Montenegro’s electricity transmission system operator CGES is preparing for a significant reduction in regulated revenue from 2027 after generating approximately €100 million more than forecast from cross-border transmission capacity and the submarine electricity cable linking Montenegro with Italy.
Under the regulatory framework, the additional revenue generated between 2022 and 2025 must be reflected through lower transmission charges during the next regulatory period covering 2027–2029. The adjustment is expected to reduce the CGES component of electricity bills for households, businesses and other network users, while part of the benefit may also be allocated to domestic electricity producers.
Excess revenue to be deducted through future tariffs
The measure will not involve direct cash payments to electricity consumers. Instead, the Regulatory Agency for Energy and Regulated Utilities is expected to reduce the amount of revenue CGES is allowed to recover through transmission tariffs. If distributed evenly over three years, a €100 million adjustment would correspond to approximately €33 million annually. The final allocation will depend on the regulator’s decision, the distribution between consumers and producers, and CGES’s approved costs, regulated asset base and investment requirements.
The accumulated excess revenue consists of approximately €34.5 million generated in 2022, €35.7 million in 2023, around €16 million in 2024 and €23.5 million in 2025. Around €9.5 million was already incorporated into lower tariffs during 2025. The remaining adjustment is therefore close to €100 million, although the final amount will be determined by the regulator.
Interconnector revenues drove additional income
The additional revenue was generated mainly through congestion income and fees related to cross-border transmission capacity, including capacity on the approximately 600 MW Montenegro–Italy submarine electricity interconnector. The cable connects Montenegro’s transmission network with the Italian electricity market and has increased Montenegro’s role as an electricity transit and trading point between Southeast Europe and Western Europe.
When electricity price differences between Italy and Balkan markets increase, market participants pay higher prices for limited interconnection capacity. These auction revenues exceeded the conservative assumptions used in CGES’s regulated revenue calculations.
The additional income came from the commercial value of the transmission network rather than increased domestic electricity consumption. The submarine cable and the Lastva–Pljevlja transmission corridor enable electricity flows between Italy, Montenegro, Serbia and the wider Southeast European electricity system. The regulatory approach is based on the principle that a transmission operator should not permanently retain exceptional revenues generated from infrastructure supported by regulated tariffs. Cross-border revenues are intended either to support network development or reduce charges paid by users.
Tariff impact expected across electricity users
Montenegrin consumers previously contributed to CGES’s investment programme through electricity bills. The planned adjustment will return part of the stronger-than-expected financial performance through lower future network charges. The exact impact on individual electricity bills remains uncertain because the adjustment applies to all transmission-system users and will be distributed across customer categories, voltage levels and tariff components. Electricity bills also include energy supplied by EPCG, distribution charges collected by CEDIS, network losses, renewable-energy components, taxes and other regulated items. A reduction in CGES charges may therefore be partly offset by movements in other parts of the bill.
The earlier €9.5 million tariff correction in 2025 reduced CGES transmission charges, but its effect on the final consumer bill was below 2% because transmission represents only one part of the total electricity cost. The larger adjustment planned for 2027–2029 is expected to have a more noticeable impact, although it will not translate directly into equivalent household savings.
Profit outlook changes for transmission operator
For CGES, the adjustment represents a major change in earnings. The company expects annual profit during the next three-year regulatory period to decline to between €1.4 million and €1.7 million, compared with approximately €21 million in 2025. At the lower end of that range, profit would fall by more than 90%, affecting dividend capacity, internal financing and the ability to fund investments without additional borrowing.
CGES limited its 2025 dividend distribution despite recording €21 million in profit. Shareholders approved a payment of only €5 million, retaining the remaining earnings to strengthen liquidity ahead of the new regulatory period.
Shareholders receive reduced dividend distribution
CGES ownership includes the Government of Montenegro, which holds 55.38%, Italy’s Terna with 22.09%, and Serbia’s transmission operator Elektromreža Srbije (EMS) with 15%. The remaining shares are held by individuals and smaller institutional investors.
The €5 million dividend corresponds to approximately €2.77 million for the Montenegrin state, €1.10 million for Terna and €750,000 for EMS before applicable tax treatment. A higher dividend would have increased immediate shareholder returns but reduced funds available for transmission investment. CGES expects to retain approximately €115 million in accumulated earnings after the dividend payment. At the end of 2025, the company held approximately €55.3 million in cash.
Investment programme requires additional financing
The tariff adjustment coincides with CGES’s largest investment cycle in recent years. The company’s 2026–2030 investment plan totals €194.1 million and covers network modernisation, system reliability improvements and infrastructure required to connect new wind, solar and battery-storage projects.
CGES estimates that it will require approximately €55.9 million in external financing to complete the programme.
The projected financing gap is expected to reach:
- €2.6 million in 2027
- €32.4 million in 2028
- €13 million in 2029
- €7.9 million in 2030
The largest funding pressure is expected during the middle of the tariff-correction period, when planned construction spending increases and internal cash generation is expected to weaken. Borrowing €55.9 million against a €194.1 million investment programme would mean that almost 29% of planned capital expenditure would require external financing.
Regulatory changes could affect future earnings
CGES is also facing possible methodological changes that could further reduce permitted income. The company has identified potential adjustments related to the quality factor, the allowed return on regulated assets and the treatment of costs outside management control. A lower allowed return would reduce earnings generated from investments in substations, transmission lines and control systems. Stricter quality requirements could also result in penalties if reliability, outages or network performance do not meet regulatory targets. The regulatory framework aims to protect users from inefficient spending, but excessive reductions during a major investment cycle could limit the operator’s ability to strengthen the grid.
Renewable expansion increases grid investment needs
Montenegro’s renewable-energy pipeline is expanding, increasing demand for transmission infrastructure. New generation projects require connection studies, substations, transformers, reactive-power systems, protection equipment, SCADA integration and sufficient transmission capacity.
Wind projects require networks capable of handling production changes across wider regional weather patterns, while solar projects increase pressure on midday network capacity and can create local congestion around connection points. Battery storage can reduce some network pressure, but its role depends on operating incentives and coordination with electricity system requirements.
Delays in CGES investment could shift costs to renewable developers through longer connection periods, higher curtailment risks and additional privately financed infrastructure requirements. For project investors, delays of 12–18 months can increase financing costs, postpone electricity sales and weaken project returns.
Regulatory balance between tariffs and investment
The regulator faces the challenge of separating historical excess income from future infrastructure requirements. The €100 million correction reflects past over-recovery, while the €194.1 million investment programme relates to future grid needs. Treating both amounts as available for distribution could affect long-term tariff stability.
CGES’s strong financial performance after the Montenegro–Italy interconnector became operational showed that regulatory forecasts underestimated cross-border revenues. Net profit increased from approximately €3.6 million in 2019 to €35.7 million in 2023, before declining as tariff corrections began.
The situation has raised questions about whether congestion revenues should be forecast more accurately and adjusted earlier to avoid large future tariff changes. Possible approaches include annual updates of cross-border revenue assumptions or placing excess income into dedicated network-development mechanisms.
Market impact and future revenue uncertainty
CGES is listed on the Montenegro Stock Exchange, and investors must distinguish between recurring regulated earnings and temporary congestion revenues. Profits generated during 2022–2025 were not entirely available for permanent distribution because part of the income will be returned through future tariff reductions. The limited 2025 dividend reflects the company’s expectation that excess revenue remains economically linked to future regulatory adjustments.
The correction will also affect the government’s position as majority shareholder. Lower network charges will benefit electricity users, while reduced dividends will decrease direct returns from state ownership. Cross-border revenue may also become less predictable due to changes in regional electricity markets and the impact of the EU Carbon Border Adjustment Mechanism.
Carbon-related costs on electricity imports into the European Union could influence trading flows and the value of transmission capacity towards Italy. Lower-carbon electricity from hydro, wind and solar sources could become increasingly important. The long-term value of the interconnector remains linked to regional electricity prices, carbon costs, market integration and Montenegro’s renewable-energy development.
