The EU Carbon Border Adjustment Mechanism is contributing to a redirection of Western Balkan electricity flows, strengthening Serbia’s position as a northern transit hub while reducing trade on several established routes into the European Union.
The shift became clearer in the second quarter of 2026, when scheduled exports from Serbia to Hungary increased 111% year on year. Commercial flows from Romania to Hungary rose 156%, indicating a growing concentration of electricity around the Hungarian market and transmission routes serving Ukraine’s expanding import requirements.
The pattern differs from the region’s 2025 trading structure. Electricity previously moved more evenly across connections with Croatia, Bulgaria, Greece, Hungary and Italy. Following the start of the definitive CBAM period on 1 January 2026, trading increasingly consolidated around corridors where demand, price spreads and onward delivery opportunities could absorb carbon-related costs.
CBAM is not the only cause. The first quarter brought exceptional hydropower production, lower Western Balkan prices and temporary regional surpluses. As hydrological conditions normalised in the second quarter, the region moved from net exports of around 1,247 GWh to net imports of approximately 1,048 GWh.
Greece also strengthened its position as a southeastern supply centre. Its exports increased towards Bulgaria, North Macedonia and Albania as expanding solar and wind production altered the regional merit order. Albanian exports to Greece fell back after their hydro-driven first-quarter surge.
The failure of several traditional trade routes to recover fully is more difficult to separate from CBAM. Gross scheduled exchange between the six Western Balkan markets and neighbouring EU states was around 15% lower year on year in Q2. Across the first half, it remained approximately 19% below H1 2025.
Price relationships alone would normally have supported stronger exports. Italy averaged around €27/MWh above Montenegro during the second quarter, while Hungary traded approximately €13/MWh above Serbia. Those spreads were insufficient to offset indicative default CBAM charges of roughly €73.70/MWh for Montenegrin electricity and €78.37/MWh for Serbian supply.
The carbon adjustment has changed the value of transmission capacity. Traders can secure cross-border rights but still decide not to nominate electricity when the wholesale spread does not cover the expected CBAM liability. Consequently, high capacity allocation does not necessarily translate into scheduled commercial flow.
Serbia occupies a distinctive position. It is the Western Balkans’ largest electricity market and its most important transit system, connecting Bosnia and Herzegovina, Montenegro, Kosovo, North Macedonia and Bulgaria with Hungary and, through neighbouring networks, Ukraine. It also operates the region’s most liquid power exchange.
Its generation mix remains carbon-intensive. Serbian lignite production fell 12% year on year to 6.54 TWh in Q2 2026, but coal still anchors domestic generation and determines the country’s high CBAM default value. At the same time, Serbia’s location gives traders access to a northern route where Ukrainian demand and Hungarian market liquidity can preserve the commercial case for some exports.
This combination could deepen Serbia’s role as both a marketplace and transit platform. It does not necessarily improve the economics of Serbian coal generation. Electricity originating elsewhere can move through the Serbian system, while CBAM treatment depends on contractual origin, reporting methodology and the importer’s ability to demonstrate embedded emissions.
The redirection is accompanied by growing divergence between scheduled and physical flows. On the Bosnia and Herzegovina–Croatia border, scheduled exports reportedly declined approximately 43%, while physical flows increased around 270%, reaching 824 GWh compared with 282 GWh commercially scheduled.
Electricity follows network physics rather than trade contracts. A transaction scheduled from Serbia towards Hungary can create loop flows across Bosnia and Herzegovina, Croatia, Montenegro or neighbouring EU systems. When commercial schedules and physical flows move in opposite directions, transmission system operators must retain larger security margins and rely more heavily on redispatch and countertrading.
Those interventions create costs that ultimately enter network tariffs or congestion-management accounts. They also weaken the relationship between the location of a commercial transaction, the network experiencing the physical constraint and the system collecting congestion revenue.
Domestic market liquidity is developing in the opposite direction. Day-ahead volume across the four observed Western Balkan exchanges increased 19% to 2.70 TWh in Q2. ALPEX recorded growth of 52%, Montenegro’s MEPX increased 49%, North Macedonia’s MEMO rose 31%, and Serbia’s SEEPEX advanced 7%.
The figures point to a market becoming more liquid domestically but less integrated across the EU border. That is a difficult outcome for a region whose energy transition depends on access to a larger balancing area, deeper trading liquidity and EU-based renewable offtakers.
The rerouting of flows does not prevent electricity exports and trading from continuing as business as usual, but it increases the importance of documenting the source behind each commercial schedule. Analysts at Virtu.Energy, a CBAM electricity-focused engineering platform, said EU-bound transactions should be accompanied by CBAM evidence packages capable of examination by EU-accredited verification bodies.
Formal compliance responsibility remains with the authorised CBAM declarant or importer. The practical burden, however, extends through the full delivery chain because the declarant must obtain production, metering, trading, contractual and cross-border allocation records from exporters, intermediaries and generating companies.
This becomes more complicated when electricity crosses several bidding zones or changes ownership before entering the EU. Each intermediary must preserve the contractual and data connection to the original source. A broken evidence chain could prevent the declarant from applying actual emissions even where the electricity originated from a low-carbon generator.
Virtu.Energy analysts recommend integrating pre-verification immediately, particularly for multi-border transactions. Identifying missing origin, metering or capacity-allocation evidence before delivery gives the parties an opportunity to correct contractual and technical gaps. Discovering those deficiencies after the reporting period could force the importer to use a substantially more expensive national default factor.
The pending revision of CBAM could moderate the distortion. Calculating defaults from the complete generation mix would reduce the penalty imposed on countries with meaningful hydro, wind and solar production. Easier access to actual emissions would allow verified renewable exports to avoid the national carbon intensity of coal-heavy systems.
Until those changes are agreed and implemented, regional electricity is likely to continue seeking routes where demand is strongest and the combined price spread can absorb carbon exposure. Serbia and Hungary are emerging as the central northern channel, while Ukraine’s structural electricity deficit is giving that corridor a commercial pull that established westward and southeastern routes currently lack. For exporters and producers, the commercial route now has to be matched by an equally robust route for CBAM evidence.