Montenegro’s subsea electricity connection with Italy gives the country direct access to the European Union power market, but the introduction of the Carbon Border Adjustment Mechanism (CBAM) is changing the economics of that export route.
Energy Community data for the first quarter of 2026 show that the average electricity price difference between Montenegro and southern Italy was approximately €43/MWh. However, Montenegro’s CBAM default emissions factor of 0.979 tonnes of CO2 per MWh resulted in an estimated CBAM cost of €73.78/MWh at the carbon price recorded during the period.
The carbon-related cost therefore exceeded the underlying electricity price advantage. Commercial electricity schedules from Montenegro to Italy declined by around 2,100 MWh per day, while physical flows decreased by approximately 1,400 MWh per day, according to the Energy Community Secretariat. The change puts greater emphasis on Montenegro’s wind, solar and potentially hydropower producers being able to demonstrate the actual emissions associated with exported electricity.
Physical Connection Does Not Establish Carbon Eligibility
The Montenegro-Italy subsea interconnector provides a high-voltage direct-current link between Montenegro’s transmission system and Italy. For electricity imported from Montenegro, the EU CBAM framework generally applies the country’s default emissions value unless an authorised CBAM declarant demonstrates that the requirements for using actual emissions have been met.
Actual emissions can be used when electricity is covered by a power purchase agreement between the authorised CBAM declarant and the third-country producer, the required physical-network conditions are fulfilled, the generating installation has emissions of no more than 550 gCO2/kWh, firm interconnection capacity has been nominated by the relevant transmission system operators, and electricity generation and nomination correspond to the same period of no more than one hour. An accredited verifier must certify compliance with those requirements, with at least monthly interim reporting.
The interconnector consequently provides the physical export route, but does not itself establish that an individual megawatt-hour came from a specific Montenegrin renewable installation. That connection has to be demonstrated through PPAs, metering data, nominations and verification.
Default Emissions Factor Changes Export Economics
The 0.979 tCO2/MWh default factor is significantly different from the direct operating emissions associated with wind, solar and hydro generation. Without eligibility for actual emissions, renewable electricity exported from Montenegro can therefore be subject to the carbon characteristics represented by the national default rather than those of the individual renewable facility.
The first-quarter price data demonstrate the financial significance. A price spread of approximately €43/MWh between Montenegro and southern Italy was lower than the estimated €73.78/MWh CBAM cost associated with the default emissions factor.
For renewable generators capable of demonstrating substantially lower actual emissions, the difference between the default value and the verified installation-specific value could therefore affect the economics of exports and power purchase agreements.
The value would not necessarily accrue entirely to generators, as traders, EU buyers, transmission limitations, verification expenses and competition between producers would also affect commercial arrangements. For renewable projects, however, the ability to provide verified emissions data becomes an additional characteristic alongside resource quality, capital expenditure, balancing exposure and wholesale electricity prices.
Exported Electricity Requires a Complete Evidence Chain
For CBAM purposes, the relevant product is not only the electricity itself but also the documentation demonstrating its origin, timing, contractual allocation, nomination and transmission conditions. For a Montenegrin renewable installation, the evidence chain can connect settlement meters and SCADA data, hourly production records, PPA allocations, CGES nomination and capacity information, Montenegro-Italy transmission records, the EU CBAM declarant and accredited verification.
A weakness at any stage can affect an actual-emissions claim. Production data may be available without a contractual mechanism linking specific hourly generation to the EU declarant. A PPA may meet contractual requirements while nomination records fail to reconcile with plant production. Alternatively, production and contractual volumes may correspond while transmission documentation does not establish the required physical-network conditions.
The European Commission’s verification guidance therefore places emphasis on monitoring systems, controls and supporting records rather than solely on the final emissions figure. The Commission published dedicated guidance for CBAM verifiers and accreditation bodies on August 24. Accredited CBAM verifiers can obtain Registry access from September 1, 2026, while formal verification reports for the 2026 reporting year can be issued from January 2027.
The August 27 CBAM Registry manual also sets out the operating framework involving installations outside the EU, accredited verifiers and EU declarants.
Power Purchase Agreements Face Additional Requirements
CBAM requirements can also affect the structure of renewable PPAs. Conventional PPAs generally establish commercial terms covering electricity price and volumes, balancing, settlement, profile risk and guarantees of origin. Contracts designed around CBAM actual-emissions eligibility also need to maintain the connection between the generating installation and the authorised EU declarant.
This can involve provisions covering qualifying volumes, hourly allocation procedures, production and nomination data, verifier access, Registry information and safeguards against double counting. The structure can become more complex where electricity is sold through an intermediary.
Traders can provide market access, balancing and cross-border services on the Montenegro-Italy corridor, but additional trading layers can make it more difficult to preserve the identity and evidence associated with individual electricity volumes. This creates a requirement for commercial arrangements to accommodate both electricity-market trading and CBAM traceability.
Guarantees of Origin Are Not Sufficient
Guarantees of origin remain relevant to demonstrating the renewable attribute of electricity, but they do not independently establish eligibility for CBAM actual emissions. A guarantee of origin does not demonstrate compliance with the required PPA arrangement, physical-network conditions, nomination requirements or hourly matching. For Montenegrin renewable electricity, this creates two distinct evidence layers: the renewable attribute represented by the guarantee of origin and the contractual, metering, nomination, transmission and verification documentation required for CBAM.
The second layer is necessary for the EU declarant to support an actual-emissions claim under the applicable conditions.
Accredited Electricity Verifiers Are Required
CBAM verification also creates specific accreditation requirements. The EU accreditation framework identifies LI as the activity group covering electricity imported into the customs territory of the Union. Indirect emissions are addressed separately under activity group LII.
Consequently, general greenhouse-gas verification competence or experience under the EU Emissions Trading System does not automatically establish the appropriate CBAM scope for electricity imports. Montenegrin renewable generators planning exports to Italy therefore need to establish that the selected verifier holds the relevant accreditation before formal verification begins. Pre-verification can identify incomplete meter records, broken evidence chains or PPA provisions that do not support the required documentation.
Market Integration Offers a Separate Regulatory Route
Montenegro also has a longer-term route under the CBAM framework involving electricity-market integration with the EU. The legislation provides for a temporary electricity exemption for certain third countries whose electricity markets become integrated with the EU through market coupling, subject to additional conditions.
These include implementation of EU electricity-market legislation, a Commission-approved roadmap, a commitment to climate neutrality, substantial alignment with EU climate policy and progress toward carbon pricing equivalent to the EU ETS. An electricity-sector emissions trading system with an EU-equivalent price would ultimately have to be operational by January 1, 2030.
Montenegro has notified full transposition of the Electricity Integration Package across the relevant regulations and directives, according to the Energy Community Secretariat. The verification process started on March 3, 2026, and the Secretariat sent its assessment to the European Commission on May 15. At the Energy Community’s July status update, the Commission’s opinion was still pending. The Italy-Montenegro capacity calculation region already formally connects CGES and Terna, while work on related market methodologies continues. Market coupling, however, does not automatically provide a CBAM exemption. All conditions under the regulation must be fulfilled and assessed by the European Commission.
CBAM Becomes Relevant to Renewable Project Development
Montenegro’s developing wind and solar pipeline has traditionally benefited from the country’s transmission connection with Italy and access to the Italian electricity market. Under CBAM, transmission access alone does not establish the same commercial position. Renewable projects targeting Italian exports need metering systems capable of supporting hourly evidence, SCADA systems with auditable historical records and commercial systems capable of distinguishing electricity allocated to different buyers.
PPAs need to preserve verification rights, while trading arrangements need to retain nomination evidence. Guarantees of origin also need to correspond with physical electricity allocations to avoid inconsistent or duplicate claims.
The complete chain must ultimately be available for review by an appropriately accredited EU verifier. The issue is also relevant to financing assumptions. Renewable projects dependent on Italian electricity exports can be assessed using both the Montenegro default CBAM factor and a scenario in which electricity qualifies for actual emissions.
The Interconnector’s Value Increasingly Depends on Verification
Energy Community reporting found that CBAM affected electricity trade across the Western Balkans during the first half of 2026 and that renewable producers faced practical difficulties demonstrating eligibility for actual emissions. Montenegro illustrates the issue through its direct electricity connection with Italy. The infrastructure provides physical access to an EU electricity market, while the CBAM default factor can exceed the underlying electricity-price differential.
For renewable generators, the ability to connect production data with the PPA, hourly output, CGES nominations, cross-border capacity records and the EU buyer provides the documentation needed to support an actual-emissions claim. The Montenegro-Italy interconnector therefore remains the physical route for electricity exports, while CBAM introduces a parallel requirement for verifiable information covering the electricity moving through it.
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