South-Eastern Europe’s southern power markets are no longer merely “discounted zones” relative to Hungary and Core Europe. They are evolving into structural curtailment basins where renewable penetration, transmission constraints, and insufficient flexibility are reshaping the entire price formation mechanism. The 26 February 2026 session reinforced that this transformation is not cyclical but structural, and its implications extend far beyond occasional negative prices. What is emerging is a persistent erosion of price floors during daylight hours combined with increasingly compressed scarcity premiums in the evening. For trading desks, this marks a profound shift in where and how value can be extracted.
The clearest evidence lies in the price levels themselves. Serbia cleared at 42.64 EUR/MWh, North Macedonia at 41.27 EUR/MWh, and Montenegro at 47.82 EUR/MWh, while Hungary stood at 87.06 EUR/MWh. A differential exceeding 40 EUR/MWh between geographically adjacent systems cannot be attributed solely to fuel spreads or demand divergence. It is the result of trapped renewable generation that cannot physically move northward in sufficient volumes. Midday solar output floods local systems, pushing prices toward operational cost floors, yet limited export corridors prevent this energy from reaching higher-priced markets.
This pattern is no longer confined to isolated hours. The increasing frequency of minimum price prints near zero in Serbia, North Macedonia, and occasionally even in Croatia and Slovenia signals that price floor erosion is becoming systemic. Even when prices do not turn negative, they compress toward levels that render thermal generation uneconomic. Gas plants withdraw from the merit order for extended periods, and hydro output is often deferred or minimized to preserve value for peak hours.
The concept of economic curtailment becomes critical here. Even if grid operators do not formally curtail renewable generation, the market effectively performs the same function through price suppression. When midday prices approach 0–10 EUR/MWh, the economic signal discourages incremental production and erodes margins for all generators. Investors may interpret installed capacity growth as bullish for supply security, but in these markets it is increasingly bearish for average price stability.
Transmission limitations amplify the problem. Serbia’s ability to export surplus to Hungary is constrained, particularly during hours when Hungary itself imports from Austria and Slovakia. The Hungarian system, acting as a hinge between Core and SEE, prioritizes imports from the north when spreads justify it. As a result, southern surplus cannot displace northern imports even when price differentials suggest it should. The elasticity of Hungary’s connection to Core Europe exceeds its elasticity to the southern Balkans. This asymmetry traps renewable generation in the south.
The structural nature of this curtailment basin is further reinforced by the pace of renewable expansion relative to infrastructure development. Solar installations in Serbia and North Macedonia are growing rapidly, yet storage deployment remains minimal. Without grid-scale batteries or significant demand response programs, the system lacks the ability to shift excess generation into evening hours. Each additional megawatt of solar capacity deepens midday oversupply while doing nothing to alleviate evening scarcity.
Evening ramps illustrate the other side of the coin. As solar output collapses, southern markets often experience rapid price escalation. Yet these spikes are shorter in duration than in prior years. The evening window during which gas sets the marginal price has narrowed, sometimes to just three or four hours. While peak prices may exceed 120–140 EUR/MWh, the compressed duration limits the ability of generators to recover midday losses. This creates a regime where volatility increases but net revenue stability declines.
For traders, the structural curtailment basin presents both risk and opportunity. Long baseload exposure in southern hubs is increasingly vulnerable to midday erosion. Average prices may appear stable, but intraday dispersion undermines flat positions. Conversely, short-duration trades aligned with predictable trough-and-spike patterns can capture significant value. The key is recognizing that the basin is not temporary; it is becoming the defining characteristic of southern SEE markets.
Romania’s evolving position complicates this landscape. Although not as deeply discounted as Serbia or North Macedonia, Romania oscillates between surplus and deficit depending on hydro conditions and interconnector flows. As Romania develops up to 500 MW of solar and storage projects, its role may shift from marginal exporter to swing market. This transition could either alleviate southern curtailment pressures or redistribute them, depending on interconnection enhancements.
Carbon pricing adds another layer. As EUA prices remain elevated, coal-fired units become increasingly uncompetitive. In southern SEE markets where coal still contributes meaningfully to the generation mix, this trend accelerates the transition toward a binary system of renewables and gas. Coal’s diminishing marginality removes a stabilizing force that previously absorbed part of the volatility. The result is sharper transitions between surplus and scarcity.
Gas corridor developments, including LNG flows into Greece and the Vertical Gas Corridor, influence the peak side of the equation but not the trough. Increased gas availability may cap extreme evening spikes, but it does nothing to address midday oversupply. Thus, while gas infrastructure strengthens security of supply, it does not resolve the curtailment basin dynamic. In fact, by dampening peak prices, it may further compress overall revenue for generators without lifting the floor.
From a market structure perspective, southern SEE markets are moving toward a two-price system within the same day: a depressed solar price and a compressed scarcity price. The space between these regimes narrows, intensifying competition among flexible assets. Traders must adjust modeling frameworks accordingly. Price forecasting models that assume linear relationships between demand and generation will increasingly misprice outcomes.
Risk management must also evolve. The widening gap between daily averages and hourly extremes increases exposure to tail risk. A portfolio that appears hedged on a daily basis may suffer significant losses during concentrated spike hours. Conversely, failure to capture trough hours can erode profitability even when peak positioning is correct. Granular exposure management becomes indispensable.
Looking ahead, the trajectory is clear. Unless significant storage capacity is deployed or cross-border transmission is expanded, southern SEE will remain a structural curtailment basin. Solar growth will deepen trough prices, while constrained exports will prevent convergence with Hungary. Evening scarcity will persist but may narrow in duration as gas infrastructure improves. The net effect is a market defined by intraday polarization rather than average stability.
The 26 February 2026 session was not extraordinary; it was illustrative. It demonstrated how deeply the curtailment basin dynamic has penetrated the region’s price formation process. For trading desks, the message is unequivocal. Southern SEE is no longer merely cheaper; it is structurally different. Strategies must reflect that reality or risk systematic mispricing.
Elevated by virtu.energy
