Coal remains one of the most difficult issues in the Western Balkans electricity sector. While coal is often described as outdated, replacing the function it still provides is more complex. In several systems across the region, coal contributes to domestic electricity supply, employment, system inertia, dispatchable capacity and political security.
Coal’s position extends beyond generation assets into regional economies and social structures. Because of this, the shift away from coal is not limited to a technology swap. It also involves political economy considerations tied to how power systems operate and how local economies are structured.
Coal dependence across Western Balkan electricity generation
Research on the Western Balkan energy sector highlights significant coal reliance in multiple markets. Kosovo, Serbia, Bosnia and Herzegovina, North Macedonia and Montenegro have relied heavily on coal for electricity generation. Albania is identified as the major exception due to a hydropower-based system.
This pattern creates a reliability dilemma for system operators and planners. Coal plants are aging, often inefficient and emissions-intensive, but they continue to provide firm generation. They can supply electricity when hydro output is weak, imports are expensive or solar generation is unavailable.
Closing coal capacity without replacing its system role would create security-of-supply risk. The source material links this risk to the need for firm generation during periods when other resources cannot cover demand. The challenge is therefore framed around maintaining reliability while reducing emissions-intensive generation.
Carbon costs and export competitiveness under CBAM
Alongside reliability concerns, the economics of coal are described as weakening. The EU Carbon Border Adjustment Mechanism exposes carbon-intensive electricity exports to additional costs when sold into the EU. Reuters reported that electricity from coal-reliant Western Balkan producers is likely to become more expensive for EU importers under CBAM.
The report cited in the source indicates that this would reduce competitiveness in EU markets. Exports have historically supported utility revenues in some countries, according to the source material. If coal-based exports become less attractive, domestic coal plants could lose part of their commercial buffer.
Even if coal plants remain needed for local supply, they may face reduced ability to finance operations and upgrades. The source links this to difficulty in justifying modernization investment under changing market conditions. It also connects financing constraints to compliance requirements and cost of capital.
Environmental compliance and financing constraints
Pollution rules add further pressure on coal assets in the region. Many plants require investment to meet environmental standards, as described in the source material. At the same time, lenders are increasingly reluctant to finance coal projects.
The source notes that even where coal remains technically available, its cost of capital and compliance burden are rising. This combination affects both near-term financing prospects and longer-term investment decisions. It also influences how quickly utilities can address environmental requirements.
Replacing firm capacity with a flexibility portfolio
The transition challenge is presented as more than whether coal faces pressure; it focuses on what replaces coal’s firm capacity function. The source material states that solar alone cannot replace this role and wind alone cannot do so either. Hydro helps but hydrology is uncertain.
Gas is described as a potential flexibility option, but it introduces fuel-price and import-dependence risks. Batteries are characterized as essential for short-duration flexibility, while not fully replacing multi-day firm capacity needs. Demand response can reduce peaks but requires market design and consumer participation.
A realistic transition pathway in the source requires a portfolio approach. It includes renewables, storage, grid upgrades and regional market integration alongside flexible hydro and limited flexible thermal backup. The portfolio also covers demand response, energy efficiency and targeted support for coal regions.
The source adds that domestic carbon-pricing discussions are needed because paying carbon costs at the EU border is described as less useful than recycling revenues into local transition measures. It also emphasizes that social impacts must be addressed through investment before closures rather than after them. Workers need retraining, municipalities need alternative tax bases, and utilities need credible investment plans.
Transition timing, investor risk and replacement infrastructure
The source material warns against a disorderly transition that could increase political resistance and threaten security of supply. For investors, coal-transition risk is framed as both downside and opportunity. Downside includes stranded assets, rising compliance costs and export-market erosion.
The opportunity identified in the source is replacement infrastructure including renewables, batteries and transmission. It also lists district heating modernization, mine-land repurposing and flexible capacity as areas linked to new investment needs. For governments, delay without preparation is described as the worst strategy because aging assets do not become more reliable over time.
The source further states that CBAM does not disappear due to domestic politics difficulties. Waiting is described as compressing the transition into a shorter period that would be more expensive. Coal may remain part of the Western Balkans power mix for some time while its strategic position weakens.
In this framing, reliability will increasingly come from flexibility portfolios rather than single-fuel dependence. Coal’s last stronghold is identified not by generation volume but by firm capacity. The region must replace that firm capacity function with alternatives supported by system planning.
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