Eco-team: CBAM already influences the market logic of electricity exports from Montenegro

The EU's Carbon Border Adjustment Mechanism (CBAM) is already affecting the market logic of electricity exports from Montenegro, an analysis by the NGO Eko-tim has shown.

"Although the price of electricity in southern Italy in the first quarter of this year was significantly higher than in Montenegro, planned commercial flows from Montenegro to Italy were reduced by more than 2,1 thousand megawatt hours (MWh) per day compared to the same period last year," states the analysis of the impact of the implementation of CBAM on the Pljevlja Thermal Power Plant (TPP) and the local and national economy.

The analysis showed that the first market effects of CBAM are already visible, that is, that electricity in Italy could be sold at a significantly higher price than in Montenegro, and that the difference was around 43 euros per MWh.

"Under normal market circumstances, this would be a clear incentive for exports. However, the CBAM cost is now added to the export of electricity from Montenegro, which is estimated at around 74 euros per MWh. As this additional cost is higher than the price difference between the Montenegrin and Italian markets, exports to Italy cease to be equally profitable," the Eko-tim analysis states.

In other words, CBAM has practically nullified the price advantage that Montenegro had on the Italian market, which is why part of the electricity that could previously have been competitive on the EU market is now more difficult to market or is sold with a significantly lower margin.

"The key effect of CBAM, therefore, is not just the introduction of a new cost, but the weakening of export competitiveness and increasing pressure on energy sector revenues," said the Eco-team.

Climate and Energy Program Coordinator, Diana Milev Čavor, believes that this is an important signal for Montenegro.

"CBAM is already changing market decisions and shows that electricity exports from high-emission systems are becoming less competitive, even when prices on the EU market are higher," said Milev Čavor.

The analysis estimates that around 500 GWh of planned electricity sales this year could be treated as EU-relevant exports, i.e. as a part of sales potentially exposed to CBAM risk.

"If the rate of decline in trade between the Western Balkan countries and the EU of approximately 25 percent were applied to that volume, the lower export compared to the annual plan would amount to around 125 GWh," explained the Eco-team.

The gross value of such a lost export opportunity, at an average price in southern Italy of €130,3 per MWh, would be around €16,3 million. However, the analysis warns that this amount should not be seen as a direct net loss, as some of the electricity could be sold on the domestic or regional market.

A more realistic indicator of possible lower revenue is the lost export premium, i.e. the difference between the Italian and Montenegrin prices, which for 125 GWh would amount to around 5,6 million euros.

"The essence of the problem is not just how much Montenegro can lose through lower exports. The essence is that the entire economic calculation of electricity production and sales is changing. If the domestic carbon price system remains unregulated and significantly lower than the European one, the difference will be charged by the EU through CBAM, instead of that money remaining in Montenegro and being invested in energy modernization, consumer protection and a just transition," said Diana Milev Čavor.

In a more cautious, mix-based scenario, the CBAM cost on a lower export of 125 GWh would be around four million euros, and in a higher, default scenario, this pressure would be around 9,2 million euros. It is in this scenario that the CBAM cost exceeds the export premium, which explains why exports can decline even when the price on the EU market is significantly higher.

"Montenegro must stop viewing EU climate policies as external obligations that can be postponed. They already have a price for our energy sector. We have already met that price unprepared, which is why it is necessary to urgently make changes to turn it into an instrument for investing in renewable energy sources, energy efficiency and a more secure electricity system," said Milev Čavor.

The Eco-Team said that it is urgently necessary to improve the domestic carbon dioxide emissions pricing system, ensure transparent use of revenue from emission credits, and prepare the energy sector for a market where the carbon intensity of production will increasingly directly affect competitiveness.