Azerbaijan has yet to tap into its significant renewable energy and energy efficiency potential, but in 2021 the Parliament approved several laws to this end. Higher ambitions and greater efforts to produce renewable energy and improve energy efficiency will also help the country conserve natural gas and oil for exports while meeting GHG commitments.

Azerbaijan joined the UNFCCC as a non-Annex I country in 1995 and ratified the Paris Agreement in 2016. The government has outlined climate change mitigation actions in a number of sectors, including energy, and the Ministry of Ecology and Natural Resources is preparing both a national strategy for climate change and a national low-carbon strategy.

Because securing energy independence in the long term is central to Azerbaijan’s energy policy, it has recognised the value of diversifying its economy, increasing energy efficiency and supporting GHG emission mitigation programmes. It therefore supports the development of renewable energy sources with the objectives of:

  • Recognising the potential of alternative and renewable energy sources in electricity generation.
  • Exploring alternative and renewable energy sources for the sake of energy efficiency.
  • Providing jobs in research and innovation to develop new energy generation technologies.
  • Diversifying and improving the energy capacity of the country to ensure energy security.
Renewable energy

Azerbaijan has significant untapped renewable energy potential, as it is a relatively sunny and windy country, and it also has sizeable hydro, biomass and geothermal resources. Although its energy policy focused until recently on developing the country’s significant oil and gas resources, it has been transitioning in the past few years: in early 2020, major contracts to build wind and solar power capacity were signed, and in May 2021 the Parliament approved a Law on the Use of Renewable Energy Resources in Electricity Production.

This new law will allow Azerbaijan to exploit its renewable energy potential by establishing a legal basis for project development and by introducing competitive bidding processes and support mechanisms for active consumers (i.e. prosumers). It also covers the development of other legislative documents, including a draft PPA and a connection agreement. In addition, rules on auctions and on applying net-metering and net-billing schemes have been drafted, and draft laws on electricity and gas supplies are currently under review.

As Azerbaijan is relatively sunny, it has excellent solar power potential. According to the Ministry of Energy, technical potential is around 23 000 MW. The country’s 2 400 to 3 200 sunshine hours annually compare well internationally, as does its solar intensity, estimated at 1 500 to 2 000 kWh/m2. The best resources are in the central river valleys and the north and northwest.

Azerbaijan is relatively windy, especially along the Caspian Sea coast. According to the Ministry of Energy, the country has roughly 3 000 MW of technical and 800 MW of economic wind power potential. This economic potential could generate around 2.4 TWh and conserve approximately 1 Mt of conventional fuel, avoiding the corresponding CO2 emissions.

The Azerbaijan Scientific-Research and Design Institute of Power Engineering, in co‑operation with the Japanese company Tomen, determined that Absheron’s average annual windspeed is 7.9 to 8.1 metres per second (m/sec). The country’s overall average windspeed of 6 m/sec further confirms its economic and technical potential for wind power.

Although hydropower is Azerbaijan’s largest source of renewable energy today, its potential has not been fully exploited. According to the Ministry of Energy, the country’s technical potential for small hydro is 520 MW, which could generate up to 3.2 TWh annually.

Azerbaijan’s Renewable Energy Agency under the Ministry of Energy (formerly SAARES) states that the country has up to 800 MW of geothermal energy potential. Initial studies indicate that the 11 geothermal zones available in Azerbaijan hold water of 30 to 100°C that can generate either electrical or heat energy, depending on the type of thermal water. According to the Azerbaijan National Academy of Sciences, water in the Guba region is 36 to 85°C, and up to 95°C in the Kura-Aras lowland.

Rapid growth in industry, agriculture and social services in Azerbaijan is creating new opportunities for electricity generation from biomass derived from combustible industrial waste, forestry and food processing waste, agricultural waste, and other biological substances. The Ministry of Energy estimates technical potential of 380 MW.

More than 2 Mt of solid domestic and production wastes are disposed of annually at Azerbaijan’s waste treatment sites. Processing solid domestic and production wastes could help resolve challenges in heating public buildings in Baku and other large industrial cities.

Energy efficiency

Following adoption by Azerbaijan’s parliament in June 2021, the Law on Efficient Use of Energy Resources and Energy Efficiency entered into force. This law establishes rules for energy audits; energy management; energy services; production, transmission, distribution and storage efficiency; awareness raising; and other activities. It also provides for development of the country’s first NEEAP.

The argument for rapid action on energy efficiency is strong, building on newly adopted legislation and bearing in mind Azerbaijan’s Paris Agreement pledge to reduce GHG emissions 35% from 1990 to 2030. IEA member country experience shows that minimum energy performance standards are among the most effective and economical energy efficiency policy instruments.

The government should therefore introduce stringent standards across all sectors: buildings, vehicles, appliances and equipment, and should implement an effective mechanism for energy efficiency audits. To these ends, Azerbaijan needs to attract more private sector investments to modernise equipment, adopt energy-efficient technologies and set up a market-oriented management system.

Pricing energy at an appropriate level is critical to attract investment and to encourage citizens to use energy efficiently. However, current oil, gas and electricity prices for end users in Azerbaijan are among the lowest in the region, falling below the full cost of supply. Furthermore, Azerbaijan’s energy price subsidies in 2018 were three times higher than in 2010 according to IEA estimates, amounting to USD 2.6 billion, or 5.8% of GDP. Under such strongly subsidised tariffs, residential and industrial consumers have no incentive to use energy more efficiently. Saved energy could be exported to increase the country’s revenues, or it could simply be used more efficiently elsewhere for the benefit of the national economy.

Environmental protection

The main objectives of Azerbaijan’s environmental policy are to protect existing ecological systems while realising the country’s economic potential, and to efficiently use natural resources to meet the energy needs of present and future generations. Ensuring sustainable development from an environmental viewpoint means avoiding or minimising any serious environmental impacts resulting from economic activities.

Azerbaijan’s environmental policy’s three main objectives are to:

  • Take environmental security as a basic requirement, applying best available practices to sustainable development principles to minimise human impacts on the environment and to regulate its protection.
  • Use natural resources efficiently by employing alternative, nonconventional methods to generate energy from renewable energy sources and achieve energy efficiency to meet the needs of present and future generations.
  • Assess national requirements in consideration of global environmental issues, finding solutions and ensuring their implementation by expanding relations with international organisations.

Environmental protection in Azerbaijan is governed by the Law on Environment Protection (1999), which establishes the main environmental protection principles and the rights and obligations of the state, public associations and citizens. It establishes requirements for environmental impact assessments; for environmental quality standards and permits concerning activities that affect the environment; for prevention and reduction of environmental pollution; and for environmental monitoring and control. It also addresses the role of the public and sanctions imposed on violators.

Transport is by far the largest source of air pollution in Azerbaijan, accounting for 85% of the total volume of air pollutants. Raising fuel quality is crucial to limit air pollution from transport, the sector responsible for more than three-fifths of the country’s total oil consumption in 2018. Azerbaijan follows European Union vehicle emission standards, and since April 2014 it has been applying the Euro 4 standard that imposes limits for several pollutants, including NOx and particulate matter. Plus, ongoing modernisation of the Heydar Aliyev Oil Refinery, which supplies almost all the country’s transport fuel, will enable it to produce high-quality diesel and gasoline that meets the Euro 5 standard.

In contrast to transport, air pollution from stationary sources has decreased over the past 15 years, thanks to a switch from oil-fired to gas-fired power generation and to modern technologies in oil and gas production. Emissions can be reduced further by increasing efficiency, saving energy and using alternative energy sources.

Climate change

Azerbaijan approved the UNFCCC in 1995 and the Kyoto Protocol in 2000. In 2016, it signed the Paris Agreement and ratified it in 2017. Its NDC is to reduce GHG emissions 35% from 1990 to 2030. The latest official GHG emissions figures are from 2017, when emissions were 38% below 1990 levels and the energy sector accounted for 75% of total emissions. According to the most recent IEA data, in 2017 Azerbaijan’s CO2 emissions from fuel combustion amounted to 30.9 Mt (+6.6% since 2005; ‑42.1% since 1990). Attaining the 2030 NDC target will be complicated, however, if the country does not tackle climbing transport fuel demand (which is unrestrained by prices or taxes) and the rise in natural gas consumption (which is subsidised in all sectors).

Although the country does not currently have legally binding climate targets or measures, it has outlined climate change mitigation actions for its energy, oil and gas, residential and commercial, transport, agriculture, and waste sectors. These actions primarily entail technological improvements to reduce the negative environmental impacts of various sectors of the economy, together with some regulatory changes and public awareness measures.

The Ministry of Ecology and Natural Resources is also preparing a National Strategy for Low-Carbon Development and a Climate Change Adaptation Plan. Working groups have been established, made up of representatives of all the relevant ministries and state agencies.

Energy research, development and deployment

The National Academy of Sciences of Azerbaijan co‑ordinates academic research, while the Ministry of Energy, the Ministry of Digital Development and Transport, the Azerbaijan State Oil and Industrial University and SOCAR carry out research and development (R&D) activities through their own or subordinated institutes. Private businesses and international financial institutions/donors also contribute to R&D.

Nevertheless, Azerbaijan’s research, development and deployment (RD&D) system and governance remain incohesive. Although the president issued an Order on Ensuring Co‑ordination in the Field of Innovative Development in the Republic of Azerbaijan in January 2019, the policy and funding appear fragmentary and only partially co‑ordinated and would benefit from streamlining.

Total spending on all R&D remains at 0.2% of GDP, around half the level of the lowest-spending OECD member country. RD&D is funded from the state budget, the State Science Fund and SOCAR, as well as by the private sector. Only a small portion of state funding is allocated to energy-related RD&D.

Although Azerbaijan’s economy as well as its energy research and technology base are dominated by the oil and gas industry, diversifying to energy efficiency and renewable energy solutions in RD&D would merit the effort. RD&D and innovation in the field of energy efficiency and renewable energy would benefit from framework legislation to create inviting conditions and provide incentives for small and medium-sized enterprises.

Several research and educational institutions carry out energy technology R&D in the country. They have participated in national and international programmes and projects to enable Azerbaijani scientists and researchers to contribute to the body of knowledge while acquiring new skills and information themselves.

Meanwhile, a presidential decree of 8 November 2016 created the ANAS High Technologies Park (HTP). The HTP aims to establish application mechanisms for industry-driven projects, provide technological innovation for mass production, and facilitate practical work in the field of science and technology. Petrochemicals is one of the HTP’s focus areas.

Baku Engineering University also started a technology park in 2013 to support student innovation. The park organises competitions and provides funding to help students develop innovative ideas, and BP sponsors high-spec labs to support this work. The university is launching a programme to prepare specialists in long-term energy planning.

SOCAR, the country’s largest company, conducts research, development and innovation activities in its Oil and Gas Research and Design Institute. Together with the National Academy of Science, it provides AZN 5 million per year for research, and it also offers stipends for scientists. The Institute’s work covers a wide range of petroleum industry activities: geological and geophysical surveys of prospects and oil and gas fields; exploration, and the preparation of prospects for development; oil and gas field development; well drilling, completion and operation; petrochemical and petroleum processing engineering; petroleum industry economic and management studies; short-term reservoir engineering strategies; environmental protection; and petroleum product processing, storage and transportation.

In January 2019 the president issued an Order on Ensuring Co‑ordination in the Field of Innovative Development in Azerbaijan with the aim of strengthening the links between public sector R&D institutions and the private sector.