Economies in the Western Balkans share in the global quest for a transition towards a greener and healthier energy mix that creates new opportunities and distributes associated costs fairly across society. Analysis confirms that the financing of the region’s energy sector offers essential levers for reform. This report builds the case for moving towards fewer energy subsidies and less price regulation for fossil fuels, accompanied by commensurate social support to protect vulnerable consumers. The analysis probes policy scenarios, including from a gender perspective. This chapter summarises the report and its recommendations.
Energy Prices and Subsidies in the Western Balkans
Reforms for a Fair and Green Future
Abstract
Economies in the Western Balkans share in the global quest for a transition towards a greener and healthier energy mix that creates new opportunities and distributes costs fairly across society. A cleaner environment and better air quality, especially in major urban centres, is a top desire of citizens in the region. Phasing-out of coal would help dramatically reduce air pollution and carbon dioxide (CO2) emissions. In parallel, expanding solar and wind energy and improving energy efficiency could make the energy system much greener while also creating new economic opportunities in the sector (OECD, 2022[1]). Such changes will require substantial investment. Without question, all citizens will benefit from better air. But many will pay more for energy and some will have to find new employment. Governments in the region will have develop new policies to support this transition, sharing costs and opportunities fairly.
Reflecting their commitments, economies in the region have set increasingly ambitious goals and investment targets for a greener energy mix. The Energy Community Treaty, the EU Green Deal and Nationally Determined Contributions (NDCs) in the context of the UN Framework Convention on Climate Chante (UNFCCC) Conference of the Parties (COP) process provide the main frameworks for bold commitments towards energy reform and climate neutrality. In 2021, most Western Balkan economies significantly increased their NDC commitments for emissions reduction. Likewise, all have been steadily advancing in the formulation of National Energy and Climate Plans (NECPs), which are part of the Clean Energy for All Europeans package adopted by the European Commission in 2019. Related NECP investment targets range from EUR 4 billion in Kosovo to EUR 27 billion in Serbia.
The financing of the region’s energy sector offers essential levers for reform and for enabling the green transition. Current energy systems in the Western Balkans are characterised by low and mostly regulated energy prices and costly public subsidies. Both energy subsidies and inefficiencies exhibited by state-owned enterprises (SOEs) in the energy sector prevent fair competition from alternative electricity sources, especially as low retail prices limit the potential return of new investments in renewable production capacity, and deter improvements in energy efficiency, thus locking most of the region into a high-carbon development path. Existing energy subsidies consume substantial public resources that could be better channelled to support vulnerable household or for investments in much-needed energy system upgrades. Even in Albania, which obtains all its electricity from hydropower and does not face the CO2 emissions challenge, the energy sector is characterised by organisational inefficiencies that undermine opportunities to accelerate the green transition and support more efficient use of public resources.
This report builds the case for moving towards fewer energy subsidies for fossil fuels and less price regulation, accompanied by commensurate social support to protect vulnerable households from rising energy prices. Over the observation period of 2018-23, economies of the region collectively allocated EUR 5.8 billion of financial support (including fiscal and credit support) to their energy sectors. Over the same period, policies that keep electricity prices below market prices effectively directed the equivalent of EUR 19.1 billion of induced support1 to consumers in the form of cheap electricity. If current support were to be continued without reform until 2030, these practices would likely add up to EUR 4.2 billion of total financial support and EUR 14 billion of total induced support. Strategic reform holds potential to capture these amounts, allowing them to be directed to the decarbonisation needs estimated in NECPs (Figure 1.1). These funds could also be used to reform social protection systems and to design and finance compensatory support for household threatened by energy poverty. Such support could help generate acceptance for changes in energy prices and even support for reforming the energy sector more broadly.
This report focuses primarily on public support directed toward the electricity sector – the key secondary energy source – as well as support for primary energy sources such as coal, renewables, and others. Combustion-based technologies, including coal, oil, and wood, dominate the region’s energy supply, accounting for 84% of total energy supply in 2023. Coal alone generates nearly 50% of the region’s electricity and represents 42.6% of total primary energy supply (TPES). In comparison, gas contributes only 8.8% to the regional energy mix. In the absence of gas, people in the region resort mainly to electricity and firewood for heating.
Energy support 2024-30 in a business-as-usual scenario
Note: Total support to the energy sector in the Western Balkans. Energy support in a business-as-usual scenario is calculated based on real observed support during 2018-23. To account for the exceptional nature of the energy crisis in 2021-22, the calculation applies an 80% weight to 2018-20 and a 20% weight to 2021-22. NECP decarbonisation investment needs. For Serbia, the values for planned investment by category are taken directly from NECP. For Albania, North Macedonia, Montenegro and Kosovo, such aggregations do not exist; rather, the figures were summed, according to major categories given, through research by OECD staff. If investments are given as a span (e.g. EUR 40-80 million), the lower number is taken into the calculation. If the figure is given for annual spending, it is multiplied by the number of years for which an NECP is valid. In the case of Kosovo and Montenegro, where two categories of spending are given (i.e. with existing measures [WEM] and with additional measures [WAM]), the WAM figures are taken into account when summing up. For Bosnia and Herzegovina, the figure for investment needs is the upper bound of investment need presented by MOFTER at the Peer-Learning Workshop conducted as part of this project.
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans and economy-level NECPs.
Persistence of subsidies and induced support through prices for fossil fuel and other emissions-intensive energy remains a global challenge, particularly concentrated in some regions. The estimated values are significant. Combined OECD-IEA estimates for 82 countries that merge IEA price-gap estimates and OECD Inventory estimates from OECD, G20 and Eastern Partnership countries show that support for fossil fuels translated into fiscal costs to governments of USD 1.6 trillion in 2022 and USD 1.1 trillion in 2023 (OECD, 2024[2]).2 For comparison, this amounts to more than five times the value of global official development assistance.3 Notably, some countries have embarked on serious structural reforms of their fossil fuel subsidies; others backtracked as oil prices began to climb in recent years. The multiplicity of policy instruments, coupled with political mobilisation against higher energy prices for consumers and industries, make energy reform particularly complex and challenging.
Reforming the ways Western Balkan economies currently provide support to their energy systems holds great potential for sustainable and inclusive development. In particular, it would:
Encourage investments in renewable energy and energy efficiency. A gradual phase-out of fossil fuel subsidies would make prices more reflective of true costs, level the playing field for renewable energy and provide incentives for energy efficiency.
Release financial resources and strengthen resilience. Energy systems should combine efficient production and effective mechanisms for targeted transfers to those in need, especially to keep costs under control during times of high energy prices. Resulting public savings could be used for new investment in energy infrastructure modernisation.
Prepare for carbon pricing and emissions trading systems. Adding a price on greenhouse gas (GHG) emissions will make fossil fuel-based energy more expensive, with the intention to incentivise efficiency in production and use. The current systems of subsidies and price regulation would blunt these mechanisms and simply incur further need for costly support.
Support applying a gender and user-centric perspective. Integrating these approaches can help make energy and social policy more effective. Women and men, the elderly, families, and rural and urban dwellers have specific roles and needs with regards to energy use and efficiency investments, which can be addressed through policy and incentive design.
Help meet commitments and requirements for EU electricity market integration. These commitments include ambitious emissions reductions, the phasing out of fossil fuel subsidies, and the creation of competitive wholesale and retail markets with free price setting, by adopting the common set of market rules and codes for market coupling (Box 1.1).
As part of the EU integration process and the Energy Community, the economies of the Western Balkans have committed to transposing the EU acquis and eventually joining the integrated electricity market. The acquis aims to ensure competitive markets for production and supply of electricity, while transmission and distribution networks are treated and regulated as natural monopolies. This contrasts with the traditional model of vertically integrated energy utilities, which combine coal mining, thermal power generation, and network operations under one structure.
Key elements of reform include effective unbundling that fully splits producers from network operators and suppliers, and the creation of fully competitive wholesale and retail markets with free price setting by market participants. The EU Electricity Directive acknowledges social objectives and allows for public intervention in price setting for energy-poor or vulnerable households. Yet such interventions are subject to several conditions and should remain minimal. Blanket price setting for all household customers, as currently practiced in the region, runs counter to the Directive and the core functioning principles of the integrated electricity market.
The region’s commitment to the acquis and full integration continues to be a major driver of important reforms that are being continuously assessed by the Energy Community Secretariat and the EU. Reforming energy pricing and subsidies are core elements of the outstanding reform efforts still necessary to get ready for full market integration. With the push for carbon pricing and emissions trading through the Clean Energy Package and the EU’s Carbon Border Adjustment Mechanism (CBAM), the need for reforms towards free price setting and phasing out of subsidies in combination with targeted social support for energy-poor and vulnerable households becomes even more urgent.
Source: EU (2019[3]), Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02019L0944-20220623; Energy Community (2012[4]), Regulated Energy Prices in the Energy Community - State of play and recommendations for Reform, https://www.energy-community.org/dam/jcr:a460810b-3ffb-46d8-8548-9d50ba414b41/PHLG032012_Price_Regulation.PDF.
This overview chapter summarises both the chapters that analyse the Western Balkans as a region and subsequent chapters that are specific to each of the six economies.
Chapter 2 – Context presents the region’s climate commitments and energy systems, including challenges and progress with regards to infrastructure, price regulation and SOEs.
Chapter 3 – Inventory of Energy Subsidies and Support Measures in The Western Balkans explains how this report – and its inventory – builds on the OECD Inventory of Support Measures for Fossil Fuels. It also provides detailed analysis of fiscal, credit and induced support in all six economies between 2018 and 2023. It is the first such inventory that covers support to fossil fuels, renewable energy and the induced effects of price regulation.
Chapter 4 – Scenarios for energy market reform in the Western Balkans investigates the need for energy sector reform to balance fiscal, economic and social impacts. It presents complementary energy market reform scenarios as well as insights from macro-economic modelling and micro-simulations.
Chapter 5 – Social protection: Enabling the energy transition in the Western Balkans argues that by expanding existing social protection programmes, the region can implement energy subsidy reform while preventing an increase in income poverty. It acknowledges, however, that new policy instruments will be needed to protect the energy-vulnerable population.
Chapter 6 –The gender dimension of co-ordinated energy sector and social protection system reform in the Western Balkans explores the differentiated impacts of energy sector and price reforms on women and men, as well as the role of women in the energy sector, including in policy making and energy production, transmission and distribution. It underscores the need for targeted support to vulnerable women, inclusive job training, and greater female representation in technical fields.
Chapters 7 – 12 provide analysis for the six Western Balkan economies – Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. In addition to analysis of energy subsidies and support measures, the chapters summarise the results of scenario modelling for energy sector reforms and provide policy recommendations based on the OECD analysis and the Peer-Learning Workshops held in the context of this project, involving a broad range of stakeholders within or linked to the energy sector.
Across the region, cheap electricity is maintained through price regulation and subsidies, generating high direct and indirect costs. Across the region, household electricity prices (excluding taxes) are, on average, only about 37.5% of EU averages (Eurostat, 2025[5]) (Figure 1.2). Price regulation and financial support to the energy sector enable such low prices, generating indirect and direct costs. The difference between regulated electricity prices and market prices, is a form of induced support, transferring value from production to consumption. This transfer generates the need for support to production in the form of direct financial support to make up for the shortfall in revenue and the difference between the cost of electricity production and the price at which it is provided.4
Electricity prices for medium-sized household consumers (annual consumption between 2 500 kWh and 4 999 kWh), 2024-S1
Source: Eurostat (2025[5]), Electricity prices for household consumers - bi-annual data (from 2007 onwards), https://ec.europa.eu/eurostat/databrowser/view/nrg_pc_204/default/table?lang=en&category=nrg.nrg_price.nrg_pc.
To provide a basis for comprehensive energy sector reforms, the OECD Development Centre has developed an Inventory of Energy Subsidies and Support Measures in the Western Balkans. The inventory covers the years 2018 to 2023 and aims to present evidence on types and size of subsidies and support measures and to raise awareness among policy makers of their potential impacts. The systematic overview carried out in this project is largely based on the OECD Inventory of Support Measures for Fossil Fuels.
The inventory reveals the full extent of the support the economies of the region have provided to electricity in billions of EUR. Induced support, generated through electricity supply at below-market prices, plays a particularly important role and amounted to EUR 19.1 billion in 2018-23, equivalent to 2.7% of GDP over that period. Direct fiscal and credit support reached about EUR 5.8 billion over the same period, equivalent to 0.8% of GDP over the same period (Figure 1.3).
Much of this support occurred during the period of high international energy prices 2021-23, known as the “energy crisis” in the region. The average annual average day-ahead prices in the Hungarian power exchange’s day-ahead-market (HUPX), which are used as reference prices in this report jumped from an average of 46 EUR/MWh in the pre-crisis period (2018‑20) to 164.1 EUR/MWh in the crisis period (2021‑23). Due to the difference between the reference price and domestic electricity prices between the two periods, the regional induced support rose from EUR 2.1 billion in 2018‑20 to EUR 17 billion in 2021‑23. The need for direct fiscal and credit support to cover for widening gap between production costs and imports on the one hand, and domestic prices on the other increased from EUR 1 billion (2018‑20) to EUR 4.8 billion (2021‑23).
An alternative reference price provides a lower-bound estimate of the value of induced transfers, albeit with similar orders of magnitude to the preferred baseline estimate. In the absence of alternative counterfactual prices, the average energy and supply price component in EU markets is used as an alternative reference price. The calculated induced support using reference prices based on EU averages across the region over the period 2018-23 amounts to EUR 14.5 billion, or about 76% of the induced support using reference prices based on HUPX.
The inventory also captures other distortions like cross-subsidies. Cross subsidies occur when one type of consumer is charged higher prices than others to support lower prices for other customers. In the region this is typically the case for small businesses that are charged higher prices than households for the same type of electricity. Cross-subsidies during the 2018‑23 period ranged from EUR 31 million in Montenegro to EUR 195 million in Albania.
Note: Public support as share of GDP is calculated by dividing total public support over 2018-23 with total GDP over the same period.
Source: Authors’ elaboration based on the Inventory of Energy Subsidies and Support Measures in the Western Balkans.
Most support goes to fossil fuels. For induced support, about EUR 11.4 billion can be allocated to electricity produced using fossil fuels and EUR 7.7 billion to renewable energy, 30% of which is accounted for by Albania, where most electricity is produced by hydro. Conversely, in Kosovo all induced support channelled through below-market retail electricity prices was related to fossil fuel-based electricity.5 For direct financial support, with EUR 4.1 billion, over 70% went to fossil fuels, while renewables received EUR 1.6 billion. Most of the financial support to fossil fuels was concentrated in Serbia (EUR 2.9 billion), while most of the financial support to renewables was in Albania (EUR 862 million).
Scenario modelling is a useful tool for analysing changes to energy systems and, in turn, designing reforms that carefully balance impacts on energy companies, households, public finances and the economy. At present, energy systems in the Western Balkans require significant financial transfers from the public sector to the energy sector. Pricing schemes are designed to keep prices low for customers, particularly households. While energy sector reforms are likely to generate significant fiscal savings, they will also lead to increased revenue for energy sector companies and increased energy costs for households and other consumers that today benefit from price regulation. Notably, such reforms will impact households differently across the income distribution. To prevent reforms from increasing the risk of poverty among households, part of the fiscal savings or recovered funds should be channelled to targeted compensatory mechanisms. This would prevent adverse poverty impacts and help to ensure buy-in for the reforms. More broadly, changes in the energy status quo will affect economic sectors differently, depending on the energy intensity of their activities and their ability to operate in open markets.
This report considers specific scenarios for each of the economies, built around three key issues for energy market reform:
Bringing retail prices closer to market values
Gradually deregulating retail markets
Phasing out direct subsidies to the energy sector
Shifting retail prices closer to market values
Interventions into price setting through regulation and the behaviour of SOE producers and suppliers depress retail electricity prices in the economies of the Western Balkans. Reforms to price regulation to ensure that pricing incorporates market signals would therefore drive retail prices, especially for customers currently served in regulated markets or at low prices. These include almost all residential customers, as well as a varying share of firms: at one end, only customers with high-voltage connections are served at unregulated prices in Kosovo, while at the other end, only 20% of non-household low-voltage demand is regulated in Serbia. Montenegro is an exception in the region as most customers are served under regulated prices, but the single supplier is an incumbent SOE and prices have been kept low through the firm’s own policies.
Introducing a role for the market is bound to drive prices up at least in the short run. Prices should be high enough to allow producers to fully recover costs, including necessary maintenance expenditure, capital expenditure and reasonable capital returns. To operationalise scenarios, this report calculates market-consistent prices for each economy and, when data permits, for broad categories of customers within each economy. These prices reflect the counterfactual situation in which the main supplier would purchase energy in the open market at international prices. During the energy crisis of 2021-22, market-consistent prices increased notably, before falling back to a higher plateau in 2023. Scenarios are set between two bounds determined by the gap between average regulated prices and market-consistent prices. The lower bound is the price increase corresponding to the gap in the pre-crisis period (2018-19). On average across the region, this lower bound corresponds to a 35% increase in prices for households and an 8% increase in prices for non-household customers. Notably, average prices in some economies before the energy crisis were close to the reference market-consistent series (in Kosovo, Montenegro and Serbia), and in some cases even higher (in North Macedonia). The upper bound is set at the gap between regulated prices and market prices in 2023. On average across the region, they are 93% higher than 2023 prices for households, and 45% higher for non-household customers. While these reference prices are typically high, heavy reliance on electricity imports across energy systems in the region make international market prices relevant as marginal price benchmarks.
In addition, market-driven prices would eliminate remaining cross-subsidies, with positive macroeconomic impacts. Across the Western Balkans, households pay less for electricity than firms, despite the fact that the cost of supplying household is higher per unit of electricity sold. Indeed, in most EU economies, households face higher retail prices than firms. Simulations reflecting the elimination of cross-subsidies find positive impacts on output across the region. On average output increases by 0.25% when prices converge between household and non-household regulated customers, with larger effects the larger the cross-subsidy and the larger the share of firms served under regulated prices. In all cases, household consumption increases despite the increase in prices, driven by falls in the prices of other goods and the increase in total output.
Reforms that drive prices closer to market prices would increase output but require compensation for at least the most vulnerable households. When lower-bound scenarios include at least partial convergence in prices between household and non-household customers, they have positive impacts on output across the region (Table 1.1). As in the case of cross-subsidies, the size of the impact is driven by the share of firms served under regulated prices and the size of the price increase. However, in all cases, reforms also have a sizeable negative impact on household consumption (which falls by 1% on average). It is therefore necessary to accompany market reform with appropriate compensatory measures. When larger price shifts are simulated, the results are mixed, with output falling in Albania, Kosovo and Montenegro, remaining stable in Serbia, and increasing marginally in Bosnia and Herzegovina, North Macedonia, and Serbia.
Simulated impacts on output and household consumption and financial resource flows in the lower-bound scenarios
Note: Compensation transfers correspond to the total expenditure increase among the vulnerable population assuming inelastic demand, assuming perfect targeting. Compensation for North Macedonia does not assume perfect targeting but is channelled through the guaranteed minimum assistance programmes as simulated (see Chapters 4 and 5 for details).
Source: Authors’ calculations.
Energy sector reforms that lead to price adjustments can generate more than enough resources to compensate the most vulnerable categories of the population. Price reform would generate sizeable financial resources for the energy sector, in particular for incumbent producers who now bear the opportunity cost of selling at low prices. Across economies, these flows would negate the need for direct financial support to the incumbent firms and allow the energy sector to undertake necessary investments for the energy transition. In addition, additional earnings to the energy sector would be much larger (about seven times on average) than the amount of financial transfers necessary to fully compensate the most vulnerable 20% of the population.
Expanding the scope of deregulated electricity markets
Competition in electricity markets in the Western Balkans is currently curtailed by the scope of regulated retail markets. Incumbent electricity suppliers, in many cases state-owned, still serve the overwhelming majority of households and a significant share of firms. Deregulation could progress gradually by first incentivising more firms into the market, possibly followed by households. In turn, this requires that regulated prices offered by universal service suppliers (USS) and suppliers of last resort (SLR) fully reflect cost while also allowing for benefits from switching. Softening public service obligations placed on incumbent electricity suppliers would also promote market discipline in their operations and ensure market signals pass through to the customers of regulated suppliers.
Simulation results show that progressive deregulation has positive aggregate impacts on the economy. In selected economies, the model is shocked by halving the share of electricity supplied under regulated prices across sectors. In Bosnia and Herzegovina, North Macedonia and Serbia, the simulated deregulation results in increases in both output and household consumption. While the most protected sectors would suffer falls in output, market deregulation leads to lower prices in the open market, which benefit the economy as a whole.
Phasing out direct subsidies to the energy sector
Direct subsidies to the energy sector, particularly to coal-based electricity are at odds with the environmental objectives of Western Balkan economies. They are also particularly distortive, especially when they intervene upstream in a value chain composed of regulated actors. In the long run, if sufficient renewable generation capacity with competitive production costs is installed, removing fossil fuel subsidies need not have significant negative impacts on the cost of electricity generation. In the short run, removing fossil fuel subsidies raises the costs of fossil-fuel generated electricity and impacts the electricity mix.
Simulations show that, overall, the majority of direct subsidies have limited macro-economic impacts but distort the production mix towards fossil fuel-based electricity. The simulations focus on support schemes implemented before and after the energy crisis, as opposed to larger financial transfers implemented to sustain the energy sector in 2021-22. The macroeconomic impact of direct subsidies to fossil-fuelled electricity is estimated to be negative and small (between 0.01% and 0.06%), which is in keeping with the relatively modest size of the transfers simulated (between EUR 1 and EUR 40 million annually). However, the impact of simulated schemes is noticeable on the energy mix, as they drive up the share of coal-based electricity. Similarly, they sustain employment in the industry, which needs to be taken into account in designing their phase-out.
Available evidence suggests that a large proportion of the population in the Western Balkans is at risk of energy poverty. By some metrics, close to 40% of households in Albania or Kosovo face difficulties to keep their house warm, compared to just 9.3% in the European Union (EU). Across all economies, energy poverty extends well beyond the income-poor. In Serbia and North Macedonia, for example, more than 50% of people in the bottom four deciles of the income distribution are found to be facing energy poverty. Despite much lower prices in the region than in the EU, the average household’s annual electricity consumption costs 7.9% of GDP per capita in the Western Balkans compared to about 4.5% in EU countries (Figure 1.4).
While current systems of low electricity prices help prevent energy poverty, they distribute substantial value to households that do not need the support. On average across the region, the richest 20% of households receive between 21% and 31% of the support, while the poorest 20% receive only 9% to 18%.6 This is inefficient as it distorts energy saving and energy efficiency incentives and is an expensive way to distribute support to households.
Targeted social protection measures would be a much cost-effective alternative and should accompany price reform. A good balance can be achieved by expanding existing social protection provisions or deploying new programmes that specifically target energy poverty. In addition to existing means-tested income support programmes, these economies have put in place specific programmes to support the most vulnerable, usually with targeted energy subsidies or transfers. The ambition and reach of such programmes varies greatly within the region, from topping up social assistance transfers to reach 2.5% of households in North Macedonia to compensating 28% of households in Albania.
Average price (including taxes) for 5 000 kWh for households (% of GDP per capita), 2024
Note: 5 000 kWh is the average annual consumption of a household in line with the IEA’s estimation for the average annual household consumption in Europe (IEA, 2022[6]). Price data is S1-2024, GDP data is for 2023 from WDI.
Source: Eurostat (2025[5]), Electricity prices for household consumers - bi-annual data (from 2007 onwards), https://ec.europa.eu/eurostat/databrowser/view/nrg_pc_204/default/table?lang=en&category=nrg.nrg_price.nrg_pc and World Bank (2025[7]), World Development Indicators, https://databank.worldbank.org/source/world-development-indicators.
Existing social protection programmes, if suitably expanded, could protect the most vulnerable in some of the economies in the region. Social assistance in the region is relatively well-targeted to the poor. However, the coverage and generosity of many schemes are too small to make a sizeable difference on poverty rates. Indeed, in Albania, North Macedonia and Serbia, poverty increases once all taxes and transfers are taken into account. Where programmes can be scaled up, such action could contain poverty rates and ensure that the most vulnerable – those in the bottom 20% of the income distribution – do not fall further into poverty. In North Macedonia, where price distortions are smaller, a 17% price increase would substantially narrow the gap between retail household prices and market-consistent prices. To prevent an increase in poverty, this would necessitate a 25% increase in funding of the main social assistance programme, which could be entirely financed out of additional proceeds from the reform. When gaps are larger, they will require significant additional funding. In Serbia, a 70% price increase to close the gap as of 2023 would require more than doubling the budget of the main income support programme, which could pose operational challenges. Additional revenues generated by the reform would still be almost three times larger than the necessary budget increase to social assistance.
Comprehensively mitigating the distributional impacts of reforms will require complementary measures. Expanding programmes to support vulnerable customers during the energy crisis has, in some cases, led to programmes being broader but less efficiently targeted. Utility allowances in Serbia and energy transfers in Albania, for example, are not strongly concentrated among the poor. To design targeting mechanisms that ensure transfers are appropriately directed, it is therefore necessary to go beyond incomes and consider specific sources of energy vulnerability. This requires agreement on the aspects of energy poverty that such transfers seek to mitigate. Operationally, such programmes can take the form of social transfers, energy vouchers or social tariffs. In addition, complementary programmes should be put in place to facilitate investments in energy efficiency for persons vulnerable to energy poverty. The use of energy vouchers for energy efficiency improvements or a gradation of support depending on incomes for programmes supporting equipment or renovation can help reduce the energy needs of those at risk.
Assessing the differences between women and men in energy access, consumption, services and labour can help with policy design. Assessing the gender-specific impacts of energy reforms in these economies, specifically deregulation of electricity prices, brings focus to three key areas of interest: household and individual-level impacts; employment-related impacts; and the need for better gender inclusion in policy formulation.
Increased electricity prices affect men and women differently as energy consumers. As women carry out most domestic care work that requires energy, they are likely to be most affected by price increases. Focus groups carried out as part of this project show that, already, they apply coping strategies – including renouncing rest and leisure – to run appliances at night and on weekends to benefit from lower electricity tariffs. Women are also often in charge of reducing other household expenditures to accommodate rising energy prices. Focus group participants tended to agree that social assistance systems in these economies are insufficient to mitigate the impacts of high energy prices for the most vulnerable groups. Policy recommendations regarding household-level impacts of reforms include: targeting women for energy conservation and efficiency programmes, and recognising women’s central role in household energy management. Mitigation measures for price impacts must ensure support is accessible to the most vulnerable groups, such as single parents and the elderly, who are predominantly women. The requires carefully assessing eligibility criteria and application processes.
Over the course of the project, local partner research organisations organised 46 focus group discussions – including four in Roma communities – throughout the region. To capture an extensive range of perspectives, organisers recruited participants from diverse backgrounds, including residents of both urban and rural areas and of different income levels, age and social assistance beneficiary status. To delve deep into gender-specific differences in relationship to energy, separate focus groups were held for men and women.
The qualitative data collected through these discussions provided rich contextual information and details on participants' perceptions and experiences related to energy and potential or past energy reforms. Some key insights are captured in the following quotes.
The role of women as household energy managers was highlighted by both male and female participants.
"I say turn off the light if you're not in the room. If you are not watching TV, turn off the TV. If you don't need that much hot water, you don't need it to let it run all the time when you shower and so many things for years. I’m the house’s policewoman." (Woman, 50, full-time wage worker, Banja Luka, Bosnia and Herzegovina)
A pattern of specialisation regarding energy-saving behaviours emerged, whereby women save energy – and encourage other household members to do so – by implementing a variety of day-to-day strategies. Men, in contrast, tended to focus more on researching long-term investments in different energy sources and systems.
“The effort to conserve electricity, especially by timing cooking and washing during cheaper rate periods, really impacts our electricity bill. My mother pays close attention to this because she's always at home and can stick to those specific time intervals. We've noticed a significant difference in the bill when we adhere to these time slots compared to when we don't. This especially applies to cooking and washing – these two activities make a noticeable impact.” (Man, 25, employed, Kocani, North Macedonia)
“The difference lies in whether you use wood or pellets. If you use wood, the quality can vary, and sometimes you'll get good wood, but often you won't. This inconsistency is frustrating. You have to deal with the mess of wood chips and ash. Although wood can produce good heat, it's a hassle to handle every year. Personally, I've found that pellets are more convenient and cleaner. Pellets have their pros and cons – you can't cook on a pellet stove, so you still need to use a regular stove. But after five years of using pellets, I appreciate the convenience: just press a button, and it lights up. It's a cleaner, easier process.” (Man, 51, employed, Kocani, North Macedonia)
Participants from vulnerable households, particularly single parents, reported considerable hurdles in accessing social assistance support specific to energy.
“Years ago, when my child was little, I, as a single parent, tried to apply once, but I was not approved for the extra help. The second time, I don't know what happened, I didn’t get it either. It was a shame that I never tried to sign up for anything again. That's the reason I never applied anywhere else.” (Woman, 60, employed, Sarajevo, Bosnia and Herzegovina)
“As a single mother of two, I tried applying for the financial support programme for dealing with the electricity price increase. The process was so long and so complicated, I gave up quickly. I did not have the time or energy to obtain all those documents that should be available to the government anyway. I shouldn’t have to provide them. If the process was simpler, I would have definitely applied.” (Woman, 45, employed, Skopje, North Macedonia)
The transition towards renewable energy, combined with making technical training more attractive for women and girls can increase the share of women in the energy sector workforce in the Western Balkans. While well represented in ministries and energy governance, women remain underrepresented in energy companies, especially in technical jobs. These existing gender inequalities in the traditional energy sector could shift with an accelerated transition to renewable energy sources. In the context of mine closures and emerging renewable energy opportunities, labour market policies should promote gender-inclusive job programmes to avoid displacement and ensure opportunities for all.7 Other crucial steps include enhancing the attractiveness of technical and vocational education and training for girls and women and addressing gender stereotypes in the field.
Assessment
Ongoing policies of low electricity prices for households and firms generates large fiscal and efficiency burdens on Western Balkans economies. The difference between observed low prices and those that would be generated by the market constitute the lion’s share of identified public support to electricity. Low electricity prices in the region are largely the result of price interventions, primarily through regulated tariffs and the dominant role of publicly owned power utilities, which are often subject to political pressure to keep prices low. This generates large opportunity costs for producers, who could otherwise sell electricity at higher prices, and, in some cases, outright financial losses, when prices are lower than production and supply costs. The financial fragility that ensues requires the state to provide fiscal support directly or through loan guarantees, which are often written off.
Price regulation and governance structures of SOEs are the main mechanisms by which retail prices are kept low. Having the USS serve customers under regulated prices is the prime example of how regulation keeps prices low. This is the practice for households in all economies in the region, except Montenegro. It also applies to most firms in Albania and Kosovo, and to eligible firms (typically small- and medium-sized enterprises [SMEs]) in most of the region. Notably, in most cases, the regulatory framework for prices allows suppliers to correct tariffs to match costs and earn a reasonable return. It is the political governance of state-owned suppliers that prevents the pass-through, the cost of which is eventually compensated by direct support from the state.
The status quo also prevents the emergence of competition in energy markets. The situation of price regulation keeping retail prices low, makes it difficult for alternative energy suppliers to emerge in the Western Balkans, whether they purchase electricity on the market or rely on their own installations. Public service obligations also limit competition by distorting wholesale markets, depressing prices and limiting opportunities for alternative producers.
Recommendations
The economies of the Western Balkans region should implement comprehensive reforms to allow markets to shape electricity prices and create more efficient energy sectors. The transition to market-determined energy prices should be gradual in both wholesale and retail markets, beginning with deregulation for large business customers and other non-household customers, before being applied to smaller firms. If households remain eligible for universal supply, the tariffs should be allowed to adjust as intended to fully reflect production and supply costs while including sufficient margins to allow a reasonable return that provides buffers and enables investment. Pricing schemes should give due consideration to cost structures – for example, through seasonal tariffs and adjustments to fixed portions of tariffs. The reform of public service obligations is also essential to reduce the burden they impose on electricity producers while allowing for a greater market role in resource allocation and enabling smooth pass-through of market signals to retail prices. This would facilitate the emergence of competitive wholesale and retail markets, which is currently curtailed by regulation and the weight of SOEs. It would also generate funds for investment needs in renewables production and in network and grid modernisation.
Western Balkan economies should phase out direct subsidies to fossil fuels and fossil-fuelled electricity production. If energy prices reflected costs and firms had had sufficient financial buffers over the period 2018-23, most support for fossil-fuelled electricity would not have been necessary in the non-crisis years (2018-20). Direct subsidies that support unprofitable segments, particularly fossil fuel production, should be phased out to allow markets to emerge and to fulfil the decarbonisation commitments of the region’s economies. It is critical to phase out direct support in the process of introducing carbon pricing, as the profitability of those undertakings is bound to fall significantly with the introduction of tradable permits or carbon taxes. This will ensure the fiscal sustainability of the energy sector and has potential to free up EUR 510 million of fiscal space annually for complementary social spending and investments in the energy transition.
The long-term sustainability and competitiveness of the energy sector in the Western Balkans requires strong corporate governance, particularly in SOEs, and the resolution of chronic debt in the balance sheets of key firms in the sector. All public financial support should be transparent, in accordance with state aid regulation and aligned with OECD Guidelines on Corporate Governance of State-Owned Enterprises. Governance frameworks should emphasise enhanced management capacities of SOEs, improved operational performance and oversight, and development of leadership skills to navigate market and regulatory challenges (OECD, 2024[8]). Several key energy firms in the region are burdened with high levels of debt, which makes them unattractive for financial markets. Typically, state institutions step in to lend or guarantee debt, often providing debt relief at a later date. Such debt should be resolved through debt consolidation (when possible) and targeted capital injections (when necessary).
Social protection systems must be enhanced to ensure an energy transition that protects vulnerable populations. To protect the vulnerable in a more effective and cost-efficient manner, universal subsidies should be replaced with targeted financial assistance. Monetary transfers or energy vouchers ensure that price signals reach those in need, whilst support mechanisms ensure affordability. As prices increase, a fraction of energy sector windfalls would suffice to target the 20% to 30% of the population most in need. Generally, analysis shows that existing income support mechanisms for the poor in the region will not suffice, as their coverage is typically too low. Direct support for energy consumption, such as is practiced in Albania, may be a better short-term option, provided targeting is improved. In addition, financial support for vulnerable customers should be complemented by non-financial support instruments, including protection against disconnection and support for energy efficiency investments. Economies should develop comprehensive energy poverty frameworks with clear definitions and targeted interventions that consider the intersections of gender, location and other vulnerabilities. These interventions will need to reflect reality. The income-poor who are also energy-poor will require financial assistance, especially as prices increase. Many who are not income-poor are also at risk of energy poverty; for such categories, support for energy-efficiency investments, even with co-payments, may be more suitable.
The transition to sustainable energy systems requires significant investment in renewable energy and energy efficiency. Regulatory frameworks should be developed to support new renewable generation capacity, including tradeable green certificates and improved network infrastructure to accommodate renewable sources. Energy efficiency initiatives should be supported through dedicated funds that target residential building improvements, implementation of smart metering systems, and development of advanced payment options for better consumption management. Domestic processes for defining and certifying energy efficiency in buildings are particularly important to be able to quantify and monitor progress in increasing energy efficiency. Scope also exists to improve regulatory frameworks for citizen and firm participation in the green transition, particularly through renewable energy communities.
Successful implementation of energy reforms depends on effective stakeholder engagement and broad participation. Social dialogue should include national and local governments, energy companies, trade unions and civil society to build public support and consensus for reforms. The energy transition will be most radical in coal regions, where coal extraction and production of electricity from coal commands a large share of jobs and livelihoods. Significant progress has been made in diagnosing future issues linked to the just transition in these regions. Governments should now move to elaborate detailed action plans, with the full participation of local stakeholders, to ensure full implementation in due course. Knowledge-sharing platforms should be established to facilitate best practice exchange and learning across the region. Market participants, both businesses and households, should be supported through green loans, grants, tax incentives and sustainable financing mechanisms, underpinned by clear certification systems and strong institutional capacity.
The financing framework for the energy transition must be comprehensive and accessible to all segments of society. Economies should develop diverse financing instruments including low-interest loan programmes, targeted subsidies for vulnerable groups, and tax incentives for energy efficient investments.8 This should be complemented by robust supporting infrastructure including technical assistance programmes, certification and quality assurance systems, and monitoring and evaluation frameworks. Capacity building for implementing institutions is essential to ensure effective delivery of these programmes and to maximise their impacts across the region.
References
[4] Energy Community (2012), “Regulated Energy Prices in the Energy Community – State”, https://www.energy-community.org/dam/jcr:a460810b-3ffb-46d8-8548-9d50ba414b41/PHLG032012_Price_Regulation.PDF.
[3] EU (2019), “Directive (EU) 2019/944 of the European Parliament and of the Council of 5 June 2019 on common rules for the internal market for electricity”, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:02019L0944-20220623.
[5] Eurostat (2025), Electricity prices for household consumers - bi-annual data (from 2007 onwards), https://ec.europa.eu/eurostat/databrowser/view/nrg_pc_204/default/table?lang=en&category=nrg.nrg_price.nrg_pc (accessed on 30 April 2025).
[6] IEA (2022), “Europe”, https://www.iea.org/regions/europe/electricity#how-is-electricity-used-in-europe.
[10] OECD (2024), “Harnessing the green and digital transitions for gender equality: Policy insights from the 2024 OECD Forum on Gender Equality”, OECD Public Governance Policy Papers, No. 61, OECD Publishing, Paris, https://doi.org/10.1787/860d0901-en.
[2] OECD (2024), OECD Inventory of Support Measures for Fossil Fuels 2024: Policy Trends up to 2023, OECD Publishing, Paris, https://doi.org/10.1787/a2f063fe-en.
[8] OECD (2024), Western Balkans Competitiveness Outlook 2024: Regional Profile, Competitiveness and Private Sector Development, OECD Publishing, Paris, https://doi.org/10.1787/170b0e53-en.
[9] OECD (2023), Official development assistance (ODA), https://www.oecd.org/dac/financing-sustainable-development/development-finance-standards/official-development-assistance.htm (accessed on 11 October 2023).
[1] OECD (2022), Multi-dimensional Review of the Western Balkans: From Analysis to Action, OECD Development Pathways, OECD Publishing, Paris, https://doi.org/10.1787/8824c5db-en.
[7] World Bank (2025), World Development Indicators | DataBank, https://databank.worldbank.org/source/world-development-indicators (accessed on 30 April 2025).
← 1. Induced support refers to government interventions that influence the prices received by energy producers or paid by domestic consumers. These measures are often embedded in broader regulatory frameworks and can significantly shape market dynamics. The most notable example of induced support in the Western Balkans happens through regulated electricity prices. To assess the value of support through price setting, the Inventory compares realised prices with counterfactual market-based prices. Annual average day-ahead prices in the Hungarian power exchange’s day-ahead-market (HUPX DAM) are used as the reference market price for electric energy.
← 2. The interpretation of the total figures reported in the OECD Inventory of Support Measures for Fossil Fuels, as well as their trends over time, should be treated with caution. These figures include revenue forgone estimates from tax expenditures, which are based on nationally determined benchmark tax rates. As such, the aggregate amounts may reflect differences in national tax policies rather than direct changes in subsidy levels.
← 3. ODA data from (OECD, 2023[9]).
← 4. This is a simplified explanation. In addition to underpricing, most state-owned electricity producers face a host of inefficiencies and productivity issues.
← 5. In the other four economies (Serbia, Bosnia and Herzegovina, Montenegro, North Macedonia), the allocation of such induced support in the inventory reflects shares in the electricity mix.
← 6. Without North Macedonia, where electricity consumption is more equally distributed (probably due to the availability of gas or district heating for richer households), the ratios would be between 24% and 31% for the richest 20%, and between 9% and 14% for the poorest 20%.
← 7. The potential impacts of mine closures on women’s employment should not be overlooked. Studies on the restructuring of coal mining regions have shown that, in some cases, unemployed men have displaced women from the local labour market over the long term (OECD, 2024[10]).
← 8. Energy efficiency support measures (like better insulation, window replacements, efficient heating systems, or appliance upgrades) directly reduce energy consumption without compromising comfort. For energy-vulnerable households, who often spend a large share of their income on energy or live in poorly insulated homes, this means lower energy bills in the long term.