In the emerging architecture of Europe’s electricity system, flexibility has become the most valuable attribute a power asset can possess. The ability to ramp output quickly, absorb surplus generation, stabilise frequency, or respond to sudden imbalances now matters more than raw installed capacity. Yet while flexibility has become scarce, it has not become fairly priced. Nowhere is this contradiction more visible than in southeast Europe.
Across the Balkans and the eastern Mediterranean, power systems quietly perform a stabilising role for the wider European grid. Hydropower reservoirs absorb renewable oversupply. Thermal plants provide inertia and backup during scarcity. Transmission corridors carry flows triggered by weather patterns hundreds of kilometres away. Physically, southeast Europe is deeply embedded in Europe’s balancing logic. Economically, it remains on the periphery, capturing little of the value created by that role.
This imbalance is not accidental. It is the outcome of market structures designed for a different era, layered onto a system transformed by variable renewables. Europe’s electricity markets still reward energy delivery far more than system services, even as the system increasingly depends on those services to function at all.
Flexibility used to be implicit. Coal, gas and nuclear plants provided it as a by-product of baseload operation. Demand patterns were predictable, and balancing needs were modest. In that world, markets optimised for energy volumes made sense. In today’s system, flexibility is explicit. Wind and solar dominate production during certain hours and disappear entirely during others. Demand remains stubbornly inflexible. The gap between supply and demand must be bridged by assets capable of rapid response.
Southeast Europe possesses many of those assets. Hydropower remains the most obvious. Albania, Montenegro, Bosnia and Herzegovina, Croatia and parts of Serbia operate hydro systems that can respond within minutes. These reservoirs are not just energy sources; they are storage systems, reserve providers and frequency stabilisers. In a continent struggling to build large-scale storage, Balkan hydro represents one of Europe’s most valuable system resources.
Coal plants, though politically unfashionable, continue to provide another form of flexibility. Their thermal mass contributes inertia to the grid, damping frequency swings caused by sudden renewable fluctuations. They can operate at partial load, respond to dispatch instructions and anchor local systems during stress. In many southeast European countries, coal plants remain the last line of defence during extreme conditions.
Gas, where available, adds further responsiveness, but with limitations. Infrastructure constraints, higher fuel costs and lower utilisation rates mean that gas in southeast Europe often acts as emergency backup rather than a commercially optimised balancing resource. The region provides flexibility primarily through assets built decades ago for a different purpose, repurposed to support a continental system that did not exist when they were financed.
Despite this physical contribution, the financial rewards flow elsewhere. Day-ahead markets dominate price formation across Europe, including in coupled and semi-coupled southeast European markets. These markets are designed to clear energy volumes based on marginal costs, not to remunerate response speed, reserve availability or system stability. Flexibility is called upon after prices are set, through balancing actions that often compensate costs but not opportunity value.
The result is a structural undervaluation of flexible assets. Hydro plants are dispatched intensively during high-price periods but earn little during oversupply hours when prices collapse. Coal plants are forced into uneconomic operating patterns, running fewer hours at lower load factors while still carrying perceived reliability obligations. Gas plants struggle to recover fixed costs when utilisation is sporadic and price spikes unpredictable.
The asymmetry becomes clearer when viewed through the lens of volatility transmission. Renewable oversupply in the EU core pushes prices down across interconnected markets. Southeast European systems absorb this oversupply physically, either through imports or by backing down domestic generation. Yet the economic benefit of cheap electricity is often short-lived. When conditions reverse, the same markets experience sharp price spikes driven by gas scarcity or low renewable output elsewhere. Southeast Europe imports these spikes as readily as it imported the surplus.
This dynamic creates a one-way exposure to volatility. The region absorbs both ends of the price spectrum without controlling the underlying drivers. It does not decide when German solar floods the system or when North Sea wind collapses. It does not influence French nuclear availability or Italian demand peaks. But it lives with the consequences in its domestic markets.
Hydropower illustrates the paradox vividly. In theory, hydro should thrive in a volatile system, capturing high prices during scarcity and conserving water during oversupply. In practice, political pressure, regulatory constraints and market imperfections limit this optimisation. Governments intervene to ensure affordability. Water management obligations constrain dispatch. Cross-border price signals are diluted by congestion. The result is intensive use of hydro flexibility without commensurate financial return.
Climate change compounds the problem. Drought risk is rising across the Balkans. Years of abundant rainfall alternate with severe shortages. When hydro is overused during EU-driven stress events, reservoirs enter dry seasons depleted, reducing both energy output and system resilience. What appears as flexibility in wet years becomes fragility in dry ones. Yet market signals do not reflect this long-term risk. Prices respond to immediate scarcity, not to cumulative depletion of strategic resources.
Coal faces a different but equally damaging trajectory. As carbon prices rise and environmental regulations tighten, coal plants lose economic viability even as their system value persists. They are asked to remain available for security reasons while being discouraged from operating for economic or environmental ones. Compensation mechanisms are often ad hoc, politically contentious and insufficient to support long-term investment. The system relies on assets it is simultaneously trying to eliminate.
Gas, meanwhile, transmits EU-level volatility directly into southeast European markets. Gas sets the marginal price during scarcity events across much of Europe. Southeast European gas consumers face these prices without benefiting from the liquidity, hedging depth or infrastructure that mitigate volatility in western markets. The same gas-driven price spikes that incentivise flexible investment in the EU core become cost shocks for peripheral systems.
Market design amplifies these effects. Intraday and balancing markets in southeast Europe remain shallow compared to their western counterparts. Access to cross-border balancing is limited. Ancillary services markets are fragmented or underdeveloped. As a result, flexibility is procured administratively rather than competitively, further suppressing price discovery and investment incentives.
The imbalance is not merely financial; it is strategic. When flexibility is underpaid, investment stalls. Maintenance is deferred. New projects struggle to reach financial close. The system becomes increasingly dependent on ageing assets operating under stress. Political intervention becomes more frequent as governments attempt to shield consumers from volatility. Each intervention distorts markets further, creating a feedback loop of instability.
From the perspective of the EU core, this imbalance is easy to overlook. Markets appear to function. Prices clear. Renewable targets are met. Cross-border flows smooth variability. The costs are dispersed across peripheral systems, absorbed quietly through reduced margins, deferred investment and rising political risk. Southeast Europe’s role as a buffer masks systemic fragility.
The issue is not that southeast Europe lacks market integration. On the contrary, integration has progressed rapidly. Price coupling and flow-based allocation have linked markets more tightly than ever. The problem is that integration has focused on energy trading without adequately integrating system services. Electricity moves freely; flexibility does not.
True integration would require recognising flexibility as a tradable commodity with its own markets, prices and investment signals. It would mean opening balancing markets across borders, valuing inertia, ramping capability and storage explicitly, and aligning regulatory frameworks to reward assets that stabilise the system rather than merely produce energy. Progress in this direction has been slow and uneven.
Until then, southeast Europe remains caught in a structural mismatch. It supplies physical stability to a system that rewards financial optimisation elsewhere. It bears environmental, political and climatic risk without proportional return. It is essential to Europe’s energy transition but peripheral to its economic benefits.
This mismatch has limits. Systems can absorb stress for only so long before resilience erodes. Hydro reservoirs cannot be overdrawn indefinitely. Coal plants cannot operate indefinitely under hostile economics. Political tolerance for volatile prices and perceived unfairness is finite. When those limits are reached, the consequences will not remain regional. They will reverberate across the entire European system.
Flexibility is now the foundation of Europe’s power system. Treating it as a free by-product rather than a valued service is no longer sustainable. Southeast Europe’s experience is not an anomaly; it is a warning. A system that depends on unpaid flexibility is a system living on borrowed stability.
Whether Europe responds by redesigning markets, rethinking integration or continuing to externalise risk will determine the durability of its energy transition. For southeast Europe, the choice is starker. Either flexibility is recognised and rewarded, or the region’s role as Europe’s silent stabiliser will become increasingly untenable.
The power system may be continental, but resilience remains local. Ignoring that reality is no longer an option.
Elevated by clarion.energy