Elektroprivreda Crne Gore (EPCG), Montenegro’s state-owned electricity utility, reported a loss of €13 million in the first quarter of 2026 as the European Union’s Carbon Border Adjustment Mechanism (CBAM) begins to impact its financial performance. This figure reflects the period from January to March 2026 and highlights the initial financial repercussions for electricity exporters in the Western Balkans, particularly those dependent on coal.
CBAM serves as a carbon cost equalization tool, imposing a CO₂-linked levy on electricity imported into the EU. This mechanism penalizes electricity generation methods characterized by high emissions. In Montenegro, approximately 40–45% of electricity generation is sourced from the coal-fired TPP Pljevlja, indicating that the country is structurally vulnerable to these regulatory changes.
The effects of CBAM extend beyond direct taxation; EPCG’s management noted that it is also compressing export prices and diminishing competitiveness in regional markets. As a consequence, coal-generated electricity is being sold at reduced prices.
This price pressure is evident in the regional electricity markets where prices are currently trading €20–70/MWh below EU levels. This disparity reflects adjustments made due to CBAM and buyer hesitance to accept future carbon costs, resulting in a structural margin squeeze for exporters like EPCG.
In response to these challenges, EPCG has adjusted its sales strategy by focusing on regional (non-EU) markets to minimize exposure to CBAM. The utility aims to export surplus electricity to the EU only when necessary, which complicates market strategies and prioritizes stability over price optimization.
A significant issue arises from the misalignment in cost structures. Montenegro’s domestic carbon pricing stands at around €24 per tonne of CO₂, while EU Emissions Trading System (ETS) prices fluctuate between €70 and €80 per tonne. This difference creates a competitive disadvantage for Montenegrin producers exporting to the EU, forcing them to absorb higher carbon costs without transitional relief measures.
EPCG anticipates that annual costs associated with CBAM could reach up to €191 million, which would substantially affect Montenegro’s external balance, given that electricity represents more than 35% of total exports.
The reported loss for Q1 should be viewed as an early indicator rather than an isolated incident. Despite favorable hydrological conditions leading to an increase in output to approximately 1,204 GWh, nearly 40% year-on-year growth, EPCG still faced losses attributed to CBAM, demonstrating persistent cost pressures.
The situation is further complicated by regulatory uncertainties surrounding CBAM. The methodology for calculating costs in 2026 is still being finalized, with actual financial settlements not expected until 2027, which will retroactively address exports from 2026. This uncertainty poses challenges for current trading decisions without clear visibility on final cost implications.
EPCG has opted not to pass these costs directly onto domestic consumers at this stage, stating that electricity price increases are not currently being considered. However, the company does not rule out potential tariff adjustments should external factors exert pressure on energy markets.
The underlying tension within EPCG’s operational framework is apparent. On one hand, there exists a legacy coal-based generation system providing stability but incurring rising carbon liabilities. On the other hand, a rapidly changing European market environment imposes pricing on emissions that threatens the economic viability of this traditional baseload generation.
The initial loss of €13 million recorded in Q1 signals the beginning of a significant transition for EPCG. This phase will be crucial in determining whether EPCG can sustain its export capacity or if Montenegro’s electricity sector must expedite its transition towards renewable energy sources and align with EU carbon pricing frameworks to remain competitive.
