Energy production in Serbia during 2025 illustrates one of the most important structural vulnerabilities in the country’s industrial and economic model: the heavy dependence on hydrological conditions for electricity generation. According to the February 2026 issue of MAT – Macroeconomic Analyses and Trends, the sector “electricity, gas, steam and air-conditioning supply” experienced a complex and uneven trajectory during the year, ultimately recording a decline of 1.8% in 2025 despite partial recovery in the final months.
At first glance, that number appears modest. Yet the underlying dynamics were far more dramatic. Serbia’s electricity generation system is structurally dependent on hydropower, which historically accounts for a significant share of domestic electricity supply. In 2025, drought conditions across Serbia and the broader region sharply reduced hydroelectric production, creating a chain reaction that affected industrial output, energy imports, and the stability of the wider electricity system.
Hydropower production fell approximately 18.5% during 2025 compared with the previous year. That decline was not evenly distributed throughout the year. The MAT report indicates that hydropower output began to fall on a year-on-year basis starting in April 2025, when reservoir levels and river flows began dropping due to persistent dry weather conditions across the Balkans and Central Europe. For several months thereafter, hydro generation remained well below both the 2024 level and the medium-term historical average.
This hydrological shock had immediate consequences for Serbia’s electricity system because hydropower plays a crucial balancing role within the national energy mix. Thermal generation based on lignite remains the backbone of Serbia’s electricity production, but hydroelectric plants provide flexibility, seasonal adjustment, and rapid-response capacity that stabilizes the system during peak demand periods. When hydropower output falls sharply, other generation sources must compensate quickly, often at higher cost.
During 2025, Serbia managed to maintain overall electricity supply stability largely through increased production from thermal power plants and the gradual expansion of solar generation. MAT notes that stabilization in the electricity supply sector became visible from the middle of the year as public power plants increased thermal output and solar installations contributed more electricity to the grid.
Nevertheless, the recovery in the electricity supply sector remained incomplete. Even with stronger thermal production, the sector finished the year with a decline of 1.8% in total output. The main reason was that hydropower losses were simply too large to be fully offset by other sources within the existing system structure.
The timing of hydropower volatility also played an important role. While production remained depressed for most of the year, conditions began to improve toward the end of 2025. Hydropower output increased 16.9% year-on-year in November, followed by further growth of 8.1% in December.
These late-year increases marked the beginning of a hydrological recovery, although they were not sufficient to reverse the annual decline.
The recovery accelerated in January 2026, when hydropower production rose 11.1% year-on-year. According to MAT, this rebound was supported by heavier rainfall and snowfall across Serbia, the wider Balkan region, and Central Europe during the winter season. Increased precipitation improved reservoir levels and river inflows, allowing hydroelectric plants to return closer to their long-term operating averages.
From a macroeconomic perspective, these fluctuations illustrate how weather conditions increasingly shape Serbia’s industrial and energy performance. Electricity production is not merely an energy-sector statistic. It also affects the functioning of heavy industry, manufacturing supply chains, export competitiveness, and the cost structure of the broader economy.
The MAT report underscores that the electricity supply sector accounts for approximately 15.3% of Serbia’s total industrial production. This means that changes in electricity generation have a direct impact on overall industrial statistics. When hydropower output drops sharply, the industrial sector immediately reflects the shock.
The consequences extend beyond domestic production. Lower hydropower generation can increase Serbia’s dependence on electricity imports, particularly during periods of high consumption or low thermal plant availability. Importing electricity from neighboring countries can raise costs for the energy system and potentially affect industrial electricity prices.
In 2025, the hydropower shock therefore interacted with other industrial challenges, including the collapse of refining output in the petroleum sector and the slowdown in European manufacturing demand. Together, these factors produced a complex industrial environment in which several structural vulnerabilities became visible at the same time.
Hydropower volatility also highlights the broader energy transition dilemma facing Serbia and many other countries in Southeast Europe. On one hand, hydropower is a renewable energy source that provides low-carbon electricity and contributes to climate policy goals. On the other hand, hydroelectric generation is inherently dependent on weather patterns that are becoming increasingly unpredictable due to climate change.
Periods of drought can sharply reduce hydroelectric production, while extreme rainfall events can create operational challenges and infrastructure stress.
This growing variability means that hydropower alone cannot provide the reliability that electricity systems require. Instead, energy systems must develop complementary sources of generation and flexibility that can compensate when hydro production declines.
In Serbia’s case, thermal power plants fueled by lignite currently perform much of this balancing role. However, the long-term viability of lignite generation is increasingly questioned due to environmental concerns and European climate policy trends.
At the same time, solar energy capacity has begun expanding across the region, including in Serbia. Solar generation can provide additional electricity during sunny periods, but it also introduces its own variability because production depends on daylight conditions and seasonal cycles.
The interaction between hydropower variability and solar expansion therefore creates a more complex electricity system that requires stronger grid management, energy storage capacity, and flexible generation sources.
These structural issues are not unique to Serbia. Many countries across Europe are facing similar challenges as renewable energy penetration increases and climate patterns become less predictable.
However, the Serbian case has several specific characteristics. First, the country’s electricity system historically relied heavily on a combination of lignite generation and hydropower. Second, electricity supply is tightly connected to industrial performance because heavy industry remains an important component of the national economy. Third, Serbia’s integration with regional electricity markets means that fluctuations in domestic generation can influence cross-border trade flows.
For these reasons, hydropower volatility should not be interpreted as a temporary anomaly in the energy statistics of 2025. Instead, it represents a structural feature of Serbia’s energy landscape that will likely become more prominent in the coming years.
The MAT report indirectly points to this conclusion by emphasizing the dual nature of Serbia’s energy challenges. On one side stands hydrological uncertainty affecting hydroelectric generation. On the other stands geopolitical risk affecting petroleum refining and energy ownership structures. Together, these forces create a more complex energy-risk environment than Serbia faced in earlier decades.
The partial hydropower recovery observed in late 2025 and early 2026 therefore provides only temporary relief. Even if hydro production returns to normal levels in a given year, the underlying vulnerability remains.
For policymakers and energy planners, the key issue is not simply whether hydropower output increases or decreases in a particular season. The real question is how resilient the electricity system is when hydropower fluctuations occur.
A resilient energy system requires diversified generation capacity, strong transmission infrastructure, and flexible balancing mechanisms that can absorb variability without destabilizing industrial production or electricity markets.
Serbia has already begun moving in this direction through investments in solar power and modernization of thermal generation. However, the hydropower shock of 2025 suggests that additional measures may be necessary.
Energy storage technologies, pumped-storage hydro facilities, and expanded regional electricity trade could all play important roles in reducing exposure to hydrological volatility.
Equally important is the development of more sophisticated electricity market mechanisms that allow flexible generation and demand response to balance supply fluctuations efficiently.
The events of 2025 therefore serve as a reminder that energy security is not determined solely by fuel availability or installed capacity. It is also shaped by environmental conditions and system flexibility.
In Serbia’s case, hydropower volatility demonstrated how quickly weather-driven changes can influence the broader industrial and economic landscape.
While the country succeeded in maintaining electricity supply stability during the year, the experience revealed the limits of the existing system and the importance of continued modernization.
As Serbia continues integrating its energy system with European markets and expanding renewable generation capacity, managing hydrological risk will become an increasingly central challenge for policymakers, utilities, and industrial consumers alike.
