Southeast Europe’s rapid expansion of solar and wind power is renewing interest in one of the region’s oldest flexibility technologies: pumped-storage hydropower. Serbia’s planned Bistrica project is among the clearest examples. With around 680 MW of proposed generating capacity and an estimated investment of approximately €1.2 billion, the project would rank among Serbia’s largest energy investments.
The concept behind pumped storage is straightforward. When electricity is abundant and prices are low, water is pumped into an upper reservoir. When demand and prices increase, the stored water is released through turbines to generate electricity. Although a pumped-storage plant consumes more electricity than it produces over a complete cycle, it effectively converts low-cost electricity into dispatchable peak power while providing reserves, inertia and other essential grid services.
Bistrica’s strategic importance is increasing as Southeast Europe’s hourly electricity price profile changes. Rapid solar deployment is pushing prices lower during periods of strong midday generation, while evening prices can rise sharply once the sun sets. Batteries are highly effective for fast, short-duration balancing, but large pumped-storage facilities can store considerably more energy and operate for several decades. The two technologies are therefore complementary rather than competing solutions.
Serbia has approved the spatial plan for Bistrica and has explored potential Japanese participation, with the goal of bringing the project into operation early in the next decade. However, its economics require careful scrutiny. An estimated €1.2 billion investment is not the same as a secured financing package, while major hydropower construction projects face significant geological, environmental and construction risks. Electricity arbitrage alone may not generate sufficient revenues to justify such a capital-intensive asset. Capacity payments, ancillary-service revenues or another mechanism that compensates the plant for its wider system value may therefore be required.
Existing hydropower infrastructure can offer a lower-risk route to increasing flexibility. Romania’s Hidroelectrica signed a €188 million contract in May 2026 to refurbish the 335 MW Râul Mare Retezat hydropower plant. Modernisation can extend asset life, improve efficiency and reliability, and recover flexible generation without the need to build an entirely new dam. Serbia is also preparing the long-delayed reconstruction of the four-plant Vlasinske cascade with support from the EBRD and the European Union.
This points to two distinct hydropower investment markets in Southeast Europe. The first is refurbishment: relatively well-defined projects that restore lost performance and adapt ageing infrastructure to an increasingly variable electricity system. The second is new pumped storage: larger and more complex developments whose long-term value will depend heavily on electricity-market design, financing conditions and the future role of flexibility services.
Environmental and social considerations remain equally important. New reservoirs can alter river ecosystems, inundate land and require the relocation of communities. Albania’s proposed Skavica hydropower project illustrates these challenges. Public cost estimates have increased from earlier figures of €308–510 million to more than €1 billion in some assessments, while financing remains uncertain and opposition has focused on potential displacement and the loss of part of the Black Drin’s remaining free-flowing river section. The Western Balkans Investment Framework describes a 132 MW project capable of producing around 450 GWh annually, although the project’s design and status remain contested.
The strongest hydropower strategy for Southeast Europe is therefore selective rather than indiscriminate. Existing high-value assets should be refurbished where the benefits are clear, pumped storage should be developed where its contribution to system flexibility justifies the cost, and new dam proposals should not automatically be considered sustainable simply because they produce renewable electricity.
As solar and wind take a larger share of the region’s generation mix, the value of hydropower may increasingly lie in flexibility and storage rather than annual energy production alone. Capturing that value, however, will require transparent assessments of financial returns, system benefits, environmental impacts and social costs.
