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Green Energy gains importance in Azerbaijan

Green Energy gains importance in Azerbaijan

As a major oil and gas producer, Azerbaijan is primarily associated with oil and gas reserves in the Caspian Sea. However, the country also has great potential in the field of renewable energies. 

The potential amount of energy offered by renewable sources is currently estimated at 27,000 MW. Of this, 3,000 MW is wind energy, 23,000 MW solar energy, 380 MW bioenergy and 520 MW comes from mountain rivers. These optimistic estimates are also reflected in a recent report by the International Renewable Energy Agency. In 2020, Azerbaijan’s total energy production amounted to 25 TWh, with the share of electricity generated from renewable energy sources sitting at 6%. The long-term goal is to increase this figure to 30%, which has been impressively underpinned by developments in this regard in recent months. 

Initial pilot projects with foreign investors 

In 2020, Azerbaijan entered into strategic cooperations with ACWA Power (Saudi Arabia) and Masdar (United Arab Emirates) after a multi-stage selection process. ACWA Power will build a 240 MW wind turbine in the country’s windiest region, Khizi, while Masdar will build a 230 MW solar-power plant next to the settlement of Alat (on the shore of the Caspian Sea). The first contracts (investment, energy supply and grid connection contracts) have already been signed, and the ‘build, own & operate’ operator model is planned. The two large-scale projects envisage a total investment of 400 million USD and, as they will become Azerbaijan’s largest plants in the future, are to cover 5% of the country’s current energy demands. In parallel, talks are currently underway with other companies and investors. Why? Because it is known that the substantial increase in the proportion of renewable energy sources in gross final energy consumption requires further private (foreign) investment. 

Expansion of international cooperation 

The ‘Renewable Energy Auctions in Azerbaijan’ project is to be launched in collaboration with the European Bank for Reconstruction and Development. Among other aspects, auction rules, conditions and forms of contract had to be set out and suitable investment locations identified. The plan is for Azerbaijan to organise the construction of wind and solar parks with a total capacity of about 1,000 MW by means of auctions. In parallel, cooperation is underway with the International Financial Corporation, as part of the World Bank Group, in connection with the creation of a roadmap for the development of offshore wind facilities in the Caspian Sea. In addition, the Ministry of Energy is also implementing a pilot project with the Asian Development Bank to install a 100 kW photovoltaic plant on Lake Boyukshor and to develop business models for the private sector for the installation of solar panels. 

Green energy zone in Karabakh 

In recent months, the potential of renewable energy sources in Karabakh and the surrounding regions has been analysed in depth. As far as solar energy goes, eight areas have been identified, with the total potential for the construction of solar power plants estimated at more than 4,000 MW. In terms of wind energy, initial wind energy potential of 500 MW is assumed: in the mountainous part of the Lachin and Kalbajar regions, there are extensive areas with an average annual wind speed of 7-8 m/s at 100 m above sea level. Finally, 25% of Azerbaijan’s local water resources come from Karabakh. Certain preparations have already been made to start repair and renovation work at some small hydropower plants, and the 8 MW Gulabird power plant on the Hakari River in Lachin has also recently gone into operation. 

On 3 June 2021, a cooperation agreement was concluded between the Ministry of Energy and British Petroleum (BP) to evaluate and implement the project concerning the construction of a 240 MW solar power plant in Zangilan/Jabrayil. The agreement thus lays the foundation for the creation of a ‘green energy’ and is intended to pave the way for foreign investment in Karabakh. 

Improving the legal framework 

In recent months, numerous legal acts have also been passed to improve the institutional and legal framework, with the primary goal being to promote the use of renewable energy sources and to push private investment in this sector. The Presidential Decrees ‘On Accelerating Reforms in the Energy Sector’ of May 2019 and ‘On Measures to Implement Pilot Projects in the Field of Renewable Energy Use’ of December 2019 were released. Also, Presidential Decree No. 1159 dated September 2020 established the Renewable Energy Agency under the Ministry of Energy, with this agency responsible for the implementation of state policy in the field of renewable energy. The law ‘On the use of renewable energy sources in power generation’, adopted in May 2021, deserves special attention. Further draft laws are currently under review. 

Finally, the strategy ‘Azerbaijan 2030: National Priorities for Socio-Economic Development’ adopted by Presidential Decree in February 2021 should be highlighted. Section 5 of this strategy provides for the expansion of renewable energy sources and the consideration of the principles of ‘green energy’ in all relevant economic sectors. The promotion of renewable energy will certainly help the state to meet its greenhouse gas reduction commitments under the 2015 Paris Climate Change Agreement. 

LGP is happy to provide you with comprehensive expertise on the Azerbaijan market and numerous ideas for investment opportunities and cooperations. 


Mag. Orkhan Ismayilov, Legal Consultant at LANSKY, GANZGER + partner

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