South East Europe’s electricity market is frequently discussed in terms of coal, gas and solar, but in several countries the key driver remains water availability. Hydropower is central to the Western Balkans’ generation mix and influences how supply and prices move across seasons.
Albania is the clearest example, with an electricity system that is overwhelmingly hydro-based. Bosnia and Herzegovina, Montenegro, Serbia and North Macedonia also rely on hydropower to varying degrees. Research by Bruegel highlights that Western Balkan generation is significantly reliant on hydropower, with Albania producing close to all of its electricity from hydro.
Hydrology as a market risk for regional supply
Hydropower can provide low-carbon electricity along with flexibility, storage and fast ramping. In wet years, hydro-heavy systems can export electricity and reduce regional prices. In dry years, the same systems can shift toward import dependence and contribute to price stress.
This dependence makes hydrology one of the most important market risks in South East Europe. The 2025 drought conditions provided a reminder of how quickly output can change when inflows fall. AP reported that a severe drought and heatwave affected the Western Balkans, reducing hydropower output in Albania.
The same report said Albania’s government was forced to spend around €60 million on energy imports during the 2025 drought period. The episode reflected a broader constraint: while hydropower plants can adjust generation, water inflows cannot be controlled. Reservoirs can shift energy across hours, days or seasons only when there is sufficient water to store.
Weather-driven demand and limits on solar output
Climate volatility adds another layer to the risk profile. Hot, dry summers can increase electricity demand through air conditioning while reducing hydropower availability. This combination can tighten system balances during periods when hydro output declines.
Solar generation may rise during heatwaves, but it does not cover evening demand unless paired with storage or demand shifting. As a result, solar strength during daytime conditions does not automatically offset reduced hydro availability later in the day. The interaction between temperature-driven demand and variable generation therefore affects daily balancing needs.
Cross-border trade effects during dry hydro seasons
Hydropower variability also affects cross-border electricity trade in the region. Albania can act as an exporter in wet periods and an importer in dry periods. Montenegro and Bosnia and Herzegovina can similarly swing with hydrological conditions.
Because South East Europe operates as a connected regional system, these changes influence neighboring markets beyond national borders. A dry Balkan hydro season can increase imports from EU markets, raise prices and intensify competition for cross-border capacity. The resulting pressure can be felt in both day-ahead trading conditions and capacity allocation decisions.
Forecasting needs for traders and planning for renewables
For traders, hydrological forecasting is described as essential to manage exposure to changing balances. Rainfall, snowpack, reservoir levels, river flows and seasonal temperature outlooks can be as important as fuel prices for modeling supply conditions. A market model that ignores hydrology may miss major balance swings.
Renewable developers also factor hydropower into system design considerations. Solar and hydro are often described as complementary because solar produces during the day while hydro reservoirs can conserve water for evening or peak periods. In theory, hydro can function as a natural battery for solar-heavy portfolios, but this depends on reservoir management, market rules and water availability.
Diversification, modernization and environmental constraints
For policymakers, hydropower risk supports diversification away from single-weather-source dependence. While a hydro-heavy system may be low-carbon, it is not automatically secure under drought conditions. Albania’s experience is cited as an example of how reliance on a weather-sensitive resource can create import risk.
Diversification options mentioned include solar, wind, storage, interconnectors and demand response to reduce exposure to hydrological shocks. For investors, hydro modernization is presented as an opportunity that may be overlooked compared with new-build projects. Upgrades to existing assets can include better turbines, digital controls, improved reservoir management and environmental safeguards.
Pumped hydro may also play a role where geography and permitting allow. However, new hydropower development must be handled carefully due to environmental, biodiversity and social concerns, particularly on sensitive river systems. The region’s need for greater flexibility is described alongside the requirement to avoid ecological costs.
Across the region’s power market dynamics, weather conditions remain central to how prices evolve over time. Sun, heat, rainfall, snow and wind increasingly determine market outcomes alongside fuel-related factors.
Hydropower is expected to remain one of the region’s strategic assets while still being treated as a flexible resource subject to weather risk rather than guaranteed firm supply. Countries that manage this risk are positioned to have an advantage in the next phase of the electricity transition.
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