Montenegro’s state-owned utility, Elektroprivreda Crne Gore (EPCG), is facing increased financial challenges as it navigates the European Union’s Carbon Border Adjustment Mechanism (CBAM). The initial effects of this regulation have already been felt, with the company reporting a €13 million decrease in export revenues during the first quarter of 2026, despite favorable conditions for electricity sales.
The introduction of CBAM signifies a pivotal change for EPCG, imposing a carbon cost on electricity exports from fossil fuel sources, particularly affecting coal-generated power from facilities like the Pljevlja Thermal Power Plant. This regulatory shift is not merely a temporary setback but indicates deeper structural issues within the company’s operational model.
EPCG’s management has indicated that raising electricity prices for consumers is currently off the table, which presents a significant hurdle. As a result, the company must absorb the financial strain internally, leading to a compression of profit margins. The dual impact of reduced export prices due to CBAM and fixed domestic tariffs creates a narrow financial corridor where profitability increasingly hinges on external factors such as hydrological conditions and market price fluctuations.
While Montenegro does not always directly engage with the EU customs system, CBAM influences regional electricity pricing. Adjustments in EU-linked markets reflect carbon costs, effectively lowering the achievable selling price for exporters like EPCG. Consequently, the utility is selling electricity at discounted rates compared to what could be realized in a non-CBAM scenario, resulting in a €13 million loss over just three months.
The situation is exacerbated by regional price dynamics; reports indicate that electricity prices in the Western Balkans are trading €20–70/MWh lower than EU levels, further diminishing export opportunities and applying downward pressure on revenues.
The reliance on coal-fired generation remains a critical factor in EPCG’s vulnerability. A considerable portion of its electricity output stems from coal, exposing it to carbon pricing mechanisms. Under CBAM guidelines, coal-generated electricity carries an embedded carbon cost that can reach €70–80 per tonne of CO₂, contrasting sharply with lower domestic pricing structures. This creates an expanding gap in competitiveness against renewable or low-emission generation within the EU market.
In response to these challenges, EPCG is strategically redirecting its exports toward non-EU regional markets where CBAM does not apply. However, this approach introduces its own set of challenges since those markets tend to be more volatile and lower-priced, potentially failing to restore margins effectively.
Long-term strategies are already being implemented as EPCG invests in renewable energy projects. The company is advancing initiatives such as:
- the commissioning of the Gvozd wind farm
- the development of three large solar power plants
- the preparation of documentation for the Kruševo hydro project
This shift towards renewable energy and lower-carbon assets is driven by both policy alignment and financial necessity.
The ramifications of CBAM are compounded by operational challenges faced by EPCG. In 2025, the utility had to import 1,341 GWh of electricity valued at €142 million, primarily due to prolonged outages at the Pljevlja plant coupled with unfavorable hydrological conditions. This scenario underscores two critical vulnerabilities: reliance on imports during supply disruptions and revenue erosion from exports under CBAM regulations.
Together, these factors threaten the financial stability of EPCG and heighten its dependence on external financing or state assistance.
The quarterly impact of €13 million serves as a stark reminder that CBAM is effectively embedding the costs associated with Montenegro’s delayed energy transition into market operations. Under existing circumstances, each megawatt-hour exported from coal incurs an implicit penalty that cannot be transferred to consumers domestically or fully mitigated in regional markets. This situation alters traditional cash-generating assets into operations constrained by tight margins.
As Montenegro’s energy landscape evolves, profitability will increasingly depend on how swiftly EPCG can transition towards renewable energy sources and more adaptable assets. The pace at which this shift occurs will significantly influence its competitive standing within an increasingly carbon-sensitive European electricity market.
