Montenegro’s energy landscape is poised for transformation as the country embarks on an ambitious renewable energy expansion, with a pipeline projected to add between 800 MW and 1 GW of solar and wind capacity. This initiative aligns with both national objectives and European Union decarbonization goals, aiming for renewables to contribute over 65–70% of electricity generation by 2030, building on the existing dominance of hydroelectric power.
The economic viability of projects in this sector remains promising. Current estimates suggest that utility-scale solar capital expenditures (CAPEX) range from €0.6 to €0.8 million per MW, while onshore wind projects are projected to cost between €1.2 and €1.5 million per MW, influenced by site conditions and grid connection expenses. For well-structured projects, base-case equity internal rates of return (IRRs) are expected to fall between 9% and 12%, with potential increases to 13% to 15% under favorable market conditions.
However, these financial returns are significantly affected by two critical factors: grid integration timelines and regulatory clarity. Constraints in grid capacity, especially in coastal and southern regions, have emerged as a significant challenge. Delays of 12 to 24 months in connecting to the grid can substantially impact project economics, leading to reductions in IRRs by 150 to 300 basis points due to postponed revenue streams.
The regulatory environment is evolving but remains in flux. Investors are closely observing changes in auction mechanisms, which require a balance between market exposure and contract stability. The lack of long-term power purchase agreements has introduced a higher level of merchant risk into project structuring, particularly amid increasing price volatility in the market.
Looking ahead, Montenegro’s renewable energy sector has the potential to attract cumulative investments ranging from €1.2 billion to €1.8 billion by 2030. This growth positions renewable energy as a crucial pillar of capital inflows, alongside the tourism sector. The successful deployment of this capital will largely depend on the alignment of regulatory frameworks with necessary upgrades to grid infrastructure.
