Serbia’s power system stands at a structurally unusual intersection. In the short term, it enjoys a level of adequacy that is increasingly rare in South-East Europe. In the long term, it faces a transition challenge that is becoming harder precisely because that adequacy reduces urgency. This tension between comfort today and constraint tomorrow defines Serbia’s strategic dilemma. Seasonal assessments by ENTSO-E confirm Serbia’s low risk of supply shortfall through the 2025–2027 horizon, yet they also implicitly assume a continuation of operating conditions that cannot persist indefinitely. For investors and policymakers alike, the question is not whether Serbia can keep the lights on, but whether it can convert today’s stability into a controlled and economically rational transition rather than a delayed and disruptive one.
The near-term picture is unambiguous. Serbia’s system can meet winter peak demand of 7.5–8.0 GW with domestic generation, supported by lignite baseload exceeding 4.4 GW and hydropower capacity above 3.0 GW. Marginal production costs remain structurally low, typically €25–35/MWh on a cash OPEX basis for lignite, and exposure to international fuel markets is limited. In a region where gas-dependent systems have learned how quickly adequacy can become unaffordable, this insulation is a strategic asset. It underpins price stability, industrial competitiveness, and Serbia’s emerging role as a regional stabiliser.
This very strength, however, delays the moment of reckoning. Systems under immediate adequacy pressure, such as Romania following the retirement of 1.7 GW of lignite capacity, are forced to accelerate investment in renewables, storage, and flexibility. Serbia faces no such forcing function. Its lignite fleet, operated by Elektroprivreda Srbije, still delivers dependable output and essential system services. As long as it does, the economic case for large-scale replacement is weaker, especially in a regulatory environment where carbon costs are not fully internalised.
Yet the transition challenge does not disappear; it accumulates. Serbia’s lignite assets are ageing, with many units exceeding 40 years of service life. Maintaining availability requires rising OPEX and sustaining CAPEX. Annual expenditure across mining, thermal O&M, and grid upkeep is estimated at €500–700 million, much of it devoted to preserving existing capability rather than creating new optionality. These expenditures buy time, not transformation. Over time, the cost of buying time rises, while the window to deploy replacement assets narrows.
Carbon exposure is the axis along which the dilemma sharpens. Serbia currently benefits from the absence of full carbon pricing, but this advantage is conditional. As CBAM mechanisms mature and regional market coupling deepens, Serbian exports will face implicit carbon costs even if domestic generators do not. Each incremental tightening of carbon constraints erodes the margin that finances sustaining CAPEX. At some point, the economics flip: lignite remains technically adequate but economically fragile. The danger is not an immediate collapse, but a loss of flexibility in how and when transition occurs.
Investment sequencing is therefore critical. Serbia cannot replace 4.4 GW of lignite with renewables alone without introducing adequacy risk. Wind and solar capacity additions, while accelerating, remain intermittent and seasonally misaligned with winter peaks. Even with optimistic build-out assumptions, several gigawatts of variable renewables would be required to replace a fraction of lignite’s dependable capacity. Grid-scale storage, while increasingly viable, remains capital-intensive at €500–700 thousand per MWh, and would need to be deployed at scale to substitute baseload reliability.
Gas-fired capacity offers dispatchability but introduces fuel and price volatility that Serbia has largely avoided. Dependence on imported gas would shift the system’s risk profile closer to that of Central European markets, where adequacy is often preserved at the cost of extreme price exposure during stress events. Nuclear, often discussed in abstract terms, lies beyond realistic planning horizons for the 2020s. This leaves Serbia with a narrow set of viable transition pathways: gradual lignite retirement paired with targeted flexibility, hydro modernisation, and grid reinforcement.
Pumped hydro occupies a strategic middle ground. Upgrading existing assets to improve ramping capability and reserve provision can enhance system flexibility without adding carbon exposure. CAPEX in the €1.5–2.0 million per MW range for modernisation projects is modest relative to greenfield alternatives and leverages existing infrastructure. However, pumped hydro alone cannot replace baseload energy; it reshapes load profiles rather than generating net supply. Its value lies in smoothing the path, not defining the endpoint.
The grid dimension compounds the dilemma. Serbia’s transmission network, operated by EMS, is robust but increasingly utilised. North–south corridors that underpin Serbia’s regional stabilising role are approaching operational limits during stress periods. Reinforcing these corridors requires multi-hundred-million-euro programmes, with typical costs of €0.8–1.2 million per kilometre for new 400 kV lines. Such investments are essential for accommodating future renewables and flexibility, yet they yield limited immediate returns under a stable adequacy regime. Without external pressure, they risk being deferred until congestion becomes acute.
From an investor standpoint, Serbia’s situation is paradoxical. The system’s current adequacy reduces downside risk, making existing assets appear safe. At the same time, it obscures long-term transition risk, creating the possibility of stranded investments if carbon convergence accelerates faster than anticipated. Energy-intensive industries benefit from stable prices today, but their long-term competitiveness depends on access to low-carbon power that Serbia has yet to deploy at scale. The absence of crisis can therefore mask strategic vulnerability.
The regional context magnifies this risk. Serbia’s adequacy does not exist in isolation; it supports neighbours whose margins are tightening. As long as Serbia stabilises regional flows, pressure on the broader system is reduced. If Serbia delays transition too long and then faces a forced adjustment—whether due to carbon costs, asset failure, or regulatory change—the shock will propagate regionally. In that sense, Serbia’s transition path is not only a national concern but a regional one.
The optimal strategy lies in exploiting the current window of adequacy to invest proactively rather than reactively. This means accepting near-term CAPEX that may appear unnecessary under current conditions, in exchange for preserving long-term optionality. Flexibility assets, grid reinforcements, and selective low-carbon generation should be framed not as responses to scarcity, but as insurance against future constraint. The cost of insurance is visible and immediate; the cost of delay is hidden until it is no longer avoidable.
Serbia’s strategic dilemma is therefore one of timing and intent. Adequacy buys time, but time can be spent or invested. The former leads to eventual compression and forced choices; the latter allows sequencing, control, and value preservation. In a region where many systems have lost that choice, Serbia still retains it. Whether it exercises it deliberately will determine whether today’s adequacy becomes tomorrow’s stranded comfort or the foundation of a resilient transition.