Montenegro’s state-owned electricity provider, Elektroprivreda Crne Gore (EPCG), has reported a significant financial impact due to the European Union’s Carbon Border Adjustment Mechanism (CBAM), with losses amounting to €13 million in the first quarter of 2026. This development highlights the challenges faced by electricity exporters in the Western Balkans, particularly those reliant on coal-based energy generation.
The loss, recorded from January to March 2026, serves as an early indicator of how CBAM is reshaping the economic landscape for Montenegro’s energy sector. The mechanism imposes a carbon cost equalization measure that levies charges on imported electricity into the EU, targeting high-emission generation sources. In Montenegro, approximately 40–45% of electricity is generated from the coal-fired TPP Pljevlja, exposing the country to significant financial risks.
Beyond direct tax implications, EPCG’s management has noted that CBAM is compressing export prices and diminishing competitiveness in regional markets. This has resulted in coal-generated electricity being sold at discounted rates, creating a structural margin squeeze for exporters like EPCG even when CBAM costs are not directly billed.
The pricing distortion is evident in regional market dynamics, where electricity prices are trading €20–70/MWh below EU rates. This reflects adjustments made in anticipation of CBAM-related costs and a reluctance among buyers to absorb future carbon expenses. Consequently, EPCG is experiencing pressure on its profit margins.
In response to these challenges, EPCG has begun redirecting its sales towards non-EU markets to mitigate exposure to CBAM, opting to export surplus electricity to the EU only when necessary. This strategy prioritizes maintaining stable volumes over optimizing prices.
A critical issue for EPCG lies in the disparity between Montenegro’s domestic carbon pricing and EU benchmarks. Currently, Montenegro’s carbon price stands at approximately €24 per tonne of CO₂, while EU emissions trading system prices fluctuate between €70 and €80 per tonne. This gap diminishes any competitive advantage for Montenegrin producers exporting to the EU market.
EPCG estimates that annual costs related to CBAM could reach up to €191 million under current conditions, which would significantly impact Montenegro’s external balance since electricity constitutes more than 35% of total exports. The first-quarter loss should be viewed as an initial signal of broader economic adjustments rather than an isolated incident.
<pDespite favorable hydrological conditions leading to increased generation—approximately 1,204 GWh in Q1, up nearly 40% year-on-year—EPCG still faced losses tied to CBAM. This underscores the persistent nature of cost pressures within the sector.
Regulatory uncertainty further complicates matters as the final methodology for calculating CBAM costs for 2026 is still being refined. Financial settlements are expected to occur in 2027, retroactively addressing exports from 2026. This lack of clarity complicates current trading decisions for EPCG.
Currently, EPCG has refrained from passing these costs onto domestic consumers and has stated that increases in electricity prices are not being considered at this time. However, tariff adjustments may be necessary if external market conditions change dramatically due to geopolitical factors.
The situation illustrates a fundamental tension within Montenegro’s energy sector: a legacy reliance on coal generation that provides stability but incurs rising carbon liabilities versus a rapidly evolving European market that imposes stringent emissions pricing. The €13 million loss reported in Q1 signals only the beginning of a major transition that will determine whether EPCG can sustain its export viability or if it must accelerate its shift towards renewable energy sources and align its carbon pricing with EU standards to remain competitive.
