Electricity market power in South-Eastern Europe is no longer defined primarily by who owns generation assets. It is increasingly defined by who controls access to borders, who can predict and secure flow rights at critical hours, and who can arbitrage volatility across fragmented bidding zones. This shift marks a fundamental change in how value is created and captured in the region’s power markets. Megawatts still matter, but optionality embedded in interconnectors, congestion management, and intraday positioning now determines commercial outcomes.
Historically, market power in SEE was vertically embedded. State-owned utilities controlled lignite mines, thermal fleets, hydropower reservoirs, and transmission assets within national borders. Trading existed, but it was peripheral to system operation. Prices were largely administrative outcomes shaped by domestic cost structures, long-term contracts, and regulated tariffs. Cross-border trade played a balancing role, not a price-forming one.
That architecture has eroded rapidly. As markets liberalised and exchanges expanded, SEE electricity pricing became exposed to regional and continental dynamics. The introduction of day-ahead market coupling connected national price formation to cross-border flows. Renewables added variability. Gas prices and carbon exposure transmitted shocks across borders. In this environment, control over flows became as important as ownership of plants.
The quantitative signal of this shift is visible in recent trading patterns. During January 2026, trading volumes across SEE power exchanges rebounded sharply after year-end liquidity troughs. Market commentary noted a return of active cross-border trading strategies, with professional traders monetising volatility rather than relying on stable generation margins. Price spreads between neighbouring markets widened and narrowed rapidly within days, creating arbitrage windows that rewarded those with superior access to border capacity and intraday flexibility.
This behaviour reflects a deeper structural change. In a volatile system, the ability to move power from surplus to deficit zones at the right time has measurable value. When price differences between neighbouring markets reach €30–60/MWh during stress hours, border access becomes a financial asset. When extreme events push local prices above €500/MWh or even €1,000/MWh for individual hours, as observed during recent summer stress periods, control over flows determines who captures scarcity rents.
Congestion rents are not inherently problematic. In an efficient market, they signal where grid investment is needed and where capacity is scarce. However, in SEE the distribution of congestion rents and the uneven availability of cross-border capacity raise structural concerns. Capacity is often constrained not only by physical limits but by conservative operational margins, uncoordinated outage planning, and incomplete implementation of market rules. In such conditions, congestion rents reflect institutional fragmentation as much as physical scarcity.
The 70 percent cross-zonal capacity availability requirement, embedded in EU market design, was intended to address precisely this issue. By forcing a minimum share of interconnector capacity to be made available to the market, the rule aims to limit artificial fragmentation and reduce price volatility. Quantitative analysis of recent stress events shows how powerful this lever is. Counterfactual modelling indicates that fuller compliance could have prevented roughly half of the most severe price spikes in central and south-east Europe and reduced peak prices by up to €78/MWh in affected bidding zones.
For traders, such constraints define strategy. When capacity availability is uncertain, the premium shifts toward those who can anticipate constraints, secure positions early, and manage intraday risk. Trading becomes less about predicting demand and more about predicting grid behaviour. This dynamic favours sophisticated actors with access to data, analytics, and capital, while smaller participants face higher risk and reduced margins.
From a market structure perspective, this raises questions about concentration. While generation ownership in SEE remains relatively fragmented across borders, access to flow rights and trading expertise is more concentrated. A small number of players increasingly dominate cross-border arbitrage during volatile periods. This does not necessarily imply abuse of market power, but it does alter competitive dynamics. When value creation migrates from physical assets to financial and operational positioning, regulatory oversight must adapt.
The shift also has implications for system operation. Traders effectively become allocators of flexibility, directing power flows based on price signals. In an integrated system with transparent rules, this improves efficiency. In a fragmented system, it can amplify volatility. If borders constrain flows during stress, scarcity pricing becomes extreme. If capacity is suddenly released, prices can collapse. The system oscillates between extremes, and traders capture value by navigating these swings.
This pattern was evident in early 2026. Prices across SEE markets softened sharply during periods of strong wind and low demand, then rebounded aggressively as conditions tightened. In some markets, week-on-week price changes exceeded 25–30 percent, underscoring how quickly scarcity and surplus conditions alternate. Traders who could reposition across borders benefited disproportionately from this volatility.
For policymakers, the implication is clear. Market power is migrating from generation to grid interfaces. Oversight frameworks that focus solely on plant ownership and bidding behaviour are increasingly insufficient. Effective regulation must consider capacity calculation methodologies, outage coordination, and transparency of cross-border availability. Without this, the market risks drifting toward a structure where price outcomes are driven as much by institutional bottlenecks as by genuine supply-demand fundamentals.
For SEE as a region, the strategic risk is that persistent congestion transforms trading into a zero-sum game rather than a stabilising mechanism. Instead of smoothing prices across borders, trading amplifies divergence. This undermines industrial competitiveness and public confidence in market liberalisation.
The strategic opportunity, however, is equally significant. By accelerating grid optimisation, enforcing capacity availability rules, and deepening intraday and balancing integration, SEE can convert trading power into a stabilising force. In such a system, traders still profit, but their profits align with system efficiency rather than institutional fragmentation.
The evolution of trading power in SEE is therefore not a problem to be eliminated. It is a signal of market maturity. The challenge is to ensure that the rules governing borders, flows, and capacity allow that maturity to translate into resilience rather than volatility.
By virtu.energy
