The introduction of the European Union’s Carbon Border Adjustment Mechanism (CBAM) is rapidly transforming the economics of electricity trade between Southeast Europe and the EU. For Serbia, whose power system remains dominated by lignite generation, the mechanism has effectively created a carbon price barrier that prevents coal-based electricity from competing in EU markets. In response, policymakers and market participants are beginning to examine the concept of “CBAM-compliant electricity”—power that carries sufficiently low embedded carbon emissions to remain competitive when exported into the EU.
The Serbian electricity system is still built around coal resources. The generation fleet of Elektroprivreda Srbije (EPS)includes approximately 4.4 GW of lignite-fired capacity, concentrated in large thermal power plants such as Nikola Tesla A and B and Kostolac B. These facilities supply the majority of Serbia’s baseload electricity and have historically provided relatively low domestic generation costs because the lignite fuel is mined locally.
However, lignite combustion produces high levels of carbon dioxide emissions, typically exceeding 1 tonne of CO₂ per MWh of electricity produced. When exported into the EU electricity market under CBAM, this carbon intensity translates directly into a financial cost linked to the EU carbon price. With EU carbon allowances trading in a range around €70–90 per tonne of CO₂, the implicit carbon cost of Serbian coal-based electricity can exceed €70–80 per MWh, making exports economically uncompetitive.
Developing CBAM-compliant electricity therefore requires reducing the carbon intensity of electricity exported from Serbia. In practical terms, this means shifting the export portfolio toward low-carbon generation sources such as hydropower, wind, solar and potentially energy storage.
Serbia already possesses a modest foundation for this transition. The country operates roughly 3 GW of hydropower capacity, including major facilities along the Danube River such as the Djerdap I and Djerdap II hydroelectric plants, which together represent some of the largest hydropower assets in Southeast Europe. Electricity generated from hydropower has a negligible carbon footprint and would therefore qualify as CBAM-compliant power for export to EU markets.
Yet hydropower alone cannot supply the export volumes required to maintain Serbia’s historical electricity trading position. Hydrological variability means generation levels fluctuate significantly from year to year. A dry hydrological season can reduce hydropower output dramatically, forcing Serbia to rely more heavily on coal generation.
The next stage of CBAM-compliant electricity development therefore involves expanding renewable capacity. Serbia has begun introducing renewable energy auctions designed to stimulate new wind and solar projects. The government has already launched several renewable auctions covering several hundred megawatts of capacity, and project pipelines suggest that wind and solar capacity could grow rapidly over the next decade.
Wind resources in Serbia are particularly promising in the Vojvodina region and eastern Serbia, where several large wind farms are already operating. Solar potential is also substantial, especially in central and southern parts of the country where irradiation levels are higher.
The long-term objective of this expansion would be to create a portfolio of renewable generation assets capable of producing electricity specifically earmarked for export into EU markets. Such electricity could be bundled with guarantees of origin, certifying that the exported power originates from renewable sources and carries minimal carbon emissions.
Energy storage will likely play a complementary role in this system. As wind and solar generation increases, electricity production becomes more variable. Battery storage or pumped hydro storage can help smooth these fluctuations, ensuring that electricity exports remain reliable and predictable.
Serbia already plans to develop the Bistrica pumped storage hydropower project, which could provide large-scale storage capacity capable of balancing renewable generation and supporting cross-border electricity trading.
Financing this transition will require substantial investment. Renewable projects, transmission upgrades and storage facilities together represent a multi-billion-euro investment cycle. International financial institutions, European development banks and private investors are expected to play a major role in funding this infrastructure.
If implemented successfully, CBAM-compliant electricity exports could allow Serbia to maintain its role as a regional electricity supplier while aligning with EU climate policy. Instead of exporting coal-based electricity, Serbia would export low-carbon electricity generated from renewable resources.
This transition would also help domestic industries. Energy-intensive manufacturers such as steel and aluminium producers increasingly require low-carbon electricity to maintain competitiveness in EU markets. Expanding renewable capacity would therefore support both electricity exports and industrial decarbonisation.
Over time, the development of CBAM-compliant electricity could transform Serbia’s electricity sector from a coal-based system into a hybrid energy system combining renewable generation, hydropower flexibility and strategic storage capacity.
Elevated by cbam.rs
