For decades, electricity was treated by industry as a predictable input. Prices fluctuated within narrow bands, supply security was largely taken for granted, and energy strategy focused on efficiency rather than exposure. In southeast Europe, this assumption underpinned the region’s industrial model. Competitive labour, proximity to EU markets and relatively stable power costs supported metals, cement, chemicals, machinery and automotive supply chains integrated into Europe’s industrial core.
That model is breaking down.
Electricity in Europe is no longer merely consumed; it is transmitted, traded and increasingly weaponised by volatility. Price formation has detached from local production costs and reattached to continental system dynamics. For southeast European industry, this shift is profound. Electricity is no longer a background variable in cost structures. It has become a primary determinant of competitiveness, investment decisions and export margins.
What makes this transformation particularly destabilising is that the volatility reshaping industrial costs in southeast Europe is not primarily domestic. It is imported. Power prices across the region increasingly reflect weather patterns in Germany, gas markets in north-west Europe, nuclear availability in France and congestion on cross-border interconnectors. Local industry pays continental prices without enjoying continental protections.
To understand why this matters, it is necessary to trace how electricity volatility propagates through integrated markets and lands in factory balance sheets.
The integration of Europe’s power markets has been celebrated as a success of the energy transition. Market coupling and harmonised trading platforms allow electricity to flow to where it is most valued. In theory, this should reduce costs and improve efficiency. In practice, it also transmits volatility at unprecedented speed. When solar output surges in Italy or wind production spikes in Germany, prices collapse not only locally but across connected regions. When gas prices rise or renewables falter, scarcity pricing ripples outward just as quickly.
Southeast Europe sits downstream of these dynamics. Its markets are increasingly price-takers in a system where marginal prices are set elsewhere. Domestic generation may be sufficient, even abundant, but prices still track regional benchmarks. This decoupling between physical adequacy and price outcomes is new, and it undermines traditional industrial planning assumptions.
Industries experience this shift differently depending on their energy intensity and prove elasticity, but the direction is uniform. Steel producers face power costs that swing unpredictably across trading periods. Cement and building materials manufacturers encounter volatile electricity inputs layered onto already cyclical demand. Chemical and fertiliser producers, exposed to both gas and power markets, confront compounded volatility that erodes margins. Automotive and machinery plants, less energy-intensive but highly sensitive to cost stability, struggle to hedge exposure in shallow local markets.
The core issue is not high prices alone. Volatility itself is the problem. Stable but moderately high electricity costs can be priced into contracts, investment decisions and supply chains. Volatile costs cannot. They introduce uncertainty that penalises capital-intensive industries and favours regions with deeper hedging markets and more predictable policy environments.
In the EU core, large industrial consumers mitigate volatility through sophisticated procurement strategies. They hedge across multiple markets, sign long-term power purchase agreements, co-invest in generation assets and leverage liquid futures markets. In southeast Europe, these tools exist only in limited form. Market depth is thinner, counterparties are fewer, and regulatory frameworks are less mature. The result is asymmetry: identical price signals produce different economic outcomes.
Gas-power coupling amplifies this asymmetry. In Europe’s marginal pricing system, gas often sets the price of electricity during scarcity periods. Southeast European industry is therefore exposed to gas volatility even when it does not consume gas directly. Power prices spike in response to gas shortages or price surges elsewhere, transmitting cost shocks into electricity bills. Yet access to gas hedging instruments, LNG diversification and infrastructure flexibility remains limited in much of the region.
This dynamic became starkly visible during recent energy crises. Industrial producers in southeast Europe faced electricity prices that mirrored EU peaks, but without the fiscal buffers, compensation schemes or market tools available to their western counterparts. Governments intervened to shield consumers, but such measures are blunt instruments. They distort price signals, strain public finances and introduce political risk that further deters investment.
Cross-border congestion adds another layer of complexity. Southeast Europe often finds itself constrained at precisely the moments when industrial consumers need relief. During regional scarcity, interconnectors saturate, preventing cheaper imports. During oversupply elsewhere, congestion can suppress local generation, undermining domestic producers while flooding markets with low-priced electricity that disappears as quickly as it arrives. Industrial planning becomes a game of timing rather than strategy.
The impact on investment decisions is already visible. Energy-intensive projects face higher risk premiums. Expansion plans are delayed or redirected. Some industries consider relocating energy-intensive stages of production closer to EU core markets, where volatility can be managed more effectively. Others invest defensively, prioritising flexibility over scale.
Power purchase agreements are often proposed as a solution, but their application in southeast Europe is constrained. Grid access limitations, profile mismatches between renewable generation and industrial load, counterparty risk and regulatory uncertainty complicate long-term contracts. Where PPAs are signed, they often cover only part of consumption, leaving residual exposure to volatile spot markets.
CBAM adds further pressure. As the EU extends carbon border adjustment mechanisms downstream, electricity costs embedded in products become increasingly scrutinised. Southeast European exporters face the paradox of paying EU-level electricity prices while still being treated as higher-risk jurisdictions. Carbon costs are internalised without equivalent access to decarbonised, stable energy supplies.
For some sectors, the response is to internalise flexibility. Industrial players explore on-site generation, storage and self-balancing solutions. This trend blurs the boundary between industry and energy producer, shifting risk management from utilities to manufacturers. While this can enhance resilience, it also fragments the system and favours larger players with access to capital and expertise.
Smaller manufacturers face tougher choices. They cannot easily hedge, invest or relocate. Volatility erodes margins incrementally, undermining competitiveness over time. Supply chains become less reliable as cost fluctuations translate into pricing disputes and delivery uncertainty. The cumulative effect is deindustrialisation by attrition rather than collapse.
From a macroeconomic perspective, these dynamics threaten one of southeast Europe’s core advantages: its role as a near-shore industrial base for the EU. If electricity volatility continues to undermine cost predictability, the region risks losing its position not to distant low-cost producers, but to more stable, better-integrated EU markets.
The irony is that southeast Europe contributes materially to the stability of Europe’s power system. Its hydro assets, thermal inertia and geographic position support continental balancing. Yet its industry bears a disproportionate share of volatility costs. The system externalises risk while internalising stability.
This imbalance has strategic implications beyond individual firms. Industrial competitiveness underpins employment, fiscal stability and political cohesion. As electricity volatility feeds into inflation, wage pressure and export performance, energy policy becomes industrial policy by default. Governments are forced to choose between market discipline and social stability, often with imperfect information and limited tools.
Longer term, the risk is path dependence. If investment shifts away from energy-intensive industries, skills erode and supply chains weaken. Reindustrialisation becomes harder even if energy conditions improve later. Volatility today shapes industrial geography tomorrow.
Addressing this challenge requires more than incremental fixes. It requires recognising that electricity markets now shape industrial outcomes as directly as tax policy or labour regulation. Market integration must be accompanied by risk-sharing mechanisms that reflect system roles. Flexibility must be priced not only for power producers, but for consumers who bear its absence.
For southeast Europe, strategic responses will vary. Some countries will prioritise grid investment and deeper market integration to access broader balancing resources. Others will focus on domestic flexibility, combining hydro, storage and demand response to buffer volatility. Industry will increasingly engage directly with energy markets, moving procurement from a back-office function to a board-level concern.
What is clear is that the era of passive electricity consumption is over. Power has become a traded risk, and southeast European industry sits at the intersection of continental flows it does not control. Whether this exposure becomes a competitive disadvantage or a catalyst for adaptation will depend on how quickly markets, regulators and firms adjust to the new reality.
Europe’s energy transition was never going to be cost-neutral. But its costs need not fall unevenly. If volatility continues to reshape industrial competitiveness without corresponding adjustments in market design, the political and economic foundations of integration will weaken. Southeast Europe’s experience offers an early warning.
Electricity no longer ends at the socket. It continues into balance sheets, supply chains and investment maps. Ignoring that connection risks turning a technical transition into an industrial one.
Elevated by clarion.energy