Hydropower has traditionally been viewed as one of Southeast Europe’s most valuable electricity assets: renewable, dispatchable and capable of responding rapidly to changes in system demand.
August, however, highlighted a growing challenge for the region’s hydro fleet. Hydropower economics increasingly need to account for hydrological risk, as changing water availability can materially affect both generation and market exposure.
At Serbia’s Đerdap 1, Danube inflows fell to approximately 1,400 cubic metres per second, reducing production to only around 20% of normal output.
The situation at Đerdap 2 was also weak, with generation operating at roughly 30% of normal levels.
The decline came during a period of elevated summer electricity demand, meaning Serbia’s hydro fleet was producing substantially less electricity precisely when the system needed additional supply.
Albania experienced a similar shift in market conditions.
KESH, whose generation portfolio is overwhelmingly dependent on hydropower, moved into electricity procurement during late August after weaker hydrological conditions reduced domestic generation.
Purchase procedures were launched for August 22–30 and subsequently extended to cover August 31–September 30.
For a country that can become a significant electricity exporter during periods of strong water availability, the move toward imports demonstrates how quickly hydrological conditions can alter national power-market positions.
The implications extend directly into project valuation.
Hydropower assets are often modelled using long-term average generation, but such averages can conceal significant differences in annual and seasonal output.
Reservoir-based hydro retains an important advantage because operators can control when electricity is generated, allowing them to respond to market conditions and preserve water for periods of higher demand.
Run-of-river projects, by contrast, have more direct exposure to changes in river flows and therefore face greater sensitivity to hydrological conditions.
The regional nature of water risk adds another layer of complexity.
A prolonged decline in Danube flows can affect multiple generating stations simultaneously, while broader drought conditions across the Balkans can place pressure on hydro production in Serbia, Albania, Montenegro, Bosnia and Herzegovina and North Macedonia at the same time.
That can reduce some of the diversification traditionally associated with regional hydropower portfolios.
Modernisation therefore remains important for improving the resilience and efficiency of existing assets.
During August, Germany agreed to provide Albania with €114 million, comprising approximately €90 million in loans and €24 million in grants, for energy investments including the rehabilitation of the Vau i Dejës hydropower plant and improvements to the transmission network.
Modern turbines, upgraded equipment and improved plant controls can increase the amount of electricity extracted from available water and improve operational flexibility.
They cannot, however, eliminate hydrological volatility.
For investors, this means future hydropower valuations will increasingly need to distinguish between installed capacity, expected annual generation and dependable output during periods of hydrological stress.
As climate and weather patterns become a more important variable in regional electricity markets, the value of a hydro asset will increasingly depend not only on how many megawatts it can generate, but on how reliably those megawatts can be delivered when the power system needs them most.
