South-East Europe’s electricity markets do not exist in isolation. By 2025, they were tightly interwoven with Central and Western Europe through physical interconnectors, price coupling, and financial hedging flows. This integration brought efficiency and transparency, but it also created an asymmetric outcome: SEE increasingly exported volatility, while core EU markets absorbed it.
The mechanism was subtle but consistent. When price risk in SEE could not be internalised locally due to shallow forward markets, participants sought hedging instruments elsewhere. The first stop was typically HUPX, which aggregated regional risk. Beyond that, residual exposure flowed into EEX products, particularly German and Austrian baseload futures. These markets possessed the depth and capital base required to warehouse volatility over long horizons.
In 2025, this risk migration intensified. Structural uncertainty in SEE increased due to ageing thermal fleets, hydro variability, and grid congestion. Forward prices in local markets struggled to stabilise because open interest was insufficient to dampen shocks. As a result, hedging demand spilled outward. Traders and utilities offset local exposure by increasing positions in core EU futures, effectively transferring SEE-originated risk into broader European books.
This transfer had measurable effects. During periods of stress in the Balkans, volatility in Central European futures increased even when local fundamentals remained unchanged. Margins on German baseload contracts rose, and intraday margin calls became more frequent. Clearing houses adjusted risk parameters to reflect higher cross-border correlation. What appeared as a regional issue became a system-wide consideration.
For SEE participants, exporting volatility was rational. It allowed them to access deeper liquidity and reduce immediate exposure. For core EU markets, absorbing this risk was feasible due to scale, but not costless. Risk premia increased, and volatility dampening relied increasingly on financial players rather than physical hedgers.
This asymmetry also influenced pricing. Because SEE risk was priced into EU futures, regional consumers indirectly paid for their own volatility twice: once through basis risk locally, and again through higher hedge costs linked to EU benchmarks. The integration that promised convergence instead created a channel through which instability propagated.
By the end of 2025, the pattern was clear. SEE did not merely import price signals from Europe; it exported uncertainty. Its inability to warehouse risk locally transformed EU core markets into shock absorbers for Balkan volatility. This arrangement worked in normal conditions, but it raised systemic questions. If SEE exposure continues to grow while local hedging depth lags, pressure on EU risk-bearing capacity will increase.
The implication was not that integration failed, but that it remained incomplete. True convergence requires not only shared prices, but shared risk-bearing capacity. Until SEE develops forward markets capable of retaining a larger share of its own volatility, the region will remain a net exporter of risk. The costs of that imbalance will be distributed across Europe, but borne most acutely by those least able to hedge locally.
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