By Ivan Majstorovic (LinkedIn), Energy Market Researcher and Analyst.
1. Summary
The European Union is committed to reducing greenhouse gas emissions, increasing the share of renewable energy, and improving energy efficiency. Accordingly, the energy transition within the European Union (EU) began in the early 21st century and accelerated following the adoption of the European Green Deal. In 2021, the EU adopted the Fit for 55 package, which included reforms to the EU Emissions Trading System (EU ETS) and the introduction of the Carbon Border Adjustment Mechanism (CBAM).
As a Contracting Party to the Energy Community, Bosnia and Herzegovina has also committed to achieving energy transition objectives and aligning its energy and climate framework with that of the EU. Fulfilling some of these obligations could ensure full compatibility with the EU electricity market, further integration, and potentially secure an exemption from the CBAM mechanism for electricity; however, progress in the transition process has been limited.
This paper focuses exclusively on electricity due to its specific characteristics and distinct regulatory treatment under CBAM. As the mechanism’s full implementation approaches, its initial market effects are expected to become visible from January 2026 onward.
This paper aims to identify, analyze, and discuss some of the observed implications.
2. CBAM and the competitiveness of electricity exports from Bosnia and Herzegovina
The Carbon Border Adjustment Mechanism (CBAM) is intended to address greenhouse gas emissions embedded in some products, including electricity imported into the EU. The mechanism is designed to prevent carbon leakage and ensure that imported goods are subject to a carbon cost equivalent to that imposed on EU producers. Implementation occurs in phases, beginning with a transitional reporting period in 2023 and progressing to full financial implementation in 2026.
During the transitional period from October 2023 to December 2025, importers are required to report only the greenhouse gas emissions embedded in electricity imported into the EU, without financial obligations. Beginning 1 January 2026, all importers are required to purchase and surrender CBAM certificates for the emissions embedded in their imports. Certificate sales will commence on 1 February 2027, and the final deadline for surrendering certificates for embedded emissions in imports to the European Union is 30 September 2027.[1]
The mechanism employs both default and actual emission factors. Default factors are country-specific grid emission values established by the European Commission,[2] and are applied to electricity imports into the EU. Importers may use actual emission factors if specific conditions are fulfilled. However, for electricity imports, meeting these conditions is currently difficult in practice, meaning that default values are expected to remain the primary methodology. In combination with the applicable CO₂ emission price, these default values determine the CBAM cost per MWh of electricity imported into the EU.
The introduction of financial obligations for importers of electricity from non-EU countries into the EU renders electricity generated outside the EU less competitive due to the additional financial burden. Because the financial burden is ultimately passed on to generators, it ultimately reduces the prices that generators in non-EU countries can obtain. In the case of Bosnia and Herzegovina, that means the price generators receive is the power exchange price, like CROPEX, HUPX, or SEEPEX price, reduced by the estimated CBAM cost, cross-border capacity costs, and possibly some traders’ fees.
Furthermore, the comprehensive implementation of the CBAM significantly alters electricity flow. This policy makes non-EU electricity less appealing to EU buyers, thereby reducing demand. At the same time, increased electricity generation creates a regional surplus, thereby elevating supply and substantially impacting SEEPEX prices.
Figure 1. HUPX and SEEPEX Power Prices and Market Spread on 5th January 2026
Source: Author’s calculations and presentation based on PX reports[3].
Figure 1 demonstrates the initial impact of CBAM, showing that prices on SEEPEX, the non-EU reference power exchange for the region, began to diverge from EU prices following the mechanism’s full implementation. Although no immediate changes were observed after 1 January 2026, market participants likely required several days to adjust. By 5 January, a substantial price difference had emerged between European and non-European power exchanges in the region, as depicted in Figure 1.
In previous years, including the most recent, price differences were minimal, and average prices showed similar trends, as illustrated in Figure 2. The average price gap between HUPX and SEEPEX remained small and primarily emerged during periods of high demand, such as morning and evening peaks. During these periods, regional arbitrage was more feasible due to increased demand and price differentials, which enhanced trading opportunities.
Figure 2. HUPX and SEEPEX Power Prices and Market Spread in 2025
Source: Author’s calculations and presentation based on PX reports[4].
Figure 3 demonstrates that, following the full implementation of CBAM, the average baseload price spread between the observed power exchanges increased to 32.86 EUR/MWh in the first quarter of 2026. In contrast, during the first quarter of 2025 and throughout the remainder of 2025, the spread remained limited to only a few EUR/MWh.
Figure 3. HUPX and SEEPEX Power Prices and Market Spread in Q1 2026
Source: Author’s calculations and presentation based on PX reports.[5]
3. Cross-border electricity flows and export patterns in Bosnia and Herzegovina
Bosnia and Herzegovina is a net electricity exporter, primarily due to substantial hydropower and coal-fired power plants, combined with relatively low domestic consumption. Electricity exports are largely influenced by precipitation and seasonal factors. According to SERC data, the annual electricity surplus is approximately 2 TWh, and about 45-50% of electricity is generated from renewable sources.[6]
Most of Bosnia and Herzegovina’s high-capacity interconnections are with Croatia, suggesting that Croatia serves as the primary electricity export corridor to the European market.[7] While strong cross-border transmission capacity reduces congestion and enables substantial physical electricity flows toward Croatia and the broader EU market, data from SERC[8] and ENTSO-e[9] indicate that the main transfer of scheduled commercial exchanges occurs at the Serbian border. In the previous year, slightly more than 40% of scheduled commercial electricity exchange was with Serbia, 28% with Montenegro, and 25% with Croatia.[10]
Analysis of average hourly scheduled commercial exchanges and cross-border physical flows indicates a clear preference for scheduled exchanges on the Serbian border. In addition, Figure 4 shows that actual average hourly physical flows from Bosnia and Herzegovina to Serbia in Q1 2026 are substantially lower than the scheduled commercial exchanges. Physical flows increase primarily during the morning and evening peak hours, when demand rises, leading to stronger flows toward Serbia.
In Q1 2026, hydrological conditions were highly favorable for Bosnia and Herzegovina. The comparison between cross-border physical flows and scheduled commercial exchanges reveals significant discrepancies, suggesting that the Serbian border remains more favorable for scheduled commercial exchanges, even during periods of elevated generation when the likelihood of cross-border congestion and higher capacity prices increases.
Figure 4. Absolute Average Physical and Scheduled Flows BA–RS – Q1 2026
Source: Author’s calculations and presentation using ENTSO-E data.[11]
Figure 4 indicates that BA-RS flows remain stable from Q1 2024 to Q1 2026, with scheduled commercial exchanges consistently exceeding physical flows.
In contrast, Figure 5 shows that, in 2025, cross-border physical flows and scheduled commercial exchanges between Bosnia and Herzegovina and Croatia (BA-HR) are more closely aligned. However, during the solar period, the difference between these flows increases due to higher generation from the country’s significant solar power plants’ capacity. According to SERC, by the end of 2025, 305.59 MW of installed capacity was in large photovoltaic power plants and 608.80 MW in small solar power plants.[12]
Figure 5 – Absolute Average Physical and Scheduled Flows BA–HR 2025
Source: Author’s calculations and presentation using ENTSO-E data.[13]
In 2025, cross-border physical flows and scheduled commercial exchanges between Bosnia and Herzegovina and Croatia (BA-HR) were closely aligned, but a notable discrepancy emerged in the first quarter of 2026.
Increased electricity generation, driven by favorable hydrological conditions, contributed to higher physical flows toward Croatia. Conversely, the implementation of CBAM reduced scheduled commercial exchanges, resulting in a greater deviation between physical flows and scheduled commercial exchanges.
Figure 6 illustrates these observations, showing that deviation is especially visible in Q1 2026 compared with Q1 of the previous two years.
Figure 6. Absolute Average Cross-Border Physical Flows and Scheduled Commercial Exchanges (BA–HR, Q1 2024–2026)
Source: Author’s calculations and presentation using ENTSO-E data.[14]
The influence of CBAM on electricity flows is also analyzed in the Energy Community CBAM Quarterly Report.[15], which indicates a decrease in scheduled commercial exchanges from Bosnia and Herzegovina to Croatia (BA-HR) and an increase in scheduled commercial exchanges to Serbia (BA-RS) compared with the first quarter of the previous year.
ENTSO-e data from the first quarters of the past three years show a modest increase in scheduled flows from Bosnia and Herzegovina to Serbia (BA-RS) and a corresponding decrease in scheduled flows to Croatia (BA-HR).
Figure 7 compares scheduled commercial exchanges for Q1 2024, 2025, and 2026. This trend continues despite favorable hydrological conditions in Q1 2026, when an increase in scheduled flows to Croatia would be anticipated; however, a decrease is observed.
Figure 7 – Scheduled Commercial Exchanges from Bosnia and Herzegovina to Montenegro and Serbia – Q1 2024–2026
Source: Author’s presentation using ENTSO-E data.[16]
In Q1 2026, scheduled commercial exchanges to Serbia increased by an average of 1.96%, while flows to Croatia declined by 27.31% compared to Q1 of the previous year, as shown in Figure 8.
Figure 8 – BA–HR and BA–RS Quarter-on-Quarter Changes (%)
Source: Author’s presentation using ENTSO-e data.[17]
Available data indicate that scheduled commercial exchanges to Serbia (BA-RS) are preferred within the electricity trade. The daily cross-border capacity price can serve as an indicator of congestion. Still, it imposes an additional financial burden that is typically passed on to generators, thereby lowering achievable energy prices.
Analysis of the average hourly price for daily cross-border capacity further confirms Serbia as the preferred direction for scheduled commercial exchange. This preference is evidenced by higher prices in both Q1 2026 and Q1 2025, particularly during morning and evening peak hours. In contrast to Croatia (BA-HR), there is no significant deviation from the average hourly price capacity.
Figure 9 – Average Marginal Prices of Cross-Border Capacity
Source: Author’s calculations and presentation using NOS BiH and SEECAO data.[18]
When we look at average daily capacity prices, there is no sign of major congestion at the BA-HR border. On the other hand, the BA-RS and BA-MNE borders have clear differences in average hourly capacity prices, especially during the morning and evening peaks when demand goes up, as well as during the solar period. The only noticeable change at the BA-HR border is a small variation during the solar period, likely due to the country’s high solar capacity and additional electricity exported.
4. Electricity price divergence and cross-border trade after CBAM implementation
Due to the lack of a developed wholesale electricity market, electricity in Bosnia and Herzegovina is traded only bilaterally, though some of that energy is traded on regional power exchanges. Prices on these power exchanges until 2026 were very similar; in practice, HUPX was the reference price for electricity. However, after the full implementation of CBAM and the separation of SEEPEX prices from European power exchange prices, it is questionable whether HUPX will serve as the reference price for this region. Although data show that the Serbian border is a favorable route for scheduled electricity flows from Bosnia and Herzegovina, the additional financial burden on electricity exports to the EU makes this route even more attractive, potentially leading to more frequent congestion and higher cross-border capacity prices. Therefore, electricity importers face challenges, including congestion, higher cross-border capacity prices, and lower power prices on the Serbian power exchange. Alternatively, strong cross-border transmission capacity, lower capacity prices, and higher power prices, but CBAM financial obligations for each megawatt imported to the EU at the Croatian border. Currently, the default factor and average EU ETS price set the cost of imported electricity into the EU at 86.51 EUR/MWh for Q1 2026, making trade difficult, especially if power prices are not extremely high.[19]
Figure 10 – Q1 2023–2026 Average Hourly Electricity Prices: SEEPEX vs. HUPEX
Source: Author’s presentation based on PXs reports.[20]
Electricity price data for baseload profiles indicate that the spread between HUPX and CROPEX, on the one hand, and SEEPEX, on the other, fluctuated throughout 2026. On average, the spread for Q1 2026 was approximately 30 EUR/MWh, compared to around 4 EUR/MWh in Q1 2025, when average prices were highly similar and correlated throughout the year, as shown in Figure 10. Of course, at the daily and hourly levels, those price differences increase further, sometimes by hundreds of EUR/MWh. Which, at first sight, could lead to the conclusion that trade arbitrage is possible and lucrative; on the other hand, all the additional obstacles and financial burdens associated with the CBAM mechanism should be considered, which, in practice, slow down electricity trading and impact commercial flows.
In May 2026, SEEPEX introduced negative prices. It will be important to observe how this change affects baseload profiles, since prices have not dropped below zero before, even when the market was oversupplied with solar energy. We can also expect to see additional changes in electricity flows, especially from Bosnia and Herzegovina, during periods of high solar generation. At these times, there will likely be more electricity produced, less demand, and negative prices. Exporting electricity to the EU may also become more difficult, regardless of whether the electricity comes from renewable sources.
5. Conclusion
Bosnia and Herzegovina faces a disadvantage because the default emission factor is high, and meeting the conditions for using the actual emission factor is difficult. After CBAM’s full rollout, electricity from Bosnia and Herzegovina is not valued the same as European electricity, even if generated from renewables. This affects scheduled commercial exchanges and cross-border capacity rights, preventing flexible trade and making cheaper energy unavailable to EU markets, even though it comes from renewable sources. Currently, this situation makes Bosnia and Herzegovina less attractive for new renewable energy investments because exporting this energy is not economically viable. However, it may encourage investments in domestic electricity consumption, such as data centers or other large consumers.
Bosnia and Herzegovina must accelerate its energy transition, particularly in the electricity sector, which remains stalled, leaving the country the only one in the region without a functional, organized wholesale electricity market. The CBAM default emission factor for electricity in Bosnia and Herzegovina is among the highest in the region. While this factor is intended to reflect the average emissions intensity of the national electricity grid, it is currently determined by fossil-fuel sources. This approach should be revised to utilize updated, country-specific data that accurately represent the current emissions intensity of the national electricity system, based on the best available and verified data. Therefore, advancing renewable energy development could improve the situation by lowering the default emission factor. Additionally, Bosnia and Herzegovina needs to implement the EU Electricity Integration Package and achieve market coupling with the EU Internal Electricity Market, including the establishment of functioning day-ahead and intraday markets. Without these reforms or adjustments to the CBAM mechanism for electricity, increased border congestion, diverging electricity prices, and a less attractive investment environment in the electricity sector are likely outcomes. This is particularly concerning given the region’s robust cross-border transmission infrastructure and significant renewable energy potential, which may remain underutilized due to stalled domestic legislative and regulatory reforms as well as stringent CBAM requirements.
References
European Commission, Commission Implementing Regulation (EU) 2025/2621 of 16 December 2025 laying down rules for the application of Regulation (EU) 2023/956 of the European Parliament and the Council as regards the establishment of default values, https://eur-lex.europa.eu/eli/reg_impl/2025/2621/oj/eng
Energy Community Secretariat and Energy Institute Hrvoje Požar, Study on the 70% Target for Electricity Interconnection Capacities to be made available to Market Participants, October 2023, https://www.energy-community.org/publications/studies.html
Energy Community Secretariat, CBAM Quarterly Report, April 2026, https://www.energy-community.org/news/Energy-Community-News/2026/4/29A
SERC BIH, The Report on Activities of the State Electricity Regulatory Commission in 2025, https://www.derk.ba/en/godisnji-izvjestaji-derk-a/godisnji-izvjestaj-2025
ENTSO-e, Transparency platform, https://transparency.entsoe.eu/
CBAM Guide, https://cbamguide.com/learn/what-is-cbam/
CBAM Guide, https://cbamguide.com/sectors/electricity/
SEECAO, https://seecao.com/
NOS BIH, https://www.nosbih.ba/hr/kapaciteti/atc/
CROPEX, https://www.cropex.hr/hr/trgovanja/godisnja-i-mjesecna-izvjesca.html
SEEPEX, https://seepex-spot.rs/documents
HUPX, https://labs.hupx.hu/
Endnotes
- CBAMGuide, https://cbamguide.com/learn/what-is-cbam/ ↑
- Regulation (EU) 2023/956 and Annex II, p. 2350 ↑
- The illustration is based on SEEPEX, HUPX, and CROPEX prices published on the power exchanges’ websites ↑
- Ibid. ↑
- Ibid. ↑
- SERC BIH, The Report on Activities of the State Electricity Regulatory Commission in 2025 ↑
- Energy Community Secretariat and Energy Institute Hrvoje Požar, Study on the 70% Target for Electricity Interconnection Capacities to be made available to Market Participants, October 2023. ↑
- SERC BIH, The Report on Activities of the State Electricity Regulatory Commission in 2025 ↑
- ENTSO-e, Transparency platform ↑
- SERC BIH, The Report on Activities of the State Electricity Regulatory Commission in 2025 ↑
- Based on data available on the ENTSO-E Transparency Platform ↑
- SERC BIH, The Report on Activities of the State Electricity Regulatory Commission in 2025 ↑
- Ibid. ↑
- Ibid. ↑
- Energy Community Secretariat, CBAM Quarterly report ↑
- Based on data available on the ENTSO-E Transparency Platform ↑
- Ibid. ↑
- Based on data available on the NOS BiH and SEE CAO websites ↑
- Energy Community Secretariat, CBAM Quarterly report ↑
- The illustration is based on SEEPEX and HUPX prices published on the power exchanges’ websites ↑
