Energy transition in North Macedonia: progress and challenges

High share of fossil fuels, rising imports

North Macedonia’s primary energy consumption continues to be dominated by fossil fuels. In the past, the energy system relied heavily on domestic lignite. However, lignite production has gradually declined as mining conditions have become more difficult and the quality of the lignite has deteriorated.

As a result, the share of coal in the primary energy mix has almost halved since 2005, with much of the gap filled by petroleum products and natural gas. The share of gas rose particularly sharply, from 2% in 2005 to 12% in 2024.

The decline in lignite mining and rising oil and gas consumption have increased dependence on energy imports. Their share of energy consumption rose from 37% in 2005 to 66% in 2024. Furthermore, replacing domestic lignite with imported coal is leading to a rise in energy costs, without bringing any climate benefits.

Rationale and constraints for a coal phase-out

These trends underscore the need for an accelerated phase-out of coal, which is also essential for achieving climate targets and reducing environmental damage and air pollution. However, there are two major challenges in this regard. Firstly, coal-dependent regions require a socially just transition. Secondly, electricity generation from coal must be replaced by sufficient alternative generation capacity to ensure energy security. As part of its National Energy and Climate Plan (NECP), North Macedonia has committed to decommissioning the coal-fired power stations in Bitola and Oslomej by 2030. However, the implementation of this timetable remains uncertain, reflecting the challenges that still lie ahead in the transition.

Replacing coal with gas and renewables

North Macedonia has been a net electricity importer in almost every year over the past 15 years. Sufficient domestic replacement capacity is therefore particularly important. Gas-fired combined heat and power generation has already expanded substantially, rising from about 5% of total generation in 2012 to roughly 18% in 2025. As a flexible, dispatchable source, gas can partly replace coal’s balancing role and limit further reliance on electricity imports. However, although gas produces lower direct emissions than coal, it is not climate-neutral and should therefore not become a long-term dependency. North Macedonia has also relied on a single import route through Bulgaria, which has historically been linked to Russian gas, posing a concentrated supply risk. Diversification efforts include gas imports from Azerbaijan and the construction of an interconnector with Greece that would provide access to the Trans Adriatic Pipeline.

Electricity generation from renewable energy sources, led by solar PV, has grown rapidly, with solar capacity increasing particularly strongly in 2025. Unlike gas, renewables can replace coal-fired generation while reducing dependence on imported fuels. However, variable solar output requires stronger system integration and balancing. Two key instruments for this are battery storage and cross-border electricity trading. The country is aiming for market coupling with the EU, which would make such trading more efficient. An important step towards this was the introduction of an intraday electricity market in May 2026.

CBAM as a challenge to EU market coupling

The EU’s Carbon Border Adjustment Mechanism (CBAM) poses a challenge to the planned market coupling. Since 1 January 2026, CO₂ charges are levied on electricity imported into the EU, based on the emissions generated during its production. With market coupling, bids and offers from different national markets are automatically matched, while cross-border capacity is allocated at the same time. As a result, cross-border electricity cannot be attributed to a specific generator and its emissions. At present, there is no technical solution that allows CBAM to be applied in parallel with this form of market coupling.

The CBAM Regulation therefore provides for an exemption for electricity from interconnected third-country markets, provided they meet several energy and climate policy conditions. Under current law, however, a timing issue arises: The exemption requires market coupling, while CBAM creates an obstacle for this. An ongoing reform of the CBAM Regulation is intended to mitigate this issue. The proposal envisages that, once legal alignment with the EU electricity market acquis is confirmed, the European Commission may agree on a memorandum setting out the timeline for the exemption and carbon pricing. North Macedonia has recently taken an important step by notifying the completion of its legal alignment with the EU Electricity Integration Package, which is now undergoing formal review. Further requirements include, in particular, climate neutrality by 2050 and an emissions trading system with a CO₂ price equivalent to that of the EU Emissions Trading System (EU ETS) by 2030.

CBAM and investment incentives

A more pressing issue is the gap between electricity prices in the Western Balkans and those in neighbouring EU markets. At the start of 2026, prices in the Western Balkans were significantly lower, while cross-border trade with the EU declined. Although various factors play a role, CBAM-related costs have reduced the incentive to export and contributed to this divergence. Renewable energy producers are also affected. Even though they generate electricity without direct CO₂ emissions, this is not automatically treated as emission-free under CBAM. Country-specific default values apply unless actual emissions can be verified through accredited verification, traceability and strict conditions in power purchase agreements. These requirements are often difficult or impossible to meet. Should reduced export opportunities and lower domestic prices persist, revenue from renewable energy and thus investment incentives could decline. The European Commission has proposed amendments that would make it easier to verify actual emissions and adjust the calculation of default values. The proposals are still going through the EU legislative process.

Outlook

The energy transition now depends on implementation: phasing out coal while supporting the regions affected, diversifying gas supplies and expanding renewable energy to close the supply gap. Significant progress has been made towards EU electricity market integration with the introduction of the intraday electricity market and the announced implementation of the EU Electricity Integration Package. It will be equally important to address the challenges posed by CBAM for market integration and investment in renewable energy. This requires further progress on market coupling and meeting the EU’s conditions for a CBAM exemption.

PDF Download

This newsletter is based on our Policy Study “Energy sector monitor North Macedonia 2026” and our Policy Briefing “Impact of CBAM on electricity exports from North Macedonia to the EU”.

Sources