Azerbaijan on the Road to Cleaner Energy



Azerbaijan is internationally known as a hydrocarbon producer and exporter. However, the country has very good solar, wind, biomass, geothermal and hydropower resources and is strongly committed to their development. 

A new draft law supporting renewable energy sources is expected to help reach an ambitious goal of increasing the share of renewables in total energy production, to 30% by 2030.

In late September 2020, Azerbaijani President, Ilham Aliyev, created a new State Agency on Renewables under the Energy Ministry, which should give a new impetus to the development of this sector.

Global outlook: renewables are gaining momentum

Ensuring access to affordable, reliable, sustainable and modern energy for all, is one of 17 Sustainable Development Goals of the 2030 Agenda for Sustainable Development, adopted by all United Nations Member States in 2015, in order to end poverty, protect the planet and ensure that all people enjoy peace and prosperity. A substantial increase of renewable energy distributed within the global energy mix, and enhancement of the international cooperation to facilitate access to renewable energy research and technology, are sub-targets of this goal.

According to the latest report of the custodian agencies of this goal (The World Bank, the International Energy Agency, the International Renewable Energy Agency and others), the share of total final energy consumption from renewables, globally increased from 16.3% in 2010 to 17.3% in 2017. In some countries, the expansion of the renewables share was even more considerable. For example, the United Kingdom saw a triple increase between 2010 and 2017, mainly due to wind energy. Among the 20 largest energy-consuming countries, Brazil was the leader by 2018, with a 45 percent share of modern renewables, followed by Canada at 23 percent. In absolute terms, China remains by far the largest consumer of all renewables, excluding bioenergy. The second-largest consumer of renewable electricity in the world is the United States.

The growth of renewables is driven primarily by increased consumption of modern renewables (renewables other than traditional uses of biomass). The largest increase in the use of renewables is in the global power sector, where their share of electricity consumption reached 24.7 percent in 2017. The share of renewables in the heating sector reached 23.5 percent of total final heat consumption. In the transport sector, the share of renewables remained at 3.3 percent.

The renewable energy deployment worldwide was supported by various policies and measures, for example the use of auctions to set electricity tariffs competitively. By 2018, more than 106 countries had adopted auctions at some point in time.

A rapidly declining cost of renewables is one of the main reasons of its increasing popularity. The International Renewable Energy Agency (IRENA) has documented that electricity costs from renewables have fallen sharply over the past decade, driven by improving technologies, economies of scale, increasingly competitive supply chains and growing developer experience. For example, the global average cost for electricity from utility – scale solar photovoltaics fell by 82% between 2010 and 2019, concentrating solar power – by 47%, onshore wind – by 39% and offshore wind – by 29%. As a result, renewable power generation technologies have become the low-cost option for new capacity in almost all parts of the world. This new reality has been increasingly reflected in deployment, with 2019 seeing renewables, account for 72% of all new capacity additions worldwide.

“Installing new renewables increasingly costs less than the cheapest fossil fuels,” Director-General of the IRENA, Francesco La Camera says. “More than half of the renewable capacity added in 2019, achieved lower electricity costs than new coal, while new solar and wind projects are also undercutting the cheapest and least sustainable of existing coal-fired plants.”

He notes that replacing the costliest 500 GW of coal capacity with solar and wind would cut annual system costs by as much as $23 billion per year and reduce annual carbon dioxide (CO2) emissions by around 1.8 gigatonnes, or 5% of last year’s global total. It would also yield a stimulus worth $940 billion, or around 1% of global GDP.

The Sustainable Development Scenario of the International Energy Agency shows that with the right policy support, modern renewables could reach a share of 23% of total final energy consumption by 2030, supplying 50% of electricity generation. IRENA’s Transforming Energy Scenario for 2030 lays out a path toward even higher shares of modern renewables: 28% overall and 57% of electricity generation.

Renewables in Azerbaijan: hitting the road

According to Azerbaijan’s Energy Ministry, most electricity in the country is still produced from fossil fuels – in 2019 thermal power plants gave 24.183 billion kWh out of 26.087 billion kWh of total production or 92.7%. As much as 1.56 billion kWh fell on hydro energy, 0.196 billion kWh – on biomasses, 0.105 billion kWh – on wind, and 0.044 billion kWh – on solar energy.

The country is able to increase the production of clean energy immediately, since the installed production capacity of the existing renewable energy power plants, including big power plants, amounts to 17% of the total capacity of 7,556 MW.  However, the country has a much bigger target for long-term horizons and all the opportunities to reach it.

“Azerbaijan has exceptional wind and solar resources and significant bio/waste, geothermal and small hydro potential,” IRENA says.

In a report published in late 2019, the agency stresses that the renewable energy could play an important role in supporting Azerbaijan’s economic diversification strategic plan, act as a catalyst for new employment opportunities and provide avenues for technological innovation, opening new sectors for economic value creation and associated GDP growth. Furthermore, the deployment of renewable energy could decrease domestic consumption of oil and gas, providing opportunities to generate additional revenue through exports and reduce domestic subsidies. Finally, given the projected increase in national energy demand, renewable energy provides a technical solution to the need for rapid power generation capacity deployment, owing to relatively shorter lead times for project construction when compared to conventional sources.

In addition, renewables will help the country to reduce CO2 emissions, and meet its commitments under the 2016 Paris Agreement on climate change.

Azerbaijan estimates its potential capacity of economically viable and technically available renewable energy sources at 26,940 MW, including 23,040 megawatts of solar energy, 3,000 MW of wind energy, 380 MW of bioenergy and 520 MW of small hydropower.

The country plans to realize this potential mainly by attracting private investors, through direct sale agreements and auctions. The relevant Azerbaijani institutions receive technical assistance and necessary support from the European Bank for Reconstruction and Development for the successful implementation of such auctions.

In accordance with the Presidential Decree from May 2019, a new law on renewable energy sources was initiated, as one of the priorities was reforming the energy sector. The draft law includes the application of guaranteed tariffs, active consumer support and other promotional mechanisms, and should create a more favorable environment for the activity and investments of private companies in this area. Developed in cooperation with an international consulting company and the Energy Charter Secretariat, it has already been presented to the Cabinet of Ministers for review. In addition, the country has recently developed several technical assistance projects in renewable energy sector, in cooperation with international organizations.

Azerbaijan’s efforts have already brought results. In 2020, the country signed two deals with foreign investors on the implementation of 2 large-scale renewable energy projects – with Saudi Arabia’s ACWA, for the construction of a 240-MW wind farm and with UAE’s Masdar, for a 200-MW solar plant. These will be the largest solar and wind plants in the region.

Therefore, given the commitment of the country to the development of renewables at the highest level, these 2 projects are the beginnings of a bright journey of Azerbaijan heading towards cleaner energy.