Montenegro’s hydropower fleet faces additional costs when exporting electricity to the European Union under the Carbon Border Adjustment Mechanism (CBAM), as national default emissions values can undermine the commercial advantage of low-emission generation.
During the first quarter of 2026, Energy Community monitoring recorded day-ahead electricity prices in Contracting Parties averaging more than EUR 30/MWh below neighbouring EU markets, while commercially scheduled cross-border exchanges declined by approximately 25%.
The price spread between Montenegro and southern Italy was around EUR 43/MWh, compared with an indicative default-based CBAM cost of EUR 73.78/MWh. Montenegro’s default emissions factor stood at 0.979 tCO2e/MWh, reflecting the methodology applied to the exporting electricity system rather than the direct emissions of an individual hydropower plant.
Plant-specific emissions require verification
To qualify for actual-emissions treatment, hydropower operators must provide installation-specific metering data, a qualifying physical power purchase agreement, transmission-route evidence, electricity nominations and declarant-specific allocations. Electricity from a named installation cannot simply be averaged across a utility’s generation portfolio.
These requirements also affect reservoir dispatch. Operators must consider not only electricity prices, hydrological conditions and environmental flows, but also whether the evidence supports the intended carbon treatment for each delivery hour.
During dry periods, lower hydropower output can increase replacement-power costs. Electricity purchased to meet firm export commitments may not qualify for the same plant-specific emissions treatment, potentially reducing both commodity margins and export premiums.
Perućica and Piva require separate assessments
Montenegro’s Perućica and Piva hydropower assets differ in reservoir characteristics, operating restrictions, connection points, metering boundaries and dispatchability. Future investments, including additional capacity at Perućica, therefore require assessment of generation potential, operational flexibility and the quality of data supporting electricity exports.
Pumped-storage projects also require careful accounting of charging electricity, losses, auxiliary consumption and timing, as later electricity discharge does not automatically qualify as renewable production from the original generation hour under current CBAM rules.
Proposed EU changes could alter export economics
The European Commission’s proposed reform would replace the current fossil-oriented default approach with an average-grid emissions factor and remove the congestion criterion for actual-emissions claims. These changes could improve Montenegro’s export competitiveness, given its hydropower resources and expanding wind and solar capacity, but remain proposals rather than current rules.
Montenegro’s hydropower advantage therefore depends on water availability, dispatch, transmission access and verifiable emissions data. The commercial value of each exported MWh increasingly relies on matching electricity deliveries with the contracts, nominations and allocation records required to substantiate the applicable emissions treatment.
By Virtu.Energy
