Fixed-volume renewable power purchase agreements are facing a new compliance challenge under the EU Carbon Border Adjustment Mechanism (CBAM). Electricity used to cover production shortfalls may not originate from the contracted renewable installation, potentially exposing part of the delivered volume to national default emission factors and additional CBAM costs.
Under the CBAM framework, electricity claimed using actual embedded emissions must be covered by a power purchase agreement (PPA) between an authorised CBAM declarant and a renewable electricity producer located in a third country. The structure is relatively straightforward when the contracted volume follows the plant’s actual generation. However, compliance becomes more complicated when PPAs require baseload or shaped deliveries.
Wind and solar generators cannot guarantee a fixed hourly production profile. When actual generation falls below the volume specified in a contract, the shortfall is typically covered through the intraday or balancing market. The replacement electricity may originate from coal, gas, hydro or an untraceable generation portfolio, making it difficult to demonstrate that the electricity delivered under the PPA came from the contracted renewable facility.
The Energy Community Secretariat has warned that electricity delivered under a PPA but not generated by the named renewable installation is expected to be subject to CBAM costs based on the national default emission factor. This creates an additional cost for fixed-volume agreements and could significantly affect the economics of PPAs with substantial profile obligations.
For Serbian electricity contracts, the applicable default charge was approximately €78.37/MWh in Q2 2026. The corresponding figure was around €73.70/MWh in Montenegro and almost €66.77/MWh in North Macedonia. At these levels, even relatively modest imbalance volumes can materially reduce the commercial margin of a renewable PPA.
The exposure can arise regardless of whether the generator or the offtaker assumes responsibility for the production profile. A generator providing a fixed delivery guarantee may face the direct cost of procuring replacement electricity, together with the associated CBAM exposure. An offtaker responsible for balancing may avoid that direct contractual cost but could still receive imported electricity whose renewable origin cannot be demonstrated.
A pay-as-produced PPA can significantly reduce this risk by limiting contractual deliveries to the renewable installation’s actual metered output. Under this structure, the offtaker assumes the volume and profile risk, while the generator is not required to source replacement electricity to meet a fixed delivery obligation. This creates a clearer link between the generating facility, its measured output and the electricity being exported.
The trade-off is commercial. Industrial consumers and utilities often favour shaped or baseload delivery profiles because they provide greater predictability and can better match consumption patterns. A pay-as-produced arrangement, by contrast, requires the buyer to manage the remaining profile risk through balancing portfolios, storage, flexible demand or additional electricity contracts.
Battery storage can also help manage intraday production fluctuations and support compliance by shifting renewable generation to periods when it is needed. However, the traceability requirements remain critical. Documentation must demonstrate that the electricity stored and subsequently delivered originated from the qualifying renewable installation. If a battery is also charged from the wider grid, the same traceability problem can reappear.
CBAM is therefore beginning to change how renewable PPAs are valued. The lowest headline electricity price may not necessarily represent the lowest-cost contract once balancing electricity, national default emission factors, traceability and verification costs are taken into account.
For buyers and renewable generators, this means that the carbon status of imbalance electricity can no longer be treated simply as a conventional settlement issue. It is becoming a contractual and financial variable that needs to be explicitly priced into the PPA structure, particularly for renewable projects exporting electricity from the Western Balkans into the EU.