Azerbaijan

Renewable Energy Development in Azerbaijan

by CASPRI

As Azerbaijan prepares to host COP29, the country’s proactive strides in renewable energy development are part of its broader strategic positioning in the global energy market. This analysis explores the motivations, economic implications, technological challenges, and international partnerships driving Azerbaijan’s renewable energy sector.

The planned investment of $2.8 billion in solar and wind energy by 2027 underscores Azerbaijan’s shift towards diversifying its energy mix, traditionally dominated by oil and gas. A capacity increase of approximately 2 GW represents a substantial step toward energy independence and sustainability. This transition can reduce Azerbaijan’s reliance on fossil fuels, thereby addressing both environmental goals and enhancing its energy security. The reduction of 2.5 million tons in greenhouse emissions aligns with COP29’s environmental objectives, enhancing Azerbaijan’s reputation as a responsible energy producer.

Attracting both foreign and domestic investments reflects Azerbaijan’s commitment to creating a business-friendly environment that leverages international expertise and funding. This influx of investment could catalyze economic growth, stimulate job creation in the renewable energy sector, and foster innovation in green technologies. However, Azerbaijan must maintain regulatory stability and offer attractive incentives to sustain investor confidence.

A significant part of Azerbaijan’s renewable energy strategy involves modernizing its national grid to handle variable power generation from renewables. The involvement of global companies like Tetra Tech, EPRA, and CESI in assessing grid readiness is crucial. Yet, ensuring grid stability while integrating intermittent sources like wind and solar is technically challenging, especially in regions where infrastructure is outdated. The $250 million World Bank loan for the AZURE project, aimed at strengthening grid connectivity, is a strategic move, though Azerbaijan will need robust grid management practices to handle high renewable penetration.

The planned 300 MW energy storage installation by 2030 could help mitigate intermittency issues, but scaling such capacity will require further capital and technological advancements. If successful, these storage systems would optimize renewable energy use and enable better load balancing across the grid, thus increasing the resilience of Azerbaijan’s energy infrastructure.

Azerbaijan’s strategic agreements with Kazakhstan and Uzbekistan signify a shift towards regional cooperation in green energy, fostering energy exports beyond traditional fossil fuels. The Caspian-Black Sea-Europe energy corridor proposal, supported by the trilateral agreement, could facilitate energy transit to Europe, positioning Azerbaijan as a key player in the European renewable energy supply chain.

Collaborations with Chinese companies like China Energy Overseas Investment Co. Ltd and Huawei signal Azerbaijan’s ambition to become a regional hub for green technology. By inviting China Energy to co-develop a renewable energy R&D center, Azerbaijan is not only gaining technological expertise but is also creating a foundation for knowledge transfer that could accelerate domestic capabilities in wind and solar technologies. The partnership with Huawei for a renewable-powered data center highlights the dual focus on digital and green transformation, essential for Azerbaijan’s long-term economic diversification.

The national hydrogen strategy is a pivotal part of Azerbaijan’s COP29 commitments. The development of green hydrogen infrastructure could position Azerbaijan as a future exporter of hydrogen fuel, potentially opening new markets and partnerships in Europe and Asia. Given that hydrogen technology is still maturing, Azerbaijan faces both the challenge and the opportunity to become an early adopter, leveraging its natural resources and geographical position.

Azerbaijan’s strategic location enables it to serve as a bridge for renewable energy exports between Asia and Europe. The development of the Caspian-Black Sea-Europe corridor and potential subsea cables highlights Azerbaijan’s foresight in renewable energy transit, positioning itself as an energy corridor linking multiple regions. However, Azerbaijan must navigate the technical and geopolitical challenges of building and maintaining these cross-border infrastructure projects.

As of October 2024, Azerbaijan’s energy system comprises a diverse mix of thermal, hydroelectric, and renewable plants. Despite recent gains, renewables account for only 21.3% of total capacity. Achieving the target of 34.7% green energy by 2030 will require not only the completion of planned projects but also significant policy support, technological advancements, and continuous investment. Scaling up renewable infrastructure could challenge grid reliability, especially with large, new renewable inputs expected by 2027.

Azerbaijan’s renewable energy development is a strategic endeavor aimed at transforming its energy landscape and boosting regional influence in green energy. The success of these initiatives hinges on overcoming infrastructure challenges, securing sustained investment, and building strategic partnerships. Azerbaijan’s proactive approach—integrating renewables, preparing for hydrogen production, and aligning with international partners—positions it as a pivotal player in the regional transition to sustainable energy. The outcome of these efforts will be critical for COP29, as Azerbaijan seeks to showcase its commitment to a low-carbon, diversified energy future.