Montenegro’s state-owned utility, Elektroprivreda Crne Gore (EPCG), is grappling with significant financial pressures as it navigates the implications of the European Union’s Carbon Border Adjustment Mechanism (CBAM). The mechanism, aimed at reducing carbon emissions, has already led to a €13 million decline in export revenues for the company in the first quarter of 2026, despite favorable conditions for electricity sales.
This revenue drop signals a fundamental shift in the market rather than a temporary setback. CBAM imposes a carbon cost on electricity exports generated from fossil fuels, particularly affecting coal-based production from facilities like the Pljevlja Thermal Power Plant in Montenegro.
EPCG faces immediate challenges as it cannot increase electricity prices for consumers, limiting its ability to recover lost revenues. The company’s management has indicated that raising domestic prices is not an option, compelling EPCG to absorb the financial losses internally. This situation compresses profit margins, as reduced export prices due to CBAM coincide with regulated domestic tariffs that restrict revenue recovery.
Although Montenegro does not directly export into the EU customs system in all cases, CBAM affects price formation in interconnected regional markets. As electricity prices in EU-linked markets adjust to include carbon costs, this adjustment lowers the achievable selling price for exporters like EPCG. Consequently, the company experiences a €13 million loss in value within just three months.
The regional market dynamics further exacerbate this issue. Electricity prices across the Western Balkans are reported to be €20–70/MWh lower than EU levels, which diminishes export arbitrage opportunities and intensifies revenue pressures on EPCG.
The reliance on coal-fired generation poses a structural risk for EPCG. A substantial portion of its electricity production is still dependent on coal, exposing the company to carbon pricing mechanisms. Under CBAM, coal-generated electricity incurs an embedded carbon cost that can reach €70–80 per tonne of CO₂, contrasting sharply with lower domestic pricing frameworks.
This disparity creates a growing competitiveness gap; coal-generated electricity in Montenegro is becoming increasingly more costly on a carbon-adjusted basis than renewable energy sources within the EU.
In response to these challenges, EPCG is adjusting its strategy by redirecting exports toward non-EU regional markets where CBAM does not apply. However, this approach presents its own challenges as these markets tend to be lower-priced and more volatile, which may not effectively restore margins.
Looking forward, EPCG is investing in renewable energy projects as part of a long-term strategy. The company is currently working on:
- commissioning of the Gvozd wind farm
- development of three large solar power plants
- preparation of documentation for the Kruševo hydro project
This shift towards renewable generation and lower-carbon assets is driven by both policy alignment and financial necessity.
The broader implications of CBAM are compounded by operational challenges faced by EPCG. In 2025, the utility had to import 1,341 GWh of electricity valued at €142 million, primarily due to prolonged outages at the Pljevlja plant and unfavorable hydrological conditions. This situation highlights two key vulnerabilities: reliance on imports during supply disruptions and erosion of export revenues under CBAM.
Together, these factors threaten EPCG’s financial stability, increasing its dependence on external financing or state support.
The €13 million revenue impact is indicative of deeper issues within Montenegro’s energy sector. CBAM effectively reflects the costs associated with delaying necessary energy transitions. Each megawatt-hour exported from coal now carries implicit penalties that cannot be passed onto domestic consumers or fully mitigated in regional markets. This transformation shifts legacy assets from being cash generators to operations constrained by narrow profit margins.
As Montenegro’s energy landscape evolves, profitability will increasingly hinge on how swiftly EPCG can transition towards decarbonization. Accelerating this shift towards renewable and flexible energy sources will be crucial for restoring export competitiveness amid an increasingly carbon-priced European electricity market.
