Western Balkans face tight electricity market coupling deadlines

The first task in the Western Balkans energy transition is market coupling and, at the same time, it is the main condition to be exempted from CBAM, the CO2 border tax on imports that the EU will begin to charge in January 2026, experts and representatives of power exchanges warned at Belgrade Energy Forum. They outlined the situation in the region and agreed urgent action is necessary for the integration, implying close cooperation between the relevant ministries, transmission system operators and regulatory bodies.

Burdened, like the rest of Europe, by turbulences in the electricity market amid the coronavirus pandemic, energy crisis and Ukraine war, the Western Balkans face multiple challenges in the segment in their accession to the European Union, too. Many of the regulations piling up come into force automatically for member states, while the transposition in the countries of the region is more complex and conducted through the Energy Community.

The latest batch is the package of EU directives and regulations on the electricity market design reform, which was discussed at one of the panels within Belgrade Energy Forum. “Our first task, to be able to talk about the energy transition at all, is market coupling. Without it the energy transition simply cannot come to fruition in the right way, a fast switch to a large quantity of renewable sources,” according to moderator and Chief Operating Officer of Serbia’s SEEPEX electricity exchange Dejan Stojčevski.

Bosnia and Herzegovina still has no organized electricity market

Most countries in the region only rolled out day-ahead markets last year, while the intraday one is still a long shot, he noted. “Serbia does have both, but we can’t speak about big liquidity. Bosnia and Herzegovina still didn’t established an organized market, and it is not likely it would within the next two years,” Stojčevski estimated.

He also pointed to decarbonization obligations and said the EU is changing its legal framework for hydrogen, balancing, energy storage, long-term contracts and other segments.

Allowing negative prices in trading on exchanges is also important for market coupling

Importantly, market coupling is a basic condition for the countries in the region to get an exemption from the EU’s CO2 import tax, within the Carbon Border Adjustment Mechanism. After the ongoing trial period, during which the levy is only calculated, it will be charged from January 1, 2026. In addition, the Western Balkans will need to introduce an emission trading system (ETS) or systems by the end of 2029.

Stojčevski expressed doubt that all the processes can be completed on time. He also stressed that allowing negative prices in electricity trading is important for market coupling, for the region to align with the EU.

Bigger, more coordinated regions have better access to market, larger capacities

From the crash in prices, demand and output during the pandemic lockdowns to stunning price surges during the energy crisis to the current episodes of prices plunging deeply below zero, the key is always in interconnections and having more markets in sequence, said Zoran Vujasinović, policy officer responsible for electricity market codes in the European Union Agency for the Cooperation of Energy Regulators (ACER). “Better transmission capacities provide that there’s always someone to absorb or offer,” he underscored.

The establishment of the balancing market is slow

As for the electricity balancing market, it is opening very slowly for the Western Balkans while even in Europe it’s not materializing so easily, Vujasinović said. Turning to EU integration, he highlighted the fact that bigger and more coordinated regions have better access and larger available capacities.

Vujasinović suggested to the countries in the region to conduct a simpler coupling process, through so-called NTCs (net transfer capacities), based on bilateral exchange analysis. “That, too, is a huge task,” he said. In his view, it would take several years, after which it is possible to turn to coupling with Central Europe and the methodology based on flow-based market coupling.

Transposition of EU’s Electricity Integration Package yet to be conducted, too

Traders in exchanges are already buying and selling power for the delivery in 2026 and it is important that they know how the system will work then, said the Head of Electricity in Energy Community Secretariat Jasmina Trhulj.

By adding the Electricity Integration Package (EIP) to their legal frameworks, the Western Balkans will practically become full EU members. They accepted the obligation in December 2022 and the task was supposed to be completed by the end of last year. No contracting party in the region delivered it, but they are working on it, Trhulj asserted.

The relevant law in Serbia was finished for the most part already in October, and it is expected to be adopted in autumn, she added. The next step is implementation. Jasmina Trhulj highlighted the bilateral market coupling initiatives that were launched by Serbia and Hungary, and Montenegro and Italy, and pointed out that only Bosnia and Herzegovina still has no such project while the three remaining contracting parties are working with Greece.

If Western Balkans aren’t making progress, they can’t expect postponements or compromises

Jérôme Le Page, Chair of the Electricity Committee in the Energy Traders Europe association, said the changes that the EU introduced with its market reform aren’t fundamental but that it just structured it a little bit differently. “It’s about providing long-term signals for investors in power generation, storage and renewables but also providing good signals and safety nets for consumers,” he stated.

The EU is demanding from the countries of the region to achieve in two years what it took twenty years there

He especially praised how the EU regulated the segment of long-term market-based instruments – power purchase agreements (PPAs) and forward contracts. “They are the backbone of how we trade, how the system works,” Le Page underscored.

In addition, regulated schemes for subsidizing fossil-free facilities via contracts for difference (CfDs) enable supporting the developers by determining a lower limit for prices and capping them for consumers, he explained.

Now the system must start functioning across borders as well, Le Page said.

Agreeing with the other panelists, he opined that for a good integration pace in the Western Balkans it is necessary for state authorities to establish close cooperation with the Energy Community Secretariat, their transmission system operators (TSOs) and the operators of markets and bourses.

Le Page acknowledged it is difficult to fulfill obligations such as the one on carbon pricing. The EU is practically demanding from the countries of the region to achieve in two years what it took twenty years there, he added. #That’s not easy and that’s almost unfair. And yet that’s the policy that is out there,” he asserted.

On the other hand, work on the abovementioned tasks matters a lot, Le Page said. “But if you haven’t shown any sign of going for progress, the authorities aren’t going to be very lenient,” he warned.

Adex bourse to become bridge toward EU for Energy Community

The Alpine-Adriatic Danube Power Exchange – Adex is doing its part of the job on the organized electricity market level, its Chief Executive Officer Anže Predovnik said. Its goal is market coupling and uniforming the trading and operational conditions on all markets within the group, he stressed. Predovnik, who also runs the Slovenian BSP SouthPool exchange, added that resources are currently optimized.

Adex Group wants to enable robust, transparent price signals, he said. On top of the work to create a joint bourse with SEEPEX and the Hungarian HUPX, on which they recently signed a deal, the company is helping the exchanges in Montenegro and North Macedonia within the aforementioned market coupling initiatives, Predovnik revealed.

“We will create the biggest energy hub or energy trading holding in the region. With this setup, being at the border of the current EU and Energy Community countries, we can serve as a bridge and help the integration of the Energy Community countries with all the expertise we collected in the last couple of years and decades in the EU, going through all the market couplings from 2012,” HUPX CEO Mátyás Vajta said.

He stressed that the focus is shifting from the day-ahead to the intraday market as well as to renewables and that algorithmic trading is strengthening. Most newcomers on HUPX leans on algo and the trend is kicking in in the surrounding region, too, in Vajta’s words.

“To tackle all these in one step in this region will be really challenging,” the head of the Budapest power bourse underscored and concluded that it is urgent to act and that market coupling is the most important.

On the same note, he announced that the first memorandum of understanding on the Serbia-Hungary market coupling would be signed soon.