For a power buyer in Serbia, a Contract for Difference is not an abstract financial derivative imported from mature Western European markets. It is a practical response to the structural realities of the local electricity system. By 2025 and moving into 2026, Serbian industrial consumers, utilities, and large commercial buyers increasingly turned to CfDs not because they were fashionable, but because conventional hedging tools no longer delivered reliable outcomes.
Serbia’s power market operates with a clear imbalance between short-term liquidity and long-term risk management. Spot trading on SEEPEX has matured rapidly, while forward liquidity remains shallow, episodic, and concentrated in a narrow set of tenors. For buyers with exposure above 30–40 MW, this gap translates directly into cost volatility. Contracts for Difference emerged as a way to bridge that gap without waiting for the market to structurally mature.
At its simplest, a CfD is a financial overlay. Physical electricity continues to be purchased at market prices, typically indexed to SEEPEX day-ahead or through a bilateral supply agreement. The CfD does not alter dispatch, balancing responsibility, or physical sourcing. Instead, it settles the difference between a fixed reference price and a floating market price over an agreed period. The buyer pays or receives cash, while electricity flows exactly as before.
This separation between physical supply and financial stabilisation is what makes CfDs particularly suited to the Serbian context. The buyer does not need to abandon existing suppliers, renegotiate grid arrangements, or change operational behaviour. The CfD simply converts a volatile price outcome into a predictable one.
The relevance of CfDs in Serbia becomes clear when viewed against three persistent market characteristics. First, forward market depth is limited. Even though SEEPEX futures volumes increased materially for delivery year 2025, the market still cannot absorb large hedges without visible price impact. Second, basis risk is structural. Buyers who hedge using HUPX or German-linked futures routinely experience ±8–12 €/MWh deviations relative to Serbian spot prices during periods of congestion, hydro stress, or regional outages. Third, long-term fixed-price PPAs are scarce, inflexible, and often embed substantial risk premia.
A CfD addresses all three issues directly. It does not rely on local forward liquidity, it eliminates geographic basis risk by referencing the same price as the physical exposure, and it avoids the operational rigidity of long-term PPAs.
Consider how this works in practice. A Serbian industrial buyer with a 50 MW baseload profile, equivalent to roughly 438 GWh annually, continues to purchase power at SEEPEX-linked prices. In parallel, the buyer signs a CfD with a counterparty at a fixed strike price, for example 85 €/MWh, covering an agreed volume and period. Each month, the average SEEPEX reference price is compared to the strike. If the market price exceeds 85 €/MWh, the counterparty pays the buyer the difference. If it falls below, the buyer pays the counterparty. The physical electricity bill still fluctuates, but the net effective cost converges toward the fixed level.
For the buyer, this mechanism delivers economic price stability without altering the physical procurement model. There is no margining on an exchange, no dependence on forward order books, and no forced standardisation of volume profiles. The CfD can be shaped to match actual consumption rather than forcing consumption to fit a financial product.
This is why CfDs occupy a distinct position between futures and PPAs. Unlike exchange futures, a CfD does not require daily margin calls, nor does it depend on the presence of deep, continuous liquidity. Unlike a PPA, it does not impose take-or-pay obligations or tie the buyer to a single generator. The buyer remains fully exposed to market operations while neutralising price risk financially.
The most powerful advantage of a CfD for a Serbian buyer is the elimination of basis risk. When hedging with regional or core EU futures, buyers implicitly bet on correlation between markets. In 2025, that correlation repeatedly failed at precisely the wrong moments. A CfD indexed directly to SEEPEX removes this mismatch entirely. The hedge and the physical exposure move in lockstep.
The financial impact of this alignment is substantial. For a 50 MW portfolio, eliminating a ±10 €/MWh basis swing removes approximately ±4.4 million € of annual P&L volatility. No locally available futures strategy offers that level of precision. In this sense, the CfD is less about locking in a low price and more about eliminating uncertainty.
CfDs in Serbia are bilateral instruments, and their effectiveness depends on the counterparty. Sellers typically include regional utilities with generation portfolios, independent power producers seeking revenue stability, and trading houses operating diversified regional books. In some cases, financial institutions with energy desks also participate. Each seller prices risk differently, but the buyer’s objective remains the same: stable, predictable energy costs.
Pricing a CfD involves more than forecasting average market prices. The strike price embeds a volatility premium, a credit premium reflecting the buyer’s balance sheet, and a liquidity premium because the seller cannot easily offset the position on an exchange. In 2025–2026 market conditions, these premia typically amounted to 3–7 €/MWh above the expected average SEEPEX price, depending on tenor and counterparty strength. For many buyers, this explicit premium proved cheaper than the hidden costs of imperfect hedging.
In terms of structure, CfDs in Serbia are most effective in the one- to five-year range. Shorter horizons can often be managed with spot optimisation and limited forward hedging. Beyond five years, uncertainty and counterparty risk drive premiums sharply higher. Volumes are rarely set at 100 % of consumption. Most buyers use CfDs to stabilise 40–70 % of load, leaving the remainder exposed to market signals and operational flexibility.
CfDs are not without risk. Counterparty credit risk is central; if the seller fails during a high-price period, the protection evaporates precisely when it is most valuable. Regulatory and tax treatment must also be managed carefully, as CfD settlements are financial flows rather than energy purchases. Over-hedging is another real risk if consumption falls below contracted volumes. These are contractual and governance challenges, not reasons to dismiss the instrument.
By 2025–2026, CfDs had become a strategic tool for sophisticated Serbian power buyers. They did not replace good procurement practices or operational optimisation, but they addressed a gap that no other instrument could fill. In a market where forward depth is incomplete and basis risk is structural, the CfD offers something uniquely valuable: direct alignment between hedge and physical reality.
For Serbian buyers, that alignment is the difference between theoretical risk management and actual financial stability.
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