Flexibility has become a key attribute for power assets in Europe’s electricity system, including the ability to ramp output quickly, absorb surplus generation, stabilise frequency, and respond to sudden imbalances. Despite this shift, flexibility is described as scarce without being fairly priced. The gap between physical need and market remuneration is highlighted in southeast Europe.
Across the Balkans and the eastern Mediterranean, power systems provide stabilising support to the wider European grid. Hydropower reservoirs absorb renewable oversupply, while thermal plants provide inertia and backup during scarcity. Transmission corridors also move power flows driven by weather patterns occurring hundreds of kilometres away.
In physical terms, southeast Europe is embedded in Europe’s balancing logic through these generation and network characteristics. In economic terms, the region is described as capturing limited value from that role. The mismatch is linked to how electricity markets are structured relative to system needs.
Market rules built for energy volumes
Europe’s electricity markets are described as still rewarding energy delivery more than system services. This remains the case even as the system increasingly depends on services such as frequency stabilisation and rapid response. The market design is characterised as layered onto a grid transformed by variable renewables.
Flexibility was previously treated as an implicit feature of baseload operation from coal, gas and nuclear plants. Demand patterns were described as predictable and balancing needs as modest, supporting optimisation around energy volumes. In the current configuration, flexibility is described as explicit because wind and solar output can dominate specific hours and then disappear entirely.
Demand is described as stubbornly inflexible, creating a recurring requirement for assets capable of rapid response. Southeast Europe is identified as having multiple resources that can provide that capability. The region’s hydro systems are presented as one of the most direct examples.
Hydro, coal and gas used for balancing
Hydropower systems in Albania, Montenegro, Bosnia and Herzegovina, Croatia and parts of Serbia are described as able to respond within minutes. These reservoirs are characterised not only as energy sources but also as storage systems, reserve providers and frequency stabilisers. In a context where large-scale storage is described as difficult to build across the continent, Balkan hydro is presented as a valuable system resource.
Coal plants are also described as providing flexibility through thermal mass that contributes inertia to damp frequency swings from 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 are described as remaining a last line of defence during extreme conditions.
Gas, where available, is described as adding responsiveness but with limitations tied to infrastructure constraints, higher fuel costs and lower utilisation rates. In this framing, gas in southeast Europe often functions as emergency backup rather than a commercially optimised balancing resource. The flexibility is characterised as coming mainly from assets built decades earlier for different purposes.
Day-ahead pricing and balancing after the fact
Day-ahead markets are described as dominating price formation across Europe, including coupled and semi-coupled markets in southeast Europe. These markets are characterised as clearing energy volumes based on marginal costs rather than remunerating response speed, reserve availability or system stability. Flexibility actions are then called upon after prices are set through balancing mechanisms.
The balancing process is described as compensating costs but not opportunity value for flexible assets. Hydro plants are described as dispatched intensively during high-price periods while earning less during oversupply hours when prices collapse. Coal plants are described as operating in patterns that can be uneconomic while still carrying perceived reliability obligations.
Gas plants are described as struggling to recover fixed costs when utilisation is sporadic and price spikes are unpredictable. The outcome is presented as structural undervaluation of flexible resources relative to their physical role in balancing operations.
Volatility transmission into peripheral markets
The dynamics are further linked to volatility transmission across interconnected markets. Renewable oversupply in the EU core is described as pushing prices down across connected systems. Southeast European systems absorb oversupply physically through imports or by backing down domestic generation.
The economic benefit of low prices is described as short-lived when conditions reverse elsewhere in Europe. When scarcity emerges due to gas constraints or low renewable output outside the region, sharp price spikes occur in the same interconnected markets. Southeast Europe is described as importing these spikes alongside earlier surplus imports.
This pattern is characterised as one-way exposure to volatility drivers outside the region’s control. The region does not decide when German solar output changes or when North Sea wind output collapses, nor does it influence French nuclear availability or Italian demand peaks. Instead, it experiences consequences through domestic market outcomes.
Drought risk and carbon-driven constraints
Hydropower is used to illustrate how physical flexibility can be constrained by operational limits. Political pressure, regulatory constraints and market imperfections are described as limiting optimisation between capturing high prices during scarcity and conserving water during oversupply. Governments intervene to ensure affordability, while water management obligations constrain dispatch decisions.
Cross-border price signals are also described as diluted by congestion, contributing to intensive use of hydro flexibility without commensurate financial return. Climate change risk is then described through rising drought risk across the Balkans. Periods of abundant rainfall alternating with severe shortages can leave reservoirs depleted after overuse during stress events tied to EU conditions.
This shift is described as reducing both energy output and system resilience over time. Market signals are characterised as responding to immediate scarcity rather than cumulative depletion of strategic resources needed for future reliability.
Shallow ancillary markets and administrative procurement
Coal faces an additional trajectory tied to carbon pricing and environmental regulation tightening while system value persists. Coal plants are described as being asked to remain available for security reasons while being discouraged from operating for economic or environmental reasons. Compensation mechanisms are characterised as ad hoc, politically contentious and insufficient for long-term investment support.
Gas is described as transmitting EU-level volatility directly into southeast European markets because gas sets marginal prices during scarcity events across much of Europe. Southeast European gas consumers face these prices without benefiting from liquidity depth or hedging depth associated with western markets. Gas-driven price spikes that incentivise flexible investment in the EU core are characterised here as cost shocks for peripheral systems.
Market design factors are also cited: intraday and balancing markets in southeast Europe are described as shallow compared with western counterparts, with limited access to cross-border balancing. Ancillary services markets are characterised as fragmented or underdeveloped, leading flexibility procurement to occur administratively rather than competitively. This approach is described as suppressing price discovery and investment incentives.
Investment delays tied to underpayment
The mismatch between physical need and remuneration is presented with effects on investment behaviour across flexible assets. When flexibility is underpaid, investment stalls and maintenance is deferred according to this account. New projects are also described as struggling to reach financial close due to these conditions.
The system is characterised as becoming more dependent on ageing assets operating under stress. Political intervention is then described as becoming more frequent when governments attempt to shield consumers from volatility by altering market outcomes or affordability conditions. Each intervention is characterised here as distorting markets further.
The perspective from the EU core is contrasted by describing how costs can be dispersed across peripheral systems while market functioning appears intact elsewhere. Prices clear and renewable targets are met in this framing because cross-border flows smooth variability at a continental level. Costs absorbed through reduced margins, deferred investment and rising political risk remain less visible outside affected regions.
Energy trading integration without system service integration
The issue is not framed as a lack of market integration because price coupling and flow-based allocation have progressed rapidly across Europe. However, integration is characterised here as focused on energy trading without adequate integration of system services such as flexibility provision. As a result, electricity moves freely while flexibility does not integrate at comparable levels.
A more complete approach would require treating flexibility like a tradable commodity with its own markets, prices and investment signals according to this description. It would involve opening balancing markets across borders while valuing inertia, ramping capability and storage explicitly. Regulatory frameworks would also need alignment so assets stabilising the system receive rewards beyond energy production alone.
This direction is characterised as slow and uneven until implementation occurs across borders for system services procurement mechanisms rather than only energy trading arrangements.
Southeast Europe’s role constrained by local resilience limits
Southeast Europe is then characterised as facing a structural mismatch where it supplies physical stability while rewards concentrate elsewhere under existing market structures. Environmental, political and climatic risks associated with that role are described without proportional return within this framing. The contribution remains essential for Europe’s transition while being peripheral in economic terms.
The limits of stress absorption are then outlined using operational constraints: hydro reservoirs cannot be overdrawn indefinitely, coal plants cannot operate indefinitely under hostile economics, and political tolerance for volatile prices has finite boundaries according to this account. Once those limits are reached, consequences are described here as extending beyond regional boundaries into wider European system impacts through shared market coupling effects.
The article ends with the statement that flexibility underpins Europe’s power system while resilience remains local even if grid operations function at continental scale within this description of regional constraints.
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