Montenegro’s transmission system operator Crnogorski elektroprenosni sistem (CGES) has secured a €25 million loan from the French Development Agency (AFD) to support the modernisation of key electricity infrastructure and improve conditions for new renewable energy projects.
The financing, backed by a Government of Montenegro guarantee, represents AFD’s first investment in the country’s energy sector. The project is expected to receive an additional €8.5 million European Union grant through the Western Balkans Investment Framework, creating a combined financing package for the reconstruction of the Perućica and Pljevlja 2 substations.
The agreement was signed by CGES chief executive Ivan Asanović and Arnaud Dauphin, director of the AFD regional office for the Western Balkans. The government guarantee was signed by Finance Minister Novica Vuković, while Energy and Mining Minister Admir Šahmanović attended the ceremony.
Funding targets critical transmission infrastructure
The investment will modernise substations that have become important constraints for electricity system reliability and the connection of additional renewable generation. The Perućica substation in central Montenegro is linked to the country’s major hydroelectric infrastructure. Its reconstruction is expected to support the integration of up to 350MW of hydroelectric capacity, improve operational security and replace equipment approaching or exceeding its planned service life.
The Pljevlja 2 substation in northern Montenegro has a different strategic role, connecting the domestic electricity system with the wider Trans-Balkan transmission corridor. The facility is located in the country’s coal-based industrial region, where the energy transition requires infrastructure capable of supporting renewable generation, cross-border electricity flows and a more diversified power system.
Project documentation indicates that the two upgrades could enable approximately 550MW of renewable connection capacity, including more than 250MW in the Perućica area and around 300MW around Pljevlja. The figures represent technical connection potential rather than guaranteed construction volumes. Renewable projects will still require permits, environmental approvals, connection agreements, financing and electricity sales arrangements.
€39 million project combines loans and grants
The total value of the substation modernisation programme is estimated at approximately €39 million. The AFD loan of €25 million would cover around 64% of total project costs, while the proposed EU grant of €8.5 million would provide almost 22%. Together, the two financing sources would contribute approximately €33.5 million, or around 86% of the investment value. The remaining approximately €5.5 million would need to be covered by CGES or other financing sources.
The financing structure reduces the amount that must ultimately be recovered through regulated transmission tariffs and provides access to longer-term development financing compared with standard commercial borrowing. Based on the project value and enabled connection capacity, the investment corresponds to approximately €71,000 per MW of technical capacity created. The figure does not represent generation costs because substations do not produce electricity, but instead provide network security, transmission capability and access for future power projects.
Renewable investment pipeline depends on stronger grid capacity
Montenegro has significant renewable potential, but the scale of planned wind, solar and hydro developments increasingly exceeds the capability of the existing transmission network. Without additional grid investment, developers could face delayed connections, restricted output or requirements to finance additional network infrastructure themselves.
The upgraded substations could support future investment in a combination of hydro, wind, solar and battery storage projects. If the available connection capacity is fully utilised, related public and private investment could exceed €600 million and potentially approach or surpass €1 billion, depending on the generation mix. Indicative construction costs vary by technology. Hydro projects can require approximately €1.5 million–€3 million per MW, wind projects in the region around €1.2 million–€1.6 million per MW, and utility-scale solar approximately €650,000–€850,000 per MW.
Wind and solar projects provide different system benefits. Northern Montenegro’s wind resources may achieve capacity factors of around 32–42% at strong locations, while solar production is concentrated during daytime hours and creates different balancing requirements. Hydro generation provides flexibility and balancing value but remains affected by hydrological conditions and environmental limitations.
Pljevlja and Perućica upgrades support regional electricity flows
The two substations are expected to strengthen Montenegro’s role within regional electricity markets. At Pljevlja 2, two ageing 400/220kV autotransformers, each with a capacity of 400MVA, are expected to be replaced. The upgrade will improve reliability at a key point of the Trans-Balkan corridor, which connects Romania, Serbia, Montenegro and Italy.
The investment also prepares northern Montenegro’s electricity system for changes in the role of the Pljevlja thermal power plant, as European emissions requirements and energy policy developments influence the future generation mix. At Perućica, the project includes replacement of outdated equipment in the 220/110kV substation. New protection, control and switching systems are expected to improve outage management, remote operation and monitoring of network conditions.
Implementation expected to continue until around 2030
The project is expected to require an extended implementation period. Consultancy activities are planned for early 2027, with services potentially continuing for approximately 45 months. The timeline indicates possible completion in the second half of 2030, depending on procurement procedures, permits and construction progress. For renewable developers, the timing of grid completion is a key factor. A wind or solar facility can often be constructed in less than two years, while high-voltage substation reconstruction requires longer preparation, procurement and commissioning periods.
A 12–18 month delay in grid availability could increase financing costs and development expenses for a representative 100MW renewable project by approximately €4 million–€10 million. Under certain financing structures, such delays could reduce equity investor internal rates of return by around 1.5–3.5 percentage points, particularly if they affect support periods, power purchase agreements or construction financing.
CGES enters wider €200 million investment cycle
The AFD financing forms part of a broader investment programme by CGES. The operator’s 2026–2030 investment programme is valued at close to €200 million, covering substations, domestic transmission lines and cross-border infrastructure.
The balance-sheet value of newly commissioned assets is expected to reach approximately:
- €111.7 million in 2026;
- €170.5 million in 2027;
- €214 million in 2028.
By 2028, newly built infrastructure could represent more than half of CGES’s fixed assets.
The company operates approximately 1,500–1,550 kilometres of transmission lines, nearly 30 substations and more than 4,400MVA of transformation capacity. Its network connects the Pljevlja thermal power plant, Piva and Perućica hydropower plants, Krnovo and Možura wind farms, neighbouring electricity markets and the electricity cable connection to Italy. Other projects include rehabilitation of the 220kV corridor connecting Bosnia and Herzegovina, Montenegro and Albania, supported by a €15 million European Bank for Reconstruction and Development loan in 2026. CGES is also developing the Brezna substation and strengthening the transmission ring linking Lastva, Pljevlja and central Montenegro.
Rising investment needs affect CGES financial profile
CGES reported net profit of approximately €21 million in 2025, compared with €24.8 million in 2024 and €35.7 million in 2023. The company’s business plan forecasts lower annual earnings of approximately €1.4 million–€1.7 million between 2026 and 2028, while revenue remains near €68 million–€72 million. The expected decline reflects higher depreciation, financing costs and regulatory adjustments as new infrastructure enters operation. CGES net debt is projected to increase from approximately €17.8 million in 2026 to €59.1 million in 2027 and around €91 million in 2028.
Against projected EBITDA of approximately €13 million–€14 million, leverage could rise above six times EBITDA. The company’s ownership structure includes the Government of Montenegro with approximately 55.4%, Italy’s Terna with around 22.1%, and Serbia’s transmission operator EMS with about 15%.
Financing supports renewable transition but execution remains key
The AFD loan adds another development-finance component to Montenegro’s electricity transition, alongside EU grants, regulated transmission revenues and government-backed financing. The project’s completion depends on coordination between transmission upgrades, renewable developers, permitting procedures and additional network investments. The modernisation of Perućica and Pljevlja 2 will provide additional technical capacity for renewable connections, but the conversion of that capacity into operating projects will depend on the speed of project development and grid expansion.
