The Energy Community Secretariat’s first quarterly assessment of the EU Carbon Border Adjustment Mechanism (CBAM) for electricity imports reports that CBAM is already affecting electricity trading dynamics across Southeast Europe. The assessment argues that CBAM has begun creating measurable divergence between EU and non-EU power markets. It covers the six Western Balkan Energy Community Contracting Parties: Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. It also examines neighbouring EU markets including Hungary, Croatia, Bulgaria, Romania, Greece and Italy.
The report says the findings reflect operational impacts after the definitive CBAM phase for electricity began on 1 January 2026. It cites early evidence of changes in power flows, day-ahead price spreads, interconnector usage and regional price formation. The assessment also links these shifts to impacts on market coupling and transmission economics. It describes the observed outcomes as a structural break from prior patterns in regional price alignment.
Price convergence weakens between WB6 and EU zones
The Secretariat identifies a breakdown in the long-standing price convergence mechanism between Western Balkans markets and neighbouring EU zones. It states that Southeast European markets previously moved in relatively synchronized patterns, particularly around the Hungarian benchmark. During Q1 2026, it reports that convergence weakened sharply. Day-ahead price spreads between WB6 markets and neighbouring EU zones widened to more than €30/MWh, about two to three times higher than in the same period of 2025.
The report links the divergence to CBAM-related costs reducing arbitrage value even when physical electricity remained cheaper outside the EU. It says imports from non-EU systems became economically less attractive once CBAM certificate costs were included. This occurred despite strong hydro generation across the region that would normally be expected to support exports into higher-priced EU markets. The assessment repeatedly emphasizes that CBAM charges neutralized much of the arbitrage opportunity.
Default emission factors change competitiveness across countries
The assessment provides country-level estimates based on default CBAM emission factors used for electricity imported into the EU during Q1 2026. For Serbia, it reports an average default factor of 1.041 tCO2eq/MWh, implying an estimated CBAM cost of €78.45/MWh. For Montenegro, it reports a default factor of 0.979 tCO2eq/MWh, equivalent to about €73.78/MWh. Bosnia and Herzegovina is reported at €86.51/MWh, while Albania retained a default emission factor of zero.
The Secretariat says Albania’s zero default factor effectively exempted Albanian hydro exports from CBAM charges under its assumptions. It describes Albania as structurally advantaged because its generation mix is hydro-dominated. Montenegro is described as commercially disadvantaged despite strong hydro output in Q1 2026 because its country-level default factor still reflects coal-fired generation within the national system. The report frames these differences as immediately affecting regional competitiveness.
Montenegro–Italy cable shows reduced scheduled exports
The report highlights the Montenegro–Italy submarine cable as an example of how CBAM-related distortions can affect cross-border trading outcomes. It states that Italy South recorded average Q1 2026 prices above €130/MWh, while Montenegro averaged €85.8/MWh. This produced a regional spread of approximately €43/MWh. It reports that scheduled flows from Montenegro to Italy declined by more than 2,100 MWh/day, with physical flows also dropping materially.
The Secretariat concludes that CBAM charges absorbed most or all of the available arbitrage margin as the most plausible explanation for the reduced commercial use of the spread. It notes that auction-clearing prices for cross-border capacity on the Montenegro–Italy interconnector remained almost unchanged compared with 2025 despite the increase in market spread. The report says this indicates traders did not treat the differential as commercially usable after incorporating CBAM costs into their economics.
Serbia’s transit role weakens and volumes fall at SEEPEX
The assessment describes similar dynamics affecting Serbia’s role in regional trading routes. It reports that SEEPEX, described as the region’s largest power exchange, recorded an 11% decline in traded volumes during Q1 2026 while several neighbouring exchanges expanded. The Secretariat links part of this decline to Serbia’s earlier importance as a transit trading corridor between EU markets. It cites routes such as Hungary–Serbia–Bulgaria as examples of strategies that had been commercially attractive before CBAM implementation.
After CBAM introduction, it says those transit strategies became less economically viable due to regulatory uncertainty and financial implications associated with electricity crossing non-EU territory. The report describes a partial rerouting of Southeast European electricity trading away from Western Balkan transit corridors toward “CBAM-free” pathways. It also references new trading structures bypassing Serbia and other WB6 markets, alongside increased intra-WB6 trading.
New routing patterns include Albania-Greece exports and Greece redistribution
The Secretariat reports that some EU-EU corridors and Albania-linked routes gained strategic importance during Q1 2026. It states that exports from Albania into Greece surged. It also says Greece increasingly acted as a redistribution hub toward Bulgaria and Italy. The assessment presents these changes as part of a broader shift in how traders selected routes under CBAM-related constraints.
The report raises concerns about potential fragmentation between EU and non-EU electricity systems if these patterns persist. It describes a scenario in which low-carbon exporters such as Albania benefit from privileged access to EU markets, while coal-exposed systems including Serbia, Montenegro and Bosnia face weaker export economics regardless of hourly renewable output levels. It also warns that uniform default emission factors could weaken incentives for renewable investment in carbon-intensive jurisdictions because exported renewable electricity may still inherit national-level emission penalties.
Renewables may need additional contract structures under default factors
The assessment says its warning intersects with debates around guarantees of origin, hourly matching, PPA structuring and physical traceability for low-carbon electricity exports from the Western Balkans into the EU. It adds that if default national emission factors continue to dominate electricity treatment under CBAM, developers in Serbia, Montenegro and Bosnia may increasingly require additional contractual structures to preserve export competitiveness. The report lists examples including physically traceable renewable PPAs and hourly matched electricity sourcing frameworks.
It also mentions dedicated industrial offtake structures and pre-verification systems capable of demonstrating lower embedded carbon intensity than national averages. The Secretariat frames these requirements as responses to how default factors could affect export economics rather than as changes limited to short-term trading behavior. The assessment connects these issues to longer-term investment planning for renewable projects in affected jurisdictions.
Divergence between schedules and physical flows raises operational concerns
The report also addresses operational system stability concerns linked to differences between commercial schedules and physical flows during Q1 2026. It states that while traders reduced commercial usage of certain WB6 transit corridors, physical electricity continued flowing according to network physics rather than commercial schedules. The Secretariat says transmission system operators depend on commercially scheduled flows for balancing and congestion management.
It warns that widening mismatch between commercial and physical flows could create additional operational stress for regional TSOs and potentially increase system costs and network tariffs. The assessment highlights the South-North corridor running from Greece through Albania and Montenegro toward Bosnia and Croatia as strategically sensitive under stressed conditions.
Hydrology drove generation changes alongside coal declines
The Secretariat reports that hydrology was a major factor during Q1 2026 when interpreting regional generation outcomes alongside market changes attributed to CBAM effects. It states regional hydro generation rose by 33% year-on-year from 16.70 TWh to 22.18 TWh. Albania is reported to have expanded hydro output by roughly 70%, while Greece recorded a 275% increase compared with the low base in 2025.
The assessment also reports coal generation fell by approximately 16% across the region during Q1 2026. It cautions against attributing all observed changes solely to CBAM by emphasizing that Q1 hydrological conditions were exceptional and longer observation periods are needed before drawing definitive structural conclusions based on those conditions alone.
The Secretariat’s central message is that CBAM is already reshaping Southeast European electricity economics ahead of many longer-term compliance structures for carbon alignment mechanisms becoming fully developed. It states that the mechanism is influencing price spreads, transmission economics, market liquidity, route selection, renewable competitiveness and system operation across Southeast Europe during Q1 2026.