Montenegro’s expanding renewable electricity base could become a tool of industrial policy as well as an export commodity. However, suppliers will need to be precise about what a green power contract can and cannot deliver under the EU’s Carbon Border Adjustment Mechanism (CBAM).
This distinction is particularly important for aluminium and metal processing, industries with deep roots in Montenegro’s industrial history and high sensitivity to electricity costs. Renewable power purchase agreements (PPAs) can provide greater price certainty, support customer decarbonisation requirements, improve corporate emissions reporting and strengthen the commercial case for low-carbon manufacturing. However, they should not be marketed as automatically reducing the current CBAM liability of every steel or aluminium product exported to the EU.
When electricity itself is imported into the EU, the electricity-specific CBAM methodology applies. When Montenegro exports aluminium, steel or another manufactured product, embedded emissions are calculated according to the rules governing that product. Under the current treatment set out in Annex II, listed iron-and-steel and aluminium goods generally account for direct emissions only. Consequently, purchasing renewable electricity does not automatically reduce the current certificate requirement for these products through a deduction for indirect emissions.
This does not make renewable electricity procurement irrelevant. Aluminium is among the world’s most electricity-intensive industrial value chains, and power costs can determine whether a plant or downstream processor remains competitive, even when the current CBAM calculation focuses on direct emissions. A long-term hydro, wind or solar PPA can reduce price volatility, meet customer requirements and make a facility more attractive to financiers assessing transition risks beyond the minimum CBAM requirements.
Montenegro’s industrial proposition should therefore be built around the specific needs of each buyer. One exporter may prioritise price stability, while another may need renewable electricity attributes for corporate disclosures. A third may require electricity data to support an indirect-emissions calculation for a product where those emissions are legally relevant. Others may be preparing for potential future expansions of CBAM coverage or stricter customer procurement standards.
Before attaching a premium to a PPA, the electricity supplier should establish which of these objectives the contract is intended to serve. A general claim that “green electricity reduces CBAM” risks inflating the product’s value and creating an environmental or regulatory representation that the exporter cannot substantiate. A stronger agreement clearly distinguishes the delivery profile, renewable attributes, data access rights and intended reporting use.
Montenegro’s aluminium value chain illustrates the opportunity. Uniprom states that its export-oriented billet facility has an annual capacity of approximately 70,000 tonnes, while its alloy operations provide additional downstream capabilities. Whether individual products fall within the current or future CBAM scope depends on their Combined Nomenclature (CN) classification and production route. The broader opportunity is that access to verifiable renewable electricity can help Montenegro attract processing and fabrication investment, even where the immediate CBAM savings remain limited.
The policy outlook is also evolving. The European Commission’s COM(2025) 989 proposal would extend CBAM from 2028 to a wider range of downstream goods with significant steel and aluminium content, while also proposing changes to the electricity methodology. The final scope and application will depend on the legislative process, meaning exporters should not treat the proposed changes as enacted law. Nevertheless, the initiative strengthens the case for developing product-level emissions data and reliable electricity documentation before customers begin demanding them.
Banks should apply the same distinction when assessing credit risk. For a metal processor, the relevant factors include electricity prices, customer concentration, direct process emissions, precursor emissions, potential future CBAM scope expansion and the credibility of environmental claims. A renewable PPA can improve several of these variables while having little or no impact on the current direct-emissions CBAM calculation for a particular product.
There is also a national resource-allocation question. Montenegro can export renewable electricity through regional interconnectors or use more of it domestically to support higher-value manufacturing. A domestic industrial PPA can avoid some cross-border capacity constraints and electricity-specific CBAM complications, but it introduces a different set of buyer-credit considerations and product-emissions requirements. The preferred route should be determined by the overall commercial return and strategic value, rather than by assuming that exporting electricity is always the superior option.
For a small economy with a substantial merchandise trade deficit, this choice has wider implications. Electricity can be sold as a commodity or incorporated into higher-value goods and services produced domestically. Montenegro has an opportunity to use its renewable energy expansion to support both strategies, provided that the claims associated with each transaction remain legally compliant, technically accurate and supported by verifiable evidence.
The strongest commercial premium will emerge where a renewable electricity contract solves a genuine industrial problem. The weakest proposition will be one that promises CBAM savings that the current methodology for the relevant product does not recognise.
By Virtu.Energy