Forming a unified European energy market is crucial for the Energy Community (EC), which includes European Union members and nine other signatory countries. Although significant progress has been made over the past two years, there are still considerable obstacles. The slow transposition of the Electricity Market Integration Package is causing chain reactions that could jeopardize the Carbon Border Adjustment Mechanism (CBAM).
Artur Lorkowski, Director of the Energy Community Secretariat, spoke to Energy Portal Magazine about the challenges of electricity market integration, the importance of transitioning to clean energy sources, meeting Green Agenda goals, and the recent major power outage that affected Montenegro, Bosnia and Herzegovina, parts of Croatia, and Albania.
Q: How integrated are the Western Balkan countries into the common electricity market? What is the biggest obstacle to better and faster integration?
A: Since December 2022, significant progress has been made in integrating the Western Balkans’ electricity market into the EU internal market. The adoption of the Electricity Market Integration Package by the Energy Community is a significant step toward full integration, enabling participation in the Single Day-Ahead and Single Intraday Coupling (SDAC, SIDC) and integration into European balancing platforms. New day-ahead markets have been established in Albania, Montenegro, North Macedonia, and *Kosovo, alongside the existing market in Serbia, which has also launched an intraday market. These initiatives enhance short-term trading and provide transparent price signals. At the beginning of 2024, the price range between Western Balkan exchanges and HUPX averaged 0.28 to 3 EUR/MWh, indicating strong market integration with the EU. Market coupling is expected to increase efficiency and competition further. However, some challenges need to be addressed. The slow transposition of the Electricity Market Integration Package is a significant obstacle. None of the Western Balkan contracting parties have completed this process despite the deadline being the end of 2023. This affects the Capacity Calculation Region (CCR), which is crucial for market coupling. Delays could postpone market coupling with the EU until 2026, jeopardizing exemptions from the Carbon Border Adjustment Mechanism, which will be in effect from the start of CBAM implementation on January 1, 2026. Securing CBAM exemptions is critical for contracting parties with carbon-intensive electricity production that are electricity exporters. Without this exemption, CBAM implementation is likely to reduce the competitiveness of their electricity, leading to decreased revenues and profits for electricity producers and lower tax revenues for national budgets. Significant progress has been made in the Western Balkans. Still, to enable market coupling, the contracting parties must accelerate the transposition and implementation of the Electricity Market Integration Package and resolve political disputes. This will allow the Western Balkans to apply for CBAM exemptions in the electricity sector, improving economic competitiveness and strengthening their integration with the EU.
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Q: What are the main problems in electricity production and consumption in the Western Balkan countries, especially Serbia?
A: Serbia, like the rest of the Western Balkans, currently meets its electricity needs and exports surplus, but it faces key challenges in the future. Favorable hydrological and market conditions led to historic net exports in 2023, which continued into early 2024. However, the main challenge lies in producing electricity competitively in the future to finance investments in renewable energy sources needed to meet the 2030 targets. As such, the key issues are the need for a transition to more competitive, clean energy sources to ensure future profitability and investments in renewables while also dealing with outdated coal-fired power plants that are expensive to modernize and will be economically unsustainable under future carbon pricing conditions. A well-planned transition to sustainable energy is essential to ensure long-term electricity production and meet the 2030 targets. To meet the 2030 goals and ensure future profitability, Serbia must address the issue of outdated coal-fired power plants and invest in renewable energy sources. A well-planned transition to sustainable energy, guided by the new National Energy and Climate Plan, is crucial for long-term success.
Q: How will the introduction of CBAM affect the Western Balkan countries? Is it possible to delay the implementation of CBAM, and under what conditions would that be possible?
A: The CBAM regulation is now in effect and could significantly impact the Western Balkan countries due to their higher carbon intensity in exports compared to EU averages. To potentially secure an exemption from CBAM for electricity until 2030, the region must first integrate its electricity markets with the EU and commit to establishing an emissions trading system equivalent to the EU ETS by 2030. This exemption would provide crucial relief. The Energy Community Secretariat is available to support the contracting parties in meeting these criteria and navigating the necessary steps. The European Commission will further clarify options through impact assessments and political discussions at the Energy Community Ministerial Council in December 2024. At an informal ministerial council in Banja Luka earlier this year, the Secretariat and the European Commission advised the Western Balkan countries to consider developing an emissions trading system in line with the EU. This would ensure the best chance for CBAM exemptions in the electricity sector and economic relief.
Interview by Jasna Dragojević
Read the whole interview in the new issue of the Energy portal Magazine ENERGY TRANSITION
* This designation is without prejudice to positions on status and is in line with the United Nations Security Council Resolution 1244 and the opinion of the International Court of Justice on Kosovo’s declaration of independence.
