Serbia’s prolonged drought has significantly changed the strategic role of its hydropower assets, exposing the vulnerability of a system that depends on water availability as much as installed generation capacity. Extremely low Danube inflows at the Đerdap hydropower complex, which fell to around 1,500 cubic metres per second, pushed electricity production to the lowest levels recorded since the plants entered operation.
Although generating units remained technically available, hydrological conditions sharply limited actual output. Đerdap 1 operated at approximately 20% of installed capacity, while Đerdap 2 operated at around 30%, showing that available infrastructure alone cannot guarantee electricity production when water resources become constrained.
The impact of the drought extended beyond hydro generation. Lower Danube water levels reduced cooling efficiency at the Kostolac thermal power complex, forcing some coal-fired units to cut output by approximately one-third. At the same time, electricity consumption increased to 100–105 GWh per day, approaching winter peak demand levels of 110–115 GWh, driven largely by higher air-conditioning use during extreme temperatures.
As a result, Elektroprivreda Srbije (EPS) faced a combination of reduced hydropower production, restricted thermal availability and elevated electricity demand. The situation demonstrated the increasing importance of flexible generation assets capable of responding quickly to changing system conditions.
One of the most valuable resources during the crisis was the rehabilitated Bajina Bašta pumped-storage hydropower plant. With reservoir levels at approximately 75%, the facility was able to absorb electricity during periods of lower prices, particularly during hours of strong solar generation, and release energy during morning and evening demand peaks.
Pumped-storage facilities do not create additional electricity in net terms, as the pumping process consumes more energy than is later recovered. Their strategic value comes from shifting electricity between different market periods, providing balancing services, supporting system reserves and reducing exposure to extreme prices during periods of limited supply.
The same principle is driving Serbia’s plans for the future Đerdap 3 pumped-storage hydropower project. The country has launched a procurement process worth around €5.3 million for a general design, preliminary feasibility study, special-purpose spatial plan and strategic environmental assessment.
Current concepts envisage a reversible hydropower facility with between 1,200 MW and 2,400 MW of capacity and a hydraulic head of approximately 400 metres. The existing Đerdap 1 reservoir would serve as the lower basin, while potential upper reservoir locations include Pešača or Brodica on Severni Kučaj.
However, Đerdap 3 should be viewed as more than a conventional power-generation project. Its economic value would need to come from multiple functions, including energy arbitrage, balancing services, reserve capacity, congestion management and potentially strategic capacity mechanisms.
A purely merchant investment model would be challenging for a project requiring billions of euros, a long development period and complex environmental approvals within the Đerdap National Park. Cooperation with Romania would also be essential because the project would interact with the shared Danube hydropower and navigation system.
The project’s procurement structure will therefore play an important role in determining its long-term bankability. A consortium led by Bechtel and ENKA was the only applicant to qualify for the next stage of a government process aimed at attracting US participation, following six initial applications.
While having one qualified bidder could accelerate project discussions, it may also reduce competitive pressure during negotiations. Serbia will need clear separation between early-stage studies, project development, engineering-procurement-construction arrangements, financing structures and final investment approval to ensure confidence among international lenders.
Alongside large-scale storage development, upgrading existing hydropower facilities represents a lower-risk opportunity to strengthen system resilience. EPS plans to invest €109.7 million in the modernisation of the Vlasinske hydropower cascade, supported by a €67 million EBRD loan, a €15.43 million EU grant and €27.26 million of EPS financing.
Previous rehabilitation projects at Bajina Bašta, Đerdap 1 and Zvornik increased Serbia’s installed hydropower capacity by a combined 172 MW. Such upgrades extend asset lifetimes, improve operational reliability and increase peak-generation capability without the permitting risks associated with completely new projects.
The drought has provided a clearer picture of Serbia’s future electricity strategy. Expanding wind and solar generation will help reduce fossil-fuel dependence and emissions, but their system value will increase significantly when combined with energy storage, modernised hydropower, stronger interconnections and flexible demand management.
Đerdap 3 could become the cornerstone of Serbia’s future flexibility strategy, but near-term resilience will depend on making the most of existing assets, completing the Vlasinske upgrades, maintaining adequate coal and fuel reserves and ensuring access to regional electricity markets during periods of simultaneous supply pressure.
