Gas-fired power generation occupies an uncomfortable position in South-Eastern Europe’s electricity transition. It is widely acknowledged as necessary for system balancing, yet increasingly criticised for its cost, emissions, and geopolitical exposure. In practice, gas has become the region’s primary short-term insurance against volatility, even as long-term policy narratives question its legitimacy.
This tension reflects a structural reality. As coal and lignite units face declining utilisation and hydropower becomes less reliable, gas plants increasingly fill the balancing gap. They are dispatched not because they are cheap, but because they are flexible, fast-ramping, and available when other options fail. In recent years, gas has emerged as the marginal technology during scarcity hours across much of SEE.
The quantitative footprint of gas in price formation is substantial. During tight system conditions, gas-fired units often set prices in the €150–250/MWh range, depending on fuel costs and carbon exposure. During extreme stress events, when imports are constrained and renewables underperform, marginal prices can rise far higher, reflecting not fuel scarcity but system inflexibility. These episodes are disproportionately influential: a small number of hours can account for a large share of annual revenue for gas plants.
Yet utilisation remains low. In many SEE systems, gas plants operate at annual load factors below 20–30 percent, sometimes far lower. This creates a paradox. Assets that are system-critical operate too infrequently to recover costs through energy markets alone. As a result, gas capacity survives either through implicit state support, capacity payments, or cross-subsidisation within vertically integrated utilities.
From an economic perspective, gas plants in SEE increasingly resemble insurance contracts rather than production assets. Their value lies in availability, not output. This shifts the debate away from “how much gas power do we need?” toward “how do we pay for the option to use gas when needed?” The distinction matters because energy-only markets are ill-suited to remunerate insurance value.
The geopolitical dimension complicates matters further. South-Eastern Europe remains heavily dependent on imported gas, whether via pipelines or LNG. Fuel price volatility and supply risk are therefore embedded in electricity prices. Even when domestic policy seeks to limit gas reliance, regional price coupling transmits gas-driven marginal pricing across borders. Gas exposure cannot be isolated nationally.
Carbon pricing adds another layer of uncertainty. As carbon costs rise, gas-fired marginal prices increase, amplifying volatility during scarcity events. This reinforces political opposition to gas, even as system operators rely on it for stability. The contradiction is structural: the cleaner the system becomes on average, the more expensive the marginal balancing hour can be.
The alternative balancing options are not yet sufficient. Storage deployment in SEE remains limited relative to system needs. Demand response is underdeveloped, particularly in industrial sectors. Cross-border balancing is improving but remains constrained by grid bottlenecks and uneven integration. In this context, gas remains the only scalable, dispatchable option capable of responding rapidly to system stress.
Quantitatively, the stakes are high. Removing or under-compensating gas capacity prematurely would materially increase the probability of extreme price events and security interventions. Conversely, over-reliance on gas exposes the system to fuel and carbon shocks. The optimal path lies in treating gas as a transitional balancing asset whose role declines gradually as alternative flexibility sources mature.
This requires policy clarity. Gas plants cannot be expected to survive on energy revenues alone, nor should they be locked into baseload roles. Capacity remuneration mechanisms, strategic reserves, or availability payments can align incentives with system needs, provided they are designed to reward flexibility rather than fossil persistence.
For SEE, the political sensitivity of gas complicates implementation. Public discourse often frames gas as a failure of decarbonisation rather than a symptom of incomplete flexibility infrastructure. This framing risks underinvestment in system resilience. A more pragmatic narrative recognises gas as a declining but necessary bridge, whose role must be explicitly managed rather than implicitly tolerated.
The financial implications are non-trivial. Maintaining sufficient gas balancing capacity could cost hundreds of millions of euros per year across the region when availability payments, maintenance, and fuel risk are considered. However, these costs must be weighed against the economic damage of uncontrolled price spikes, industrial disruption, and emergency imports.
In the medium term, gas’s role will shrink as storage, demand response, and cross-border integration expand. In the near term, it remains indispensable. South-Eastern Europe’s electricity systems cannot afford to pretend otherwise.
Gas as a balancing asset is therefore not a contradiction. It is a reflection of transition physics. The challenge for SEE is to integrate gas into a coherent system strategy that limits its exposure while preserving its stabilising function. Failure to do so risks replacing managed dependence with unmanaged volatility.
By virtu.energy
