Montenegro’s electricity transmission operator, CGES, has obtained a €25 million loan from the French Development Agency. This marks the agency’s inaugural investment in Montenegro’s energy sector and is part of a broader initiative aimed at modernizing the country’s electricity grid. The financing is backed by a government guarantee and is expected to be complemented by an €8.5 million grant from the European Union through the Western Balkans Investment Framework.
The funds will be utilized for the reconstruction of key substations, specifically Perućica and Pljevlja 2, which are critical for enhancing system reliability and facilitating the integration of new renewable energy sources. The agreement was formalized by CGES CEO Ivan Asanović and Arnaud Dauphin, director of the French Development Agency’s regional office, with Montenegro’s finance minister Novica Vuković and energy minister Admir Šahmanović also present at the signing.
While the loan amount may seem modest compared to larger European transmission investments, its significance for Montenegro is profound. It introduces concessional development finance into a grid that must increasingly accommodate a growing number of wind, solar, and hydroelectric projects. Additionally, it aims to strengthen connections with neighboring systems and optimize the use of Montenegro’s submarine electricity cable to Italy.
The project will enhance two strategically located substations. The Perućica substation, situated in central Montenegro, is closely linked to vital hydroelectric resources and is expected to support up to 350 MW of hydro capacity. In contrast, Pljevlja 2 serves as an important junction between Montenegro’s domestic network and the Trans-Balkan transmission corridor, particularly in a region heavily reliant on coal for industrial activities.
Detailed project documentation suggests that these upgrades could unlock approximately 550 MW of renewable connection capacity across the transmission system. This figure includes over 250 MW in the Perućica area and around 300 MW near Pljevlja. However, this capacity does not guarantee immediate construction of new generation facilities, as developers must navigate various logistical challenges including land acquisition and environmental approvals.
The total estimated cost for the substation project stands at about €39 million, with the AFD loan covering approximately 64% of this amount and the EU grant accounting for nearly 22%. This financing structure significantly reduces the capital burden on CGES while allowing for a longer repayment period than typical commercial loans would offer.
Investment in these substations is projected to cost around €71,000 per megawatt of enabled capacity. Although substations do not generate electricity directly, their role in enhancing system security and facilitating cross-border trading is crucial for future energy investments.
In terms of potential future investments, if renewable generation projects such as hydro expansions and wind farms materialize alongside this grid upgrade, total associated investments could exceed €600 million or even approach €1 billion depending on project specifics.
The implementation timeline for this project indicates that consultancy work may begin as early as 2027, with completion anticipated around late 2030. This extended timeframe highlights potential risks for renewable developers who may face delays in connecting their projects to the upgraded network.
CGES is entering a significant investment phase with a projected budget nearing €200 million from 2026 to 2030 for various infrastructure projects across substations and transmission lines. This investment cycle is expected to substantially renew CGES’s existing network assets.
Despite a reported net profit decline from €35.7 million in 2023 to approximately €21 million in 2025, CGES anticipates continued revenue stability due to ongoing demand for electricity transmission services. However, rising depreciation and financing costs could impact future earnings.
As Montenegro continues its energy transition efforts, the importance of development finance becomes increasingly evident. The €25 million state guarantee represents only a small fraction of Montenegro’s GDP but adds another layer of obligation to the national balance sheet as it seeks to modernize its energy infrastructure.
