Montenegro’s undersea electricity connection to Italy provides the nation with direct access to one of Europe’s premium power markets. However, an indicative default cost associated with the Carbon Border Adjustment Mechanism (CBAM) of nearly €74/MWh poses significant challenges for exporters unless they can demonstrate verified emissions specific to their installations.
The national default factor for Montenegrin electricity is 0.979 tonnes of CO₂ per MWh. Given the second-quarter CBAM certificate price of €75.28 per tonne, this results in an estimated cost of €73.70/MWh for electricity exported to the European Union.
This charge exceeds twice the average price difference between Montenegro and Italy during the second quarter, which was approximately €27/MWh. Consequently, in terms of spot-market pricing, the CBAM default cost could negate any commercial advantage gained through the interconnector.
<pDespite these challenges, exports from Montenegro to Italy increased by about 19% year on year in the second quarter, potentially reflecting existing contracts, transit activities, plant conditions, or expectations that the EU might revise its electricity pricing methodology.
The long-term issue remains unresolved. Without qualifying for actual-emissions treatment, the price premium in Italy may often be insufficient to offset the carbon charge.
<pMontenegro's default emissions factor is heavily influenced by the Pljevlja lignite power plant, despite the country’s substantial hydropower generation and a growing renewable energy pipeline.
This situation creates a disparity between national default emissions and those of individual renewable energy sources such as hydro, wind, or solar plants. A zero-emission generator may still be classified as carbon-intensive if EU importers cannot prove that its output meets all necessary conditions for actual emissions claims.
The undersea cable linking Montenegro and Italy offers a straightforward cross-border route; however, simply having access to this interconnector does not suffice for establishing a valid CBAM actual-emissions claim.
<pTo qualify, an authorized EU declarant must possess a valid physical Power Purchase Agreement (PPA) with a Montenegrin producer. If an electricity trader intermediates delivery, appropriate documentation must form a controlled tripartite contractual structure.
<pThe claimed production must align with firmly nominated capacity within a timeframe not exceeding one hour. Additionally, metering data, schedules, imported quantities, and contractual allocations must correspond to both the installation and declarant.
<pMonthly interim reports require review by an accredited verifier who must certify that all conditions were satisfied. The final documentation must specify the authorized declarant and the allocated quantities.
<pThis complexity complicates portfolio exports by EPCG or independent traders when hydro, wind, solar, and thermal production are aggregated commercially.
<pTo ensure installation-specific treatment, exporters will need to implement controlled allocation rules that prevent selling the same renewable volume to multiple buyers or claiming it simultaneously for domestic and export purposes.
<pThe European Commission has proposed changes to revise electricity default factors so they better reflect the entire national generation mix.
<pSuch revisions would be particularly beneficial for Montenegro. By incorporating hydropower and other renewables more comprehensively into calculations, it could result in a lower national emissions factor than one predominantly driven by fossil fuels.
<pThe proposal also aims to eliminate the requirement for actual-emissions claims to demonstrate that no physical congestion existed between the installation and the EU at the time of export.
<pIf adopted as suggested, these electricity provisions could retroactively apply from January 1, 2026. Until then, traders face uncertainty regarding whether current imports will be evaluated under existing or revised methodologies.
<pThis uncertainty impacts more than immediate trading; revenue forecasts for projects such as Gvozd, Gvozd 2, and Montenegro’s developing solar initiatives increasingly hinge on whether renewable electricity can be sold in Italy without being burdened by the national thermal-generation factor.
<pThe Commission's proposal for mutual recognition of Guarantees of Origin (GoO) between the EU and qualifying Energy Community countries presents another potential opportunity for Montenegro.
<pMontenegro's electronic GoO registry is active, having issued around 1.35 million certificates in 2024. EU recognition could enhance these certificates’ marketability among Italian utilities, corporate buyers, and traders.
<pFor this to occur, Montenegro must first meet various proposed conditions including full alignment with EU renewable energy rules, registry reliability standards, double-counting controls, technical transfer tests, and either AIB membership or equivalent independent oversight.
<pWhile GoO recognition would bolster renewable energy disclosure and corporate Power Purchase Agreements (PPAs), it would operate independently of CBAM actual-emissions verification requirements.
<pA certificate can be transferred separately from physical electricity; however, CBAM necessitates proof that the electricity claimed by an authorized declarant was contracted and produced through a qualifying chain.
<pThe most valuable Montenegrin export would thus integrate three components: physically delivered renewable electricity via the Italy cable, recognized GoO certification, and independently verified CBAM evidence.
<pMontenegro may also leverage verified renewable supply domestically. Businesses in tourism, ports, data centers, and industrial sectors may pay a premium for electricity with credible carbon and origin documentation as European financial institutions tighten emissions standards.
<pNonetheless, the direct connection to Italy remains Montenegro's most significant strategic asset. This cable facilitates access to a substantial EU market while avoiding complex contractual arrangements across multiple transit jurisdictions.
<pUltimately, Montenegro's ability to capitalize on this advantage will depend on more than just technical capacity; it will hinge on the verifiable evidence associated with each exported megawatt-hour. Under CBAM guidelines, while hydropower may be environmentally friendly in practice, it achieves commercial viability only when exporters can substantiate its origin through proper documentation.
