This is an extract from a recent policy brief “The Energy Transition in the Western Balkans: Bottom-up Approaches for an Accelerated Structural Change” published by Germanwatch. This extract specifically focuses on Kosovo, Serbia, North Macedonia.
Kosovo
The role of coal, gas and Kosovo’s traditional energy situation
Kosovo’s traditional energy mix has long been dominated by lignite, oil and biomass, reflecting a heavy dependence on fossil fuels across both electricity generation and household energy use. This dependence is underscored by the fact that coal-fired power plants still account for over 77 per cent of domestic electricity production, one of the highest dependencies in all of Europe. Air pollution has reached critical levels, posing a serious threat to public health, the environment and the country’s energy security. Kosovo continues to fall short of its emissions reduction targets, and the implementation of air quality measures remains slow and uneven across the country. The Energy Community also noted in its latest “Energy Transition Tracker” that Kosovo continues to fall short in electricity and transport renewables, and, critically, air pollution from coal-fired plants remains alarmingly high, with Kosovo’s 2023 NOₓ emissions reaching 2.73 times the ceiling, and Kosova’s dust emissions exceeding the limit by over 900 per cent. The health consequences are severe, with around 760 premature deaths annually attributed to air pollution, while the total estimated economic costs due to the health effects of air pollution in Kosovo range from EUR 37 million to EUR 158 million a year.
Kosovo’s alignment with international frameworks
Although Kosovo has made progress in its energy transition and climate policies – particularly in aligning with EU accession requirements and the European Green Deal – its pathway towards EU integration remains constrained by uneven implementation. Kosovo has made some institutional progress in aligning with the EU Acquis Communautaire and the Energy Community Treaty. One key element of its progress is the adoption of the Law on Climate Change in January 2024, which introduced climate governance structures such as monitoring mechanisms, a National Council for Climate Change and plans for a long-term decarbonisation strategy. The Law on Climate Change outlines state responsibilities for climate mitigation, monitoring and compliance with international agreements. It ensures Kosovo’s alignment with EU climate regulations, the governance framework of the Energy Union and Climate Action, and the EU Directive establishing a greenhouse-gas emission allowance scheme. Kosovo’s Law on Climate change is a major breakthrough in terms of laying the groundwork for concrete measures, which need to be taken into consideration by operators and sectors that directly or indirectly affect climate change. The law also fosters the implementation of national strategies and action plans regarding climate change, and ensures that they align with the United Nations Framework Convention on Climate Change (UNFCCC), the Paris Agreement and the Western Balkans Green Agenda.
The decarbonisation and promotion of renewable energy sources is a strategic objective within the framework of the Energy Strategy of the Republic of Kosovo 2022-2031. As a measure within the specific objective, Kosovo plans to introduce a national emission trading scheme (ETS), with a gradual minimum price increase until integration into the pan-European market and the EU ETS. Revenues collected from this system will be one of the sources going towards a Just Transition Fund. Exactly what these funds will be used for is still to be determined, but this may include promoting renewable energy sources (RES), training and retraining the workforce, energy-related projects for vulnerable consumers, etc. Kosovo has passed a Law on Environmental Impact Assessment, which requires public and private projects to assess their environmental impact prior to implementation. Additionally, Kosovo’s Ministry of Economy has drafted the National Energy and Climate Plan (NECP), which directly addresses the objectives in Chapter 27 from the EU Acquis.
The decarbonisation dimension of the draft NECP focuses on implementing policies and measures across all sectors to reduce greenhouse gas (GHG) emissions and sustainably increase the share of renewable energy in total energy consumption. Approximately 87 per cent of GHG emissions in Kosovo stem from fossil fuel combustion in the energy sector, particularly in energy transformation, industry and transportation. A central objective is to drive a transition toward low-carbon technologies by expanding renewable energy in the generation mix, implementing energy efficiency measures across sectors and gradually phasing out fossil fuels. Renewable energy sources are therefore integral to this dimension. The draft NECP’s energy security component is grounded in the goals and policies of the Energy Strategy (2022–2031). While Kosovo, like other countries in the region, has a relatively balanced electricity production and consumption profile, key challenges remain. Market liberalisation and regional integration are expected to ease supply-side constraints, although achieving a sustainable and secure electricity supply will still require overcoming significant structural challenges.
A well-integrated power system is fundamental to developing and expanding the electricity market. While EU Member States aim to achieve interconnection capacities of at least 15 per cent of peak load by 2030, Kosovo far exceeds this benchmark. Its interconnection capacity is several times greater than its peak load, giving it a top position among the top three countries in Europe in respect to its ratios of interconnection capacity to installed generation capacity and interconnection capacity to peak demand. A near-term strategic objective is market coupling with Albania through the joint use of the Albanian Power Exchange (ALPEX), which is headquartered in Tirana. With ALPEX fully operational in both markets and a robust interconnection infrastructure in place, congestion is expected to be minimal, resulting in negligible price differences between the two countries.
Challenges in the uptake of renewables
Kosovo has seen a positive momentum with the launch of its first solar auction in March 2024, which aims to secure 100 MW of solar PV capacity and attract private sector investment in clean energy. Additionally, the adoption of a new Renewable Energy Law, aligned with the EU’s Renewable Energy Directive (RED II), lays the foundations for further market integration and grid access for renewables. As of early 2025, renewable energy capacity remains modest, with about 150 MW from small hydropower, solar and biomass installations. However, deeper transformation is hindered by grid bottlenecks that restrict new connections and by limited financing options that prevent many developers from accessing capital. Grid bottlenecks remain a key challenge; the existing grid infrastructure is often unable to handle the influx of renewable energy, resulting in transmission constraints that limit the potential of these projects.
While the solar auction is a milestone, delays in launching the upcoming 75 MW wind auction could echo past setbacks when projects were postponed or downsized due to procedural bottlenecks. Meanwhile, adaptation strategies remain underdeveloped, with key plans pending approval and no binding 2050 climate neutrality target, both of which are central to the Sofia Declaration. In 2023, Kosovo emitted 8.38 million tonnes of CO₂, averaging 4.9 tonnes per capita– close to the EU’s 5.6 tonnes per capita despite Kosovo’s smaller and less developed economy. This signals heavy reliance on carbon-intensive energy sources, mainly fossil fuels like coal, resulting in inefficient energy use. At these rates, achieving climate neutrality is unrealistic because Kosovo lacks the scale of clean energy infrastructure and carbon offset mechanisms necessary to balance emissions. Without urgent reforms to decarbonise its energy sector and improve efficiency, Kosovo’s current emissions trajectory will make net-zero targets unattainable, especially as EU climate ambitions tighten and development pressures rise.
Energy poverty
Kosovo’s energy sector currently finds itself at a critical juncture, grappling with the dual challenges of transitioning towards decarbonisation while addressing the deep-rooted issue of energy poverty. Energy poverty in Kosovo remains an underexplored and pressing issue, due to a lack of clear and comprehensive definitions in legislative and policy frameworks. According to data from the Kosovo Agency of Statistics (KAS), 35 per cent of households in Kosovo struggle to pay their utility bills at least once in a year, while 13.6 per cent of households cannot afford to sufficiently heat their homes when needed. This situation was exacerbated in 2022 and 2025, when energy tariffs increased by 16.1 per cent, impacting households consuming more than 800 kWh per month. Existing measures, such as general subsidies and reduced tariffs, lack targeting and exclude large groups of people who are energy vulnerable. The absence of a comprehensive register of vulnerable consumers continues to limit the precision and effectiveness of interventions.
Serbia
The role of coal, gas and Serbia’s traditional energy situation
Serbia primarily relies on low-quality lignite for electricity production. As nearly 70 per cent of electricity is produced by thermal power plants, this causes huge challenges regarding air pollution. Serbia ranks first in Europe in terms of harmful effects of pollution, with the most polluted air, and ninth in the world, according to an extensive study by the Global Alliance for Health and Pollution (GAHP). Thermal power plants regularly breach emission limits agreed through the National Emission Reduction Plan (NERP). In 2023, SO2 emissions from coal power plants in Serbia, encompassed by the NERP, increased compared to the previous two years. The most critical emissions are SO2 (sulphur dioxide). In 2023, SO2 emissions exceeded the NERP ceiling by 5.4 times. As for other sources, most remaining electricity needs are covered by hydroelectric power plants. When it comes to other fossil fuels in the mix, the main challenge is Serbia’s dependency on Russian gas and unbundling issues within the gas sector.
While the legal and institutional framework for the unbundling of the gas sector is in place, its implementation is proving to be sluggish. In its latest Country Report, the European Commission (EC) criticises Serbia’s dependence on Gazprom as well as Russia’s majority ownership of Serbia’s critical infrastructure and oil industry. Furthermore, the EC states that Serbia should allow non-discriminatory third-party access to its gas network. The wholesale market in Serbia is the most monopolised market in the Energy Community. In Serbia, gas is primarily important for industry: two thirds of the gas used in Serbia is used in this sector. It is also the most frequently used fuel in major district heating systems within the country, as well as in a lower percentage of individual households. Although initial steps towards the diversification of supply have been taken, Serbia primarily relies on Russian gas. An agreement has been reached with Azerbaijan concerning gas imports until the end of 2026, although the amount of gas covered by this agreement would only cover around 13 per cent of Serbia’s needs.
Alignment of national policies with international obligations
The strategic and legal framework in Serbia for meeting international obligations regarding decarbonisation lacks clarity concerning the phasing out of coal and certain aspects of related ambitions in Serbia. The international legal obligations are addressed in national measures. The most important are the Serbian Law on Climate Change, the Low Carbon Development Strategy, the Draft Spatial Plan and the Serbian NECP. The NECP intention is to achieve short-term and longterm climate goals and implementation plans for the 2021-2030 period. A more detailed look into these pieces of strategic and legal framework reveals a lack of alignment, as well as a lack of ambition. The adoption of the Climate Law in Serbia was due in 2018, but was not actually passed until 2021. The law regulates the limits on greenhouse gas (GHG) emissions, with a system for monitoring, reporting and verification of GHG emissions due to be introduced. In addition, its goal is to arrange systems for adaptation to changed climate conditions, as well as systems for monitoring and reporting the implementation of the Low Carbon Development Strategy. The law only partially transposes EU legal acts related to the Emissions Trading System (EU ETS) and only the related provisions to the monitoring, reporting and verification system (MRV) for GHG emissions.
Additionally, Serbia was very late in adopting the Low Carbon Development Strategy, and the action plan is still awaiting approval. The Strategy does not envisage reaching carbon neutrality by 2050, and the authors of the document state that, with currently available technologies and in an economically profitable way, the goal is practically impossible to achieve. The strategy has assessed that, with currently available technologies, the maximum possible reduction in GHG emissions compared to 1990 would be 76.2 per cent. In addition, the Strategy predicts that Serbia will continue using coal until 2050. Most of the decarbonisation-related measures are planned for after 2030.24 Ultimately, the Low Carbon Development Strategy does not align with the NECP or with targets adopted at the Energy Community level regarding the reduction of GHG emissions and share of renewables in gross final energy consumption by 2030. The lack of alignment in terms of a clear vision for decarbonisation is also evident in Serbia’s draft Spatial Plan for the period 2021-2035, which is yet to be adopted. The Spatial Plan determines the strategic goals and priorities of the country’s spatial development, directing the overall social and economic development and preserving natural resources and cultural heritage. It is followed by spatial plans of a narrower scope, which include smaller territorial units, which must be harmonised with the national Spatial Plan. Despite its decarbonisation commitments, Serbia’s draft national Spatial Plan includes new thermal power plants.
Serbia has also taken on the obligation of developing an Integrated National and Energy Climate Plan (NECP). This defines climate goals for 2030 and contains an overview of the current state of key policies and appropriate measures to address its five dimensions: 1) decarbonisation (greenhouse gas emissions and renewable energy), 2) energy efficiency, 3) energy security, 4) the internal energy market and 5) research, innovation and competitiveness. When it comes to Serbia’s NECP, which was adopted in 2024, the climate target is in line with the 2030 targets set by the Energy Community. The overall renewable energy target for 2030 is subdivided into sectorial targets for electricity (45 per cent), transport (7 per cent), and heating and cooling (41.4 per cent). However, the NECP does not plan for Serbia to be climate neutral by 2050. In a best-case scenario Serbia will achieve an 80 per cent to 90 per cent reduction in greenhouse gas emissions compared to 1990.
Bearing in mind the situation concerning the strategic and legislative development for decarbonisation, the pending obligations are evident. There is no climate-neutral scenario envisaged for 2050 in any of the aforementioned documents. According to the recommendations provided by the European Commission in its latest Country Report, the most important obligations for Serbian authorities are to set a coal phase-out date as an effective means to comply with Energy Community law and to update its Low Carbon Development Strategy to align with the EU’s climate neutrality target. In addition to this, Serbia also has to prepare and submit a new National Determined Contribution under the Paris Agreement. Although Serbia has continued to align with the EU Acquis on energy efficiency, further alignment with the Energy Performance of Buildings Directive and Renewable Energy Sources Directive is still required. According to the European Commission, the institutional capacities for implementing energy efficiency measures should also be expanded.
Challenges in the uptake of renewables
With fossil fuels still dominating the energy mix and hydropower offering the most capacity among renewable energy sources, other renewable energy sources are still not being properly implemented in Serbia. It is worth mentioning that hydropower often incurs costs regarding biodiversity, especially considering that Serbia’s hydroelectricity power plants rely on infrastructure developed in the 20th century. According to data provided by the Energy community, the share of solar thermal, solar PV, wind and geothermal renewable energy within the gross available energy in 2021 was only 0.6 per cent. However, the introduction of new legislation in the renewable energy sector has led to a modest increase in the share of renewables. When it comes to renewable energy projects, changes in the system were introduced by adopting a Law on Renewable Energy Sources, as well as amendments to the Law on Energy. New support systems were also introduced. One of the most important steps forward is the introduction of a completely new, market-oriented incentive model, which appears as a system of i) market premiums and ii) feed-in tariffs. In August 2023, auctions for the market premium for renewables in Serbia were conducted for the first time for solar and wind power plants. A total of 11 registered investors qualified for the competition, collectively for both types of renewables. This was a good start but still leaves a lot of room for improvement.
The concepts related to citizen energy, which are vital for the decentralisation and decarbonisation of Serbia’s energy system, are in the initial stages of implementation, primarily through the introduction of prosumers. Although this concept was introduced in 2021, the development of prosumers in Serbia faces a number of regulatory, technical and economic challenges. Although the legal framework allows prosumers to formalise their status, implementation in practice has been slowed down somewhat by complex procedures, imposed limitations on the maximum power of prosumer power plants, and assessments of the insufficient development of the existing electricity infrastructure. In addition, concepts for citizen energy communities were only introduced into the legal framework last year, while by-laws are pending. Two currently existing energy cooperatives are implementing pioneering local projects that rely on investment crowdfunding and grants and face many administrative challenges, primarily related to the distribution system operator. There is plenty room for improvement here, since Serbia has 30 per cent more solar energy potential than countries in Central Europe, with more than 2,000 hours of sunshine per year.
North Macedonia
The role of coal, gas and North Macedonia’s traditional energy situation
North Macedonia remains highly dependent on coal for supply security, with the main production of electrical energy coming from Bitola and Oslomej/Kičevo thermal power plants (TPP). These plants rely on a combination of limited domestic coal reserves and imports, with installed capacities of 699 MW (Bitola) and 125 MW (Oslomej). In 2024, thermal power plants that run on fossil fuels (gas, oil and coal) had a share of 58.97 per cent in the electricity production, while renewables (including hydropower) had a share of 41.03 per cent. TPP Bitola and TPP Oslomej still play a key role for the country’s energy security and in energy production. Because those coal-fired plants are very dated, they very often have breakages causing interruptions in electricity production, meaning that the country is also a net importer of electricity. Just in June 2025, TPP Bitola B2 was out of operation following a fire, while B1 and B3 were shut down because of servicing. This put the country’s biggest power plant out of operation for a full week. In 2024, net electricity imports amounted to 11.03 per cent of total gross electricity consumption.
TPP Bitola and TPP Oslomej have also been the biggest emitters of SO2 and NOX emissions, and of dust, in the five years since North Macedonia’s National Emissions Reduction Plan NERP came into force. The newest Comply or Close report31 revealed that the chimneys of Bitola B1 & B2 and Bitola B3 were still the highest contributors in 2024. They emitted 62,625 and 22,314 tonnes of SO2 respectively. The SO2 emissions from Bitola B1 & B2 were a staggering 11.4 times higher than the plant’s individual ceiling, and from Bitola B3 they were 9.4 times higher than the individual ceiling. Natural gas as a source of home heating is not a widespread option for households. According to the 2021 Census, altogether 550 dwellings were using gaseous fuels as central or stove heating. The distribution network is less developed, so only urban households along the main existing gas network in several cities may have access to piped natural gas. The government plans two large gas/hydrogen-ready power plants: an 800 MW plant in Negotino, and a 250-300 MW plant in Bitola to help replace existing coal/fuel-oil generation and align with the plan to phase out coal by 2030. However, adding new gas plants could lock in fossil fuel dependency for 20 to 30 years and methane leakage (CH₄) from gas infrastructure can offset much of the CO₂ benefit, since CH₄ is more than 80 times stronger than CO₂ over 20 years.
North Macedonia’s alignment with international frameworks
The Republic of North Macedonia, as a member state of the United Nations Framework Convention on Climate Change, has committed to a just transition to an environmentally sustainable economy in accordance with the obligations of the Paris Agreement. It includes the aim of limiting the global average temperature increase to 1.5°C, and the 2030 Agenda, which offers a common model for global action to achieve the Sustainable Development Goals, aimed at eradicating poverty and protecting the planet by 2030. North Macedonia signed the Paris Agreement in 2016, and the Parliament ratified it in 2017. As a party to the UN Framework Convention on Climate Change, North Macedonia submits a revision of its Nationally Determined Contributions (NDCs) every five years. As a candidate country for full membership of the European Union (EU), the Republic of North Macedonia is facilitating the gradual integration of North Macedonia into the European energy market.
In order to harmonise with EU climate legislation, North Macedonia has been in the process of drafting a climate action law since 2019. The final draft of the law on climate action was published for consultation in the national electronic register of regulations in 2022. The climate action law introduces the Monitoring, Reporting and Verification (MRV) regulation, governance and partly licenses for stationary emission sources. This is very important, since it is the first time the country has established a mechanism for monitoring, reporting and verification of GHG emissions in the country within the Macedonian Environmental Information Centre of the Ministry of Environment and Physical planning. Defining a national monitoring and reporting mechanism is crucial, as it creates a clear division of roles and responsibilities in institutions at both the institutional and municipal levels concerning the obligation to collect data and prepare an annual greenhouse gas inventory. The draft law also defines a carbon tax as a mechanism for accelerating the energy transition, as well as financing climate action measures. The introduction of this measure sends a clear signal to carbon-intensive sectors that they must start the transition to clean technologies and to citizens that both large polluters and individuals share the same obligations to achieve climate goals and prepare the country for the EU Emissions Trading System (EU ETS).
North Macedonia adopted a new Energy law in May 2025 that transposes a large part of the European energy legislation. This means a better definition and improvement of the legal regulation in the energy sector. The law regulates citizen energy communities and active consumers for the first time, which allows citizens and communities to become electricity producers. The law also pays more attention to vulnerable consumers and energy poverty with a separate article regulating vulnerable consumers and financial aid available. For companies and businesses, it is important that the section on electricity storage has now been regulated in detail, due to the currently limited capacity of the electricity grid. The law also provides an obligation for municipalities to annually report on measures and results in the area of energy and energy efficiency within their competences. However, the successful implementation of the law will depend on the numerous by-laws that need to further regulate and clarify certain aspects in detail. The energy law lacks alignment with the country’s climate goals. Therefore, North Macedonia established a dedicated Ministry of Energy, Mining and Mineral Resources in 2024, and by doing so increased capacities in the Energy sector to draft and implement a growing number of EU regulations.
North Macedonia adopted its first National Energy and Climate Plan (NECP) in June 2022 as requested for all pre-accession countries, which is currently under revision. In the decarbonisation pillar, the goal is to reduce greenhouse gas (GHG) emissions by at least 37 per cent by 2030 compared to 1990, and also to increase the share of renewable energy sources (RES) to 50.9 per cent in the total electricity consumption by 2030. It follows the more progressive scenarios from the Energy Strategy in its coal phase-out timeline, with Oslomej to be decommissioned in 2026 and Bitola in 2031. Key measures in the NECP are the action plan for gradual coal phase out, implementation of the Just Transition Roadmap, establishing structures for the implementation of JT measures and introducing MRV and a national carbon pricing mechanism. This involves a coal transition investment plan for North Macedonia, outlines Macedonia’s strategy to transition from coal-based energy to sustainable alternatives, and aims to create an inclusive and low-carbon economy. By 2038, the country expects to reduce over 13 million tons of CO2 emissions, with the government planning to close 824 megawatts of coal-fired electricity generation capacity in Bitola and Oslomej by 2031. Funding will facilitate the development of 400 megawatts of renewable energy capacity and 100 megawatts of energy storage, ensuring long-term energy security. The plan also emphasises investment in human capital, fostering skills development and creating alternative livelihood opportunities to guarantee a just transition for the thousands of affected individuals.
Challenges in the uptake of renewables
Renewable energy sources in 2024 contribute to 33 per cent of the overall electricity production. A significant milestone in 2023 was a 287 per cent increase in electricity generation from photovoltaic power plants compared to 2022. Governance and transparency challenges persist in the energy sector. The State Commission for Preventing Corruption has conducted several audits, highlighting the need for enhanced digitalisation, transparency in public procurement, and improved planning processes at the electricity transmission system operator (MEPSO) and electricity production company (ESM). The solar prosumer model in Macedonia remains largely underutilised due to a combination of regulatory, institutional, financial and socio-economic barriers. Citizens face bureaucratic delays, unclear grid connection procedures, and poor coordination among key institutions such as the Energy Regulatory Commission, MEPSO (MK operator of the electric transmission system), EVN (power distribution and supply company), and the Ministry of Energy, Mining and Mineral Resources. Financial limitations are especially severe for rural and vulnerable households, who lack access to subsidies, guarantee funds, or appropriate financing mechanisms. Technical challenges, such as limited grid capacity, regularly lead to blackouts on sunny days when too much electricity is produced simultaneously. The absence of smart infrastructure further hinders the deployment of residential solar. There is a serious lack of institutional capacity for public outreach, and citizen’s overall awareness of the benefits and procedures for solar self-generation remains low.
In the renewable energy sector, the National Energy and Climate Plan (NECP) targets a 50.9 per cent share of renewable energy in gross final energy consumption by 2030, aligning with Energy Community commitments. Improvements in balancing services, energy transmission and storage infrastructure are critical to integrating renewables more effectively into the grid. Upgrading the electricity grid remains a priority to enhance system efficiency and reliability. The rapid uptake of renewable energy will bring major just transition opportunities but also serious social challenges. On the positive side, renewables can reduce air pollution as North Macedonia suffers from some of Europe’s worst air pollution, lower long-term energy costs, create new green jobs and increase energy independence.However, the shift away from coalrisks job losses in mining regions like Bitola and deepens inequality as poorer households struggle to afford clean technologies. Furthermore, the energy transition process is all but inclusive. A truly “just” transition will depend on ensuring that its economic and health benefits reach all citizens, not only investors and urban elites, and that all citizens participate equally in decisionmaking processes.
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