When the European Union switched on the full charging phase of its Carbon Border Adjustment Mechanism (CBAM) in January 2026, the impact rippled far beyond Brussels. For Serbia’s electricity sector, led by the state‑owned utility Elektroprivreda Srbije (EPS), the change is nothing short of a structural reset: exports, financials and investment plans are all being recalibrated around a single new variable—carbon intensity.
From volume exporter to selective supplier
Serbia has long positioned itself as a regional power hub, sending electricity across borders into Hungary, Romania and Croatia. In recent years, these flows amounted to the better part of 2–4 TWh per year in net exports, with Hungary alone taking around 6.1 TWh, Romania about 2.4 TWh, and Croatia about 1.5 TWh in 2023, according to trade data.
Those volumes were built on a mix of coal‑fired and hydropower generation, with EPS able to sell into the EU when prices were attractive. But under CBAM, the equation is no longer “price only”; it is now “price plus carbon cost”. For lignite‑based Serbian power, that translates into surcharges in the €70–110/MWh range, depending on the EU ETS price and the assumed emission factor.
The result is a sharp shift in behaviour. In “normal” price conditions of €80–120/MWh, large‑scale coal‑driven exports are no longer profitable enough to justify the CBAM fee. Instead, Serbia is morphing from a volume exporter of baseload power into a selective, flexibility‑oriented supplier. The only electricity that can cross the border at scale is that which is low‑carbon, hydro‑linked or renewable‑based, since these face little or no CBAM‑linked cost.
The CBAM price tag on Serbia’s exports
Analyses of 2024‑style trade patterns show that Serbia‑routed electricity exports into the EU implied roughly 9.18 TWh/year and an estimated €612.5 million in annual CBAM‑related costs, or about €66.7/MWh in carbon‑adjusted cost. That is not a marginal tax; it is a structural operating cost baked into every megawatt‑hour sold to the EU.
For EU‑side buyers, this changes the logic of procurement. Power traders now think in terms of “carbon‑adjusted arbitrage”: they will only buy Serbian electricity if the bid price plus CBAM certificates still leaves a margin. That has led to more selective sourcing, shorter‑term contracts and a turn away from the dirtiest sources.
For Serbia, the consequence is twofold: first, export volumes are compressed, especially in low‑ and medium‑price periods; second, export value is increasingly concentrated in cleaner, more flexible generation. Albania, with its almost fully renewable mix, has already become a more attractive regional partner in EU‑facing deals, putting additional competitive pressure on Serbia’s coal‑heavy profile.
Squeezing EPS financials
For EPS, the financial implications are direct and growing. Historically, electricity exports have been a key instrument for balancing EPS’s books, compensating for lower‑margined domestic sales and helping to cover the high fixed costs of an ageing coal fleet.
With CBAM, those export margins are under pressure. Reports suggest that even an export‑price reduction of €10–15/MWh, driven by CBAM‑related uncertainty and buyer risk‑pricing, can erode EPS’s export‑linked gross revenue and compress margins that had previously helped offset the utility’s heavy capex and debt profile.
The blow is sharper for Serbia than for many other CBAM‑affected sectors because electricity exports are charged at full CBAM rates from 1 January 2026, with no extended phase‑in for the power sector. This leaves EPS with less time to adapt its asset base and pricing strategy than, say, steel or aluminium exporters, which saw gradual CBAM‑style mechanisms being layered on top of existing carbon‑pricing schemes.
Investment logic rewritten
The most profound effect of CBAM on Serbia’s power sector is not at the margin of today’s P&L; it is in the **investment pipeline**. Many planned or greenfield EPS‑linked projects were originally modelled assuming that some level of **export optionality into EU markets** would support returns.
Today, if CBAM‑driven price erosion of €10–15/MWh is baked into project forecasts, internal rates of return (IRR) can fall by 1.5–2.5 percentage points. For capital‑intensive, coal‑heavy projects, that often brings expected IRRs close to or below bankability thresholds unless they are supported by explicit state guarantees, higher domestic tariffs, or dedicated decarbonisation grants.
This is reshaping the investment map. Traditional lignite‑linked expansion projects are becoming harder to finance, as lenders and rating agencies increasingly factor in carbon‑price risk, regulatory uncertainty and the risk of stranded assets as the EU tightens its climate framework. At the same time, new projects with renewables, hydro‑linked flexibility and grid‑modernisation are gaining favour, because they can be positioned as “CBAM‑compliant” power and can tap into EU‑linked demand that rewards low‑carbon generation.
The long‑term rebalancing
Over the medium term, CBAM is acting as a financial and strategic magnet pulling Serbia’s power sector toward a cleaner, more diversified generation mix. The utility is being pushed to modernise its hydropower fleet, expand wind and solar capacity, and invest in emissions‑monitoring and verification systems that can satisfy CBAM‑style reporting requirements.
For investors and policymakers, the lesson is clear: the days of treating Serbia purely as a cheap, coal‑linked exporter are fading. The value proposition is shifting toward low‑carbon flexibility and grid‑linked resilience—assets that can deliver power to EU markets without the carbon‑penalty tax that now sits at the heart of CBAM.
In practical terms, this means that Serbia’s electricity strategy will increasingly combine domestic‑market stability, regional‑market selectivity and EU‑market compliance—with carbon‑intensity as the metric that ties them all together. For EPS and the wider Serbian power ecosystem, CBAM is not just a border tax; it is a recalibration of the entire business model.
