fired generation. Without qualifying actual-emissions evidence, the renewable electricity exported into Italy can nevertheless inherit a default factor influenced by the thermal plant.
The commercial result is a potential discount on Montenegro’s renewable resources.
That creates a direct economic argument for building plant-specific evidence systems.
It also strengthens the strategic importance of Montenegro’s broader decarbonisation programme. Reducing the role of coal would eventually affect the systemic carbon profile, while expanding renewable production increases the volume of electricity that could potentially support lower plant-specific emissions claims.
Montenegro’s 2026 investment programme already points in that direction. The government expected the 54-MW Gvozd wind farm, around 84 MW of EPCG commercial solar plants, further rooftop solar capacity and approximately 25 MWof additional private solar generation to contribute to a substantial increase in renewable capacity by the end of 2026.
Those assets will increasingly face a choice between selling into the domestic market, regional markets or the EU-facing Italian route.
CBAM evidence quality can influence that choice.
The second market is Montenegrin industry
The opportunity for renewable producers does not end at the Adriatic cable.
A Montenegrin wind, solar or hydro producer can also sell electricity domestically to a factory that exports goods to the European Union.
The CBAM structure is then fundamentally different.
The electricity remains inside Montenegro. It is not imported into the EU and is therefore not itself the CBAM good.
Instead, the CBAM good is the industrial product crossing the EU customs border.
The chain becomes:
Montenegrin RES producer → Montenegrin industrial installation → manufactured product → EU importer / authorised CBAM declarant → accredited CBAM verifier.
In this model, electricity can matter as an indirect emission associated with manufacturing.
But there is an important qualification.
Not all CBAM products currently include indirect electricity emissions in the same way.
Under the present Regulation, most iron and steel products, aluminium and hydrogen are among the goods for which only direct emissions are currently taken into account for the CBAM calculation. Simply buying renewable electricity therefore does not automatically reduce the present CBAM obligation of a Montenegrin aluminium or steel exporter.
For CBAM goods where indirect emissions are included, particularly relevant cement and fertiliser categories, the electricity supplied to the industrial installation can become materially important.
The definitive implementing rules require electricity consumption in relevant production processes to be monitored. Where actual electricity emissions are claimed through a qualifying direct technical link or PPA, the operator must be able to support the claim with corresponding evidence.
This opens a second potential commercial product for Montenegrin renewable generators:
CBAM evidence-ready industrial electricity supply.
Instead of merely selling “green electricity” to a factory, the generator and supplier can structure the electricity supply so that the industrial operator is able to incorporate qualifying electricity evidence into its own emissions monitoring system where the CBAM methodology allows it.
That potentially requires far more than a Guarantee of Origin.
It can require identification of the generating installation, PPA documentation, meter data, consumption data at the factory, hourly or other required temporal matching, allocation methodology and an auditable relationship between generated and consumed quantities.
The evidence then feeds into the industrial installation’s CBAM emissions report, which ultimately supports the EU importer’s declaration.
For Montenegro, this distinction could become relevant well beyond the currently visible CBAM sectors.
Manufacturers exporting products outside the existing CBAM scope can still derive commercial value from renewable electricity through Scope 2 reporting, customer decarbonisation requirements, product carbon footprints, green procurement requirements and access to financing.
But these should not be confused with a direct CBAM reduction.
The correct commercial question is not simply whether the Montenegrin factory buys renewable power.
It is whether the exported CN code is covered by CBAM, whether indirect electricity emissions are included for that product, and whether the electricity evidence meets the applicable methodology.
Guarantees of Origin are valuable, but they are not the complete CBAM file
Montenegro’s increasing renewable generation also raises the importance of Guarantees of Origin and potentially deeper integration with European renewable certificate markets.
But a GO and a CBAM actual-emissions claim are not interchangeable.
A GO establishes an energy attribute. CBAM asks a different question: whether the emissions attached to the electricity used in a specific regulatory claim can be demonstrated according to the prescribed methodology.
For direct electricity exports to Italy, that means the chain must ultimately reach the EU border transaction.
For industrial electricity supply, the evidence must reach the consuming installation and the product emissions calculation where indirect emissions are relevant.
The GO may form part of the broader evidence package, particularly in showing renewable provenance and controlling double claims, but it does not independently prove the physical and contractual conditions required by CBAM.
That distinction could gradually create a premium segment in Montenegro’s renewable market.
A standard renewable supply contract delivers electricity and environmental attributes.
A CBAM-ready renewable electricity product delivers electricity, environmental attributes and a structured evidence package capable of supporting the EU declarant and accredited verifier.
Those are not necessarily commercially equivalent products.
Montenegro’s move towards EU market integration makes the issue more urgent
At the same time that CBAM is introducing friction at the EU border, Montenegro is moving closer to the EU electricity-market architecture.
The country has notified full transposition of the Energy Community Electricity Integration Package, and the formal verification process began on 3 March 2026. The Energy Community Secretariat communicated its assessment to the European Commission on 15 May, although a Commission opinion remained pending in the latest published status. Montenegro and Italy are also treated as a dedicated capacity-calculation region involving CGES and Terna.
The strategic contradiction is evident.
Montenegro is aligning its electricity rules with the European market and possesses a direct physical connection to Italy, yet CBAM can simultaneously make electricity flows across that same connection less economic.
The government itself has described its cross-border electricity legislation as an instrument for opening access to the single European market and giving greater purpose to Montenegro’s connection with Italy.
Resolving this tension will be important both for Montenegro and for the EU.
The Adriatic cable was designed to increase integration, arbitrage, security and access to renewable generation. A CBAM structure that makes genuinely renewable electricity uneconomic because it cannot readily escape a coal-influenced national default risks working against those objectives.
This explains why the developing EU amendments concerning actual electricity emissions matter disproportionately to Montenegro.
The new competitive advantage is not simply renewable generation
For Montenegro’s electricity sector, CBAM therefore changes the definition of a premium renewable asset.
The most valuable export-oriented projects may not simply be the wind farms, solar plants or hydro facilities with the lowest levelised cost of electricity.
They may be the projects capable of combining competitive generation with CBAM-compatible PPAs, robust meter systems, hourly production records, disciplined data management, transparent trader chains, cross-border nomination evidence and verifier-ready documentation.
For electricity sold into Italy, the evidence chain must ultimately survive from the Montenegrin installation to the EU authorised CBAM declarant.
For electricity sold to Montenegrin industry, the evidence must survive from the renewable installation to the consuming factory and, where the product methodology allows, into the verified embedded emissions of the goods exported to the EU.
Neither model allows one participant to solve the entire problem alone.
The renewable producer creates the generation evidence. The trader preserves the commercial chain. CGES, Terna and market arrangements support the cross-border delivery record. The Montenegrin factory controls its industrial consumption and production data. The EU importer or trader carries the declarant obligation. And only the accredited CBAM verifier can provide the formal verification required under the EU system.
The commercial opportunity is to design those interfaces before the verifier arrives.
Montenegro consequently has the potential to develop two parallel markets for its expanding renewable generation: EU-verifiable electricity exported through the Italy interconnector and verification-ready renewable electricity supplied to domestic industry.
Both can create value from the same hydro, wind and solar investment base.
But the first six months of CBAM have already demonstrated that renewable generation alone is not enough.
For Montenegro, the next stage of the energy transition is therefore not simply about producing more green electricity. It is about ensuring that the low-carbon value of that electricity can survive the contractual, metering, trading and verification chain all the way to the European market.
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