Electricity price formation across South-East Europe is strongly influenced by the interaction between fuel markets, hydrological conditions and the growing presence of renewable energy. The region’s generation mix combines legacy thermal power plants with extensive hydropower resources and rapidly expanding solar capacity. This combination creates a complex system in which multiple technologies compete to set the marginal cost of electricity.
Current generation data indicate that hydropower accounts for approximately 30 percent of total electricity production across the SEE region. Coal-fired plants contribute around 19 percent, natural gas another 19 percent, nuclear generation about 14 percent, solar roughly 12 percent, and wind close to 3 percent. This mix highlights the continued importance of both thermal and renewable generation in shaping electricity prices.
Hydropower plays a particularly important role in regional electricity trading because of its operational flexibility. Unlike coal or nuclear power plants, which operate most efficiently at stable output levels, hydropower facilities can adjust generation rapidly in response to market conditions. Reservoir-based hydropower plants can store water during periods of low electricity prices and release it during high-price periods, effectively acting as natural energy storage systems.
When hydrological conditions are favourable and reservoirs are full, hydropower generation increases, pushing electricity prices lower across the region. Conversely, during dry periods when water availability declines, the electricity system must rely more heavily on thermal generation. Under these circumstances, the marginal price of electricity is often determined by the cost of operating gas-fired power plants.
Natural gas therefore remains a crucial marginal fuel for electricity markets across South-East Europe. Current forward prices for Central European natural gas have recently hovered around €48 per megawatt-hour, influencing the operating costs of gas-fired power plants throughout the region. Because these plants often serve as flexible backup generation for renewable energy, fluctuations in gas prices can quickly translate into changes in electricity prices.
Coal generation continues to provide a significant portion of baseload electricity in several Balkan countries, particularly Serbia, Bosnia and Herzegovina and Bulgaria. However, coal plants generally have higher carbon emissions than other generation technologies. As carbon pricing under the European Union Emissions Trading System continues to evolve, coal generation may become increasingly expensive relative to gas or renewable energy sources.
Renewable energy is introducing new dynamics into SEE electricity markets. Solar generation has expanded rapidly in several countries, particularly Greece, Bulgaria and Romania. Solar output typically peaks during midday hours when sunlight is strongest. During these periods, electricity supply can exceed demand, causing prices to drop sharply. In some European markets with very high solar penetration, prices occasionally fall to zero or even negative levels during midday periods.
Although the SEE region has not yet reached the extreme levels of solar generation seen in parts of Western Europe, similar patterns are beginning to emerge. Day-ahead electricity prices often decline during daylight hours when solar production is high and then rise sharply in the evening when solar output disappears but demand remains strong.
This phenomenon, sometimes referred to as the “duck curve,” creates significant price volatility within a single day. Electricity prices during evening peak hours can exceed €250 per megawatt-hour in some markets, while midday prices may fall dramatically. Such volatility creates opportunities for electricity traders who can anticipate these price movements.
Energy storage technologies are becoming increasingly important for managing this volatility. Large-scale battery installations and pumped-hydro facilities can store electricity during low-price periods and release it during high-price periods. Hungary, for example, recently commissioned a major battery storage facility near Győr with a capacity of nearly 100 megawatt-hours and an output of 49.9 megawatts, representing a significant step toward greater flexibility in the regional electricity system.
As renewable energy capacity continues to grow, the importance of flexible resources such as hydropower, gas-fired generation and battery storage will increase. These technologies allow electricity systems to respond rapidly to fluctuations in renewable output, ensuring that supply remains balanced with demand at all times.
The interaction between gas markets, hydropower availability and renewable generation will therefore remain a central driver of electricity price formation across South-East Europe. Traders who monitor these variables closely can gain valuable insights into future market movements. Changes in reservoir levels, weather forecasts and fuel prices often provide early signals of potential shifts in electricity prices.
In the coming years, the SEE electricity market is likely to experience increasing volatility as renewable capacity expands. While this volatility presents challenges for electricity system operators, it also creates opportunities for market participants capable of navigating complex price dynamics. Understanding the relationships between fuel costs, hydrological conditions and renewable generation will remain essential for anyone involved in electricity trading across the rapidly evolving power markets of South-East Europe.
