Montenegro’s renewable electricity sector is facing a new commercial requirement as the EU Carbon Border Adjustment Mechanism (CBAM) increasingly links the value of electricity exports to the ability to demonstrate, trace and verify their emissions under EU rules.
The country has a substantial renewable generation base and a direct electricity connection with the European Union through the Montenegro–Italy submarine interconnector. However, renewable generation alone does not automatically qualify electricity for a plant-specific low-emissions treatment at the EU border. CBAM is creating a distinction between electricity that is renewable based on its physical generation source and electricity whose low-carbon characteristics can be demonstrated through an acceptable evidence chain.
The distinction applies to two markets. The first is electricity exported from Montenegro, principally through the Montenegro–Italy interconnector, where electricity is treated as a CBAM good once it enters the EU and the EU importer or authorised CBAM declarant carries the relevant obligation. The second involves electricity supplied by Montenegrin renewable generators to domestic industrial consumers whose products are exported to the EU. In that case, electricity does not cross the EU border as a CBAM good, but its emissions can form part of the embedded emissions of manufactured products, depending on their CN classification and the applicable CBAM methodology. The same hydro, wind or solar facility can potentially serve both markets, although the evidence requirements differ.
Renewable Generation and Montenegro’s Electricity Balance
Renewable sources accounted for 67.19% of Montenegro’s electricity consumption in 2024, according to government data. The country’s adopted National Energy and Climate Plan targets at least 50% renewable energy in total final energy consumption by 2030. For 2026, the government’s Energy Balance projected electricity production of approximately 3,798 GWh and an overall surplus of around 398 GWh. The projection was supported by the return of the Pljevlja thermal power plant, increased solar generation and new renewable capacity.
CBAM does not automatically assign electricity the emissions profile of its individual generating technology unless the conditions for an actual-emissions claim are met. This has already affected electricity-market economics between Montenegro and Italy. During the first quarter of 2026, the average day-ahead price difference between Montenegro and southern Italy was approximately €43/MWh, favouring exports from Montenegro. The Energy Community Secretariat calculated Montenegro’s applicable electricity default emissions factor at 0.979 tCO₂/MWh. With an average EU ETS price of €75.36/tCO₂ during the quarter, the indicative CBAM exposure amounted to approximately €73.78/MWh.
The carbon component was therefore substantially higher than the underlying Montenegro-Italy wholesale price difference. Scheduled Montenegro-to-Italy electricity flows declined by more than 2,100 MWh per day compared with the first quarter of 2025, while physical flows fell by approximately 1,400 MWh per day, according to Energy Community analysis based on ENTSO-E data.
EU Importers Carry the Obligation
Electricity imported into the EU is classified as a CBAM good under CN 2716 00 00. Where transmission capacity is explicitly allocated, the party holding that capacity and nominating electricity for import can become the authorised CBAM declarant. This can be an electricity trader rather than the Montenegrin generator. The commercial chain can involve a Montenegrin renewable producer, a Montenegrin or regional trader, cross-border capacity and nomination, an Italian or EU importer or trader, an authorised CBAM declarant and an accredited CBAM verifier.
Although the formal obligation rests with the EU declarant, much of the evidence needed to support an actual-emissions claim originates in Montenegro. The renewable producer controls information concerning the generating installation, generation and meter data, technology and emissions, as well as relevant PPA information. Other parties control nominations, transmission capacity, cross-border schedules and import records. A renewable producer therefore cannot simply issue an annual certificate stating that electricity originated from a hydro, wind or solar facility and expect the EU verifier to accept zero or near-zero emissions.
Under the current CBAM framework, actual emissions for imported electricity are an exception to default values and must satisfy specific conditions. These include a qualifying power purchase agreement (PPA) with the third-country electricity producer, applicable network conditions, generation below the regulatory threshold of 550 gCO₂/kWh, firm cross-border nomination matched against generation over periods of no more than one hour, and independent verification.
The European Commission has proposed changes to simplify these requirements, including allowing PPAs involving intermediaries where a verifiable contractual relationship connects the generator, intermediary parties and importer or authorised declarant. The proposals also include removing one of the existing network-congestion tests while retaining an hourly relationship between nominated electricity and production in relevant cases.
For Montenegro, the changes are significant because electricity trading through the Montenegro-Italy interconnector can involve suppliers, portfolio managers, cross-border traders and other intermediaries rather than a direct bilateral transaction between a generator and an Italian industrial consumer. Allowing such commercial structures while maintaining traceability would make the actual-emissions route more compatible with the way the interconnector is used. The underlying requirement for a verifiable contractual and physical chain would remain.
The Italy Interconnector Gains an Additional Commercial Function
The approximately 600-MW first phase of the Montenegro-Italy submarine interconnector provides Montenegro with a direct physical connection to one of Europe’s largest electricity markets. CBAM adds an emissions-evidence dimension to the infrastructure. The commercial calculation for electricity exports increasingly involves the Italian power price, Montenegro power price, transmission costs, balancing and losses, and CBAM exposure.
If the Montenegro default emissions factor applies, the CBAM component can outweigh an otherwise attractive wholesale-market spread, as demonstrated during the first quarter. A renewable MWh supported by a verifier-accepted actual-emissions pathway could have materially different economics. CBAM can therefore create different commercial values for electricity originating within the same national system: one based on the applicable default emissions factor and another based on successfully demonstrated plant-specific emissions.
This makes verification readiness an increasingly relevant consideration alongside bankability, grid connection and route-to-market for new renewable projects. Projects developed partly for exports to Italy need to address who will hold the PPA, who will trade the electricity, who will hold cross-border capacity, how hourly data will be preserved, what information will reach the EU declarant and how an accredited verifier will obtain the required evidence. The Energy Community reported in July that renewable developers across the Contracting Parties were encountering practical difficulties demonstrating eligibility for actual-emissions values, creating regulatory uncertainty and additional compliance costs.
Montenegro’s Renewable and Thermal Generation Mix
Montenegro has substantial renewable generation, historically dominated by hydropower and increasingly supplemented by wind and solar. At the same time, the Pljevlja lignite-fired power plant remains significant enough to influence the national carbon intensity used in the electricity default factor.
This creates a distinction between plant-level and national emissions treatment. Electricity generated by a low-emissions hydro facility can be subject to a default factor influenced by thermal generation if the conditions for an actual-emissions claim are not met. That can reduce the commercial value of Montenegro’s renewable electricity in the EU market. It also increases the importance of plant-specific evidence systems and Montenegro’s broader decarbonisation programme. The government’s 2026 investment programme included the 54-MW Gvozd wind farm, around 84 MW of EPCG commercial solar plants, additional rooftop solar capacity and approximately 25 MW of additional private solar generation.
These projects are expected to contribute to a significant increase in renewable capacity by the end of 2026. The resulting generation can be directed toward domestic consumers, regional markets or the EU-facing Italian route, with the quality of CBAM evidence potentially affecting the commercial treatment of electricity sold into those markets.
Domestic Industrial Consumers Represent a Second Market
Renewable generators can also supply electricity within Montenegro to industrial companies producing goods for EU export. In this structure, the electricity remains in Montenegro and is not itself the CBAM good. The CBAM good is the manufactured product crossing the EU customs border. The chain can therefore include a Montenegrin renewable producer, a Montenegrin industrial installation, the manufactured product, an EU importer or authorised CBAM declarant and an accredited CBAM verifier.
Electricity can become an indirect emission associated with manufacturing, although the treatment depends on the specific CBAM product. Under the current regulation, most iron and steel products, aluminium and hydrogen are among the goods for which only direct emissions are currently included in the CBAM calculation. Purchasing renewable electricity therefore does not automatically reduce the current CBAM obligation of a Montenegrin aluminium or steel exporter. For CBAM goods where indirect emissions are included, particularly relevant cement and fertiliser categories, electricity consumed by the industrial installation can become materially relevant.
The implementing rules require electricity consumption associated with relevant production processes to be monitored. Where actual electricity emissions are claimed through a qualifying direct technical link or PPA, the operator must provide supporting evidence.
This creates a potential market for CBAM evidence-ready industrial electricity supply. Rather than supplying a factory solely with renewable electricity, a generator and supplier can structure the supply so that the industrial operator can use qualifying electricity evidence in its emissions-monitoring system where permitted by the CBAM methodology. This can require identification of the generating facility, PPA documentation, meter data, factory consumption data, hourly or otherwise required temporal matching, allocation methodology and an auditable link between generation and consumption. The resulting evidence can feed into the industrial installation’s CBAM emissions reporting and ultimately support the EU importer’s declaration.
Guarantees of Origin and CBAM Evidence
The expansion of renewable generation also increases the relevance of Guarantees of Origin (GOs) and potential integration with European renewable certificate markets. A GO and a CBAM actual-emissions claim, however, are not equivalent. A Guarantee of Origin establishes an energy attribute, while CBAM requires evidence that emissions associated with electricity used for a specific regulatory claim can be demonstrated under the applicable methodology.
For electricity exported directly to Italy, the evidence chain must connect the generation facility with the EU border transaction. For electricity supplied to domestic industry, the evidence must reach the consuming installation and, where relevant, the product emissions calculation. A GO can form part of a wider evidence package, including information on renewable provenance and the prevention of double claims, but it does not independently establish the physical and contractual conditions required for an actual CBAM emissions claim.
This distinction creates a potential premium segment within Montenegro’s renewable electricity market. A standard renewable electricity contract provides electricity and environmental attributes, while a CBAM-ready renewable electricity product can include electricity, environmental attributes and a structured evidence package designed to support the EU declarant and accredited verifier.
Montenegro’s Electricity-Market Integration
The CBAM requirements are emerging as Montenegro moves closer to the EU electricity-market framework. Montenegro has notified full transposition of the Energy Community Electricity Integration Package, with the formal verification process beginning on 3 March 2026.
The Energy Community Secretariat communicated its assessment to the European Commission on 15 May, while a European Commission opinion remained pending in the latest published status.
Montenegro and Italy are also treated as a dedicated capacity-calculation region involving CGES and Terna. Montenegro is therefore simultaneously integrating its electricity rules with the European market and facing CBAM requirements that can make electricity flows through the Montenegro-Italy connection less competitive when default emissions factors apply. The government has described cross-border electricity legislation as a means of opening access to the single European market and increasing the role of Montenegro’s connection with Italy. The interaction between those objectives and CBAM requirements is particularly relevant to the commercial use of the interconnector.
Evidence Management Becomes Part of Renewable Project Economics
For Montenegro’s renewable sector, the commercial value of an export-oriented project increasingly depends not only on generation costs but also on its ability to support CBAM-compatible PPAs, robust metering, hourly production records, data management, transparent trading arrangements, cross-border nomination evidence and verifier-ready documentation. For electricity exported to Italy, the evidence must ultimately connect the Montenegrin generating facility with the EU authorised CBAM declarant.
For electricity supplied to Montenegrin industry, the evidence must connect the renewable generator with the consuming factory and, where the relevant product methodology permits, with the verified embedded emissions of goods exported to the EU.
The responsibilities are distributed across the market. The renewable producer provides generation evidence, the trader maintains the commercial chain, CGES, Terna and market arrangements support cross-border delivery records, the Montenegrin industrial facility manages consumption and production data, the EU importer or trader carries the declarant obligation, and the accredited verifier performs the required verification. Montenegro’s expanding renewable capacity can therefore serve two potential markets: EU-verifiable electricity exported through the Italy interconnector and verification-ready renewable electricity supplied to domestic industry. The commercial value of both depends not only on producing renewable electricity but also on maintaining the contractual, metering, trading and verification evidence required for its low-carbon characteristics to be recognised under the applicable European rules.
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