Montenegro’s electricity exporters are confronting a significant carbon cost of €80.59 per megawatt-hour under the European Union’s Carbon Border Adjustment Mechanism (CBAM). This situation poses challenges for the profitability of electricity sales to Italy, raising concerns about renewable energy investments, carbon pricing, and the financial outlook for the state utility Elektroprivreda Crne Gore (EPCG).
The strategic electricity link between Montenegro and Italy, established to facilitate access to one of Europe’s largest electricity markets, is now being tested regarding the viability of carbon-adjusted pricing for cross-border transactions between the Western Balkans and the EU.
Montenegro’s official CBAM electricity default emission factor stands at 0.979 tonnes of CO₂ per MWh. With the EU’s latest published CBAM certificate price at €82.32/tCO₂ for the third quarter of 2026, this results in an indicative gross carbon liability of €80.59/MWh for imports based on the national default value.
This figure is not definitive for October electricity deliveries; it will be determined by fourth-quarter EU carbon auctions. Nonetheless, it highlights the growing disparity between traditional electricity prices and the carbon-adjusted costs associated with selling power into the EU.
As of October 9, Montenegro’s BELEN day-ahead electricity price was recorded at €223.39/MWh, while Italy’s Centre-South bidding zone reflected a price of approximately €233.27/MWh.
The resulting wholesale price difference of €9.88/MWh is significantly less than Montenegro’s indicative default-based CBAM exposure, which does not include transmission capacity charges, balancing costs, or other transaction expenses.
This additional carbon liability may negate the economic advantage for traders relying on wholesale price differences between Montenegro and Italy.
The interplay between CBAM costs and trading volumes is complex. In the second quarter of 2026, Italian wholesale electricity prices averaged around €120.9/MWh, compared to €93.6/MWh in Montenegro, resulting in a premium of approximately €27/MWh.
Despite an indicative default-based CBAM cost nearing €74/MWh at that time, scheduled electricity exports from Montenegro to Italy increased by about 19% year on year to 708 GWh.
This suggests that trading decisions are influenced by hourly price variations, existing contracts, and cross-border transmission capacity value. Scheduled flows may also include electricity generated outside Montenegro, making compliance with CBAM requirements crucial based on the production origin.
EPCG faces challenges in balancing its substantial hydropower portfolio with its ongoing reliance on coal-fired generation.
The hydropower plants Piva and Perućica supply significant low-carbon electricity, while the Pljevlja thermal power plant remains vital for dispatchable generation during periods of low hydrology.
However, electricity exported without meeting verified actual emissions criteria is evaluated against Montenegro’s national default factor instead of reflecting emissions from individual hydropower or wind facilities.
This situation creates a competitive disadvantage for renewable energy sold through standard trading mechanisms.
Montenegro’s domestic carbon-pricing policy adds another layer to this issue. In September, EPCG announced it would pay €75 per tonne of CO₂ under its emissions-trading framework, with funds allocated to the national Eco-Fund.
This increase from a previous minimum carbon price of around €24/t could impose an annual financial burden nearing €70 million on the utility, contingent on emissions and payment obligations.
The measure reinforces Montenegro’s domestic carbon-pricing structure while raising operational costs for coal-fired generation.
However, having a national carbon payment does not eliminate CBAM liabilities on electricity exports. EU regulations permit recognition of qualifying foreign carbon prices under specific conditions related to emissions evidence and verification processes. For imports assessed using national default emissions values, deductions depend on EU criteria for acknowledging country-level default carbon prices.
This distinction holds significance for EPCG and potential EU electricity purchasers since compliance with domestic carbon pricing and EU CBAM requires separate evaluations.
The investment landscape for renewable energy presents another major concern.
Montenegro’s growing wind and solar initiatives, including EPCG’s Gvozd wind project, enhance its capability to deliver low-carbon electricity to European markets. The Gvozd project commenced trial operations in May 2026 following an investment of approximately €82 million, expecting annual production of around 150 GWh.
Nevertheless, renewable energy production does not automatically ensure favorable treatment under CBAM regulations.
To utilize actual emissions rather than default values, an authorized EU declarant must meet rigorous requirements covering various aspects such as physical power purchase agreements and independent verification of emissions data.
Guarantees of Origin are commercially valuable but do not independently qualify projects for actual-emissions treatment under CBAM regulations.
This differentiation alters the financial evaluation of Montenegrin renewable projects as banks funding wind, solar, and battery storage initiatives must now distinguish revenue streams from domestic sales versus qualifying exports supported by verified emissions.
Projects depending on Italian price premiums may need revised financial forecasts along with increased compliance costs and enhanced contractual agreements with EU buyers.
The ramifications extend to Montenegro’s industrial sector as well; electricity pricing affects competitiveness in aluminum processing and metal manufacturing sectors. However, indirect emissions from electricity are not currently included in CBAM certificate obligations for aluminum and steel like they are for cement and fertilizers.
The European Commission has suggested modifications to electricity CBAM regulations that could benefit renewable producers in nations with high-carbon national defaults. Any resulting commercial advantages will hinge on final legislation outcomes and compliance capabilities from producers and importers alike.
The central investment question for Montenegro now revolves around whether its electricity producers, transmission operators, and European buyers can establish a verifiable contractual framework that allows low-carbon energy to be valued based on actual emissions rather than default metrics.
If this capability remains unachieved, Montenegro risks maintaining valuable infrastructure while losing significant portions of the price premium that initially justified direct access to the Italian market.
