Azerbaijan Strengthening Its Position in Europe’s Green Energy Market
Publication: Eurasia Daily Monitor Volume: 20 Issue: 47
On February 13, the groundbreaking ceremony was held in Baku for the largest thermal power station (TSP) yet to be built in Azerbaijan with a planned capacity of 1,280 megawatts (MW) (Apa.az, February 13). The project’s total value is estimated at around $400 million, which is two to three times cheaper in comparison to other similar projects. Its cost-effectiveness is related to the fact that the power station will be built in Mingachevir, the energy center of Azerbaijan, where relevant infrastructure, including transmission and gas lines, is already available. Considering current market prices, the project is expected to begin seeing returns on its investment only six years after 2025, when the power station is planned to become fully operational (Azertag, February 13).
For construction, environmentally friendly and advanced technology will be used, and, as a result, it is estimated that the amount of carbon dioxide emitted in the process will decrease by 2 million tons (Apa.az, February 13). Also, this technology will save an additional 800 million to 1 billion cubic meters of gas throughout the year, as compared with traditional TSPs of the same size. The mentioned features and electricity generation potential of the new Azerbaijani TSP will enable it to make key contributions to the implementation of Baku’s green energy program and the export of its green energy products—which is another key consideration in Azerbaijan’s development into a regional energy hub.
Along with meeting domestic demand, Azerbaijan’s main goal in developing its green energy sector and expanding electricity production is to become a key exporter to Europe. As such, a number of important steps have already been taken to achieve this goal. On December 17, 2022, the leaders of Azerbaijan, Georgia, Romania and Hungary signed an agreement on the construction of an electric cable running under the Black Sea for carrying green energy from Azerbaijan to Europe (Apa.az, December 17, 2022; see EDM, January 5). Measuring almost 1,100 kilometers in length and with 1,000 MW of capacity, the cable will run from Azerbaijan to Romania. The European Commission will spend about $2.4 billion on the construction of the cable, which will be the longest of its type in the world. The feasibility study for the project is planned to be completed by the end of 2023, and the project will then take about three and a half years to complete (The Caspian Post, December 19, 2022). As such, this project is part of wider efforts by the European Union to diversify its energy markets away from Russia.
Furthermore, domestically, Azerbaijan has started to accelerate the development of its green energy sector in recent years. In the document “Azerbaijan 2030: National Priorities for Socio-Economic Development,” the expansion of green energy potential, especially production of electricity, was determined as a top priority (Ikisahil.az, February 23). In 2021, Azerbaijan also adopted a law on “the use of renewable energy sources in the production of electricity.”
Along with forming the legal basis for green energy development, Azerbaijan has also started implementing various related projects with foreign companies. In January 2022, the groundbreaking ceremony was held for the Khizi-Absheron wind power plant in Khizi district. The plant is being built by Saudi Arabia’s ACWA Power, which will invest about $300 million in the project (Apa.az, January 13). After that, in March, another groundbreaking ceremony was held for the construction of a 230 MW solar power plant in the settlement of Garadagh by the Emirati company Masdar (Caspian News, March 17, 2022). By implementing these projects, Azerbaijan aims to increase the share of green energy in its total energy production from 17.3 percent to 24 percent by 2025 and to 30 percent by 2030 (Report.az, December 31, 2021).
In general, the volume of on-land wind and solar energy resources in Azerbaijan totals more than 27 gigawatts (GW). In the Azerbaijani section of the Caspian Sea, the potential for wind energy reaches 157 GW. Baku plans to produce 3 GW of wind and 1 GW of solar energy by 2027, 80 percent of which will be exported to neighboring countries, such as Georgia and Iran, and onward to Europe (Marja, December 17).
Furthermore, Azerbaijan’s Karabakh region has a great potential for expanding green energy production. The region has a solar energy potential of 3,000–4,000 MW and a wind energy potential of 300–500 MW (Daily Sabah, March 30, 2021). Additionally, the region is rich in water resources (25 percent of local water resources), which enables the construction of hydropower stations (HPS). And since the end of the Second Karabakh War, more than 9 HPS have already begun operations in the region (Renewables.az, May 17).
With its wind, solar and hydropower potential, Azerbaijan has the opportunity to generate large amounts of electricity for export throughout the region and to Europe. Baku has already increased its electricity exports in recent years and has turned from an electricity importing country into an electricity exporting one. Indeed, in the past ten years, the level of exported electricity by Azerbaijan has increased by about 4.5 times (Fed.az, February 25; Banco.az, August 2). Therefore, once the aforementioned stations become operational and the electric cable running under the Black Sea is ready, Azerbaijan will be able to export ever-larger amounts electricity and become a primary green energy provider for Europe. The export of green energy, along with oil and gas, will diversify Azerbaijan’s exports and strengthen its position as a critical node for European energy security. It well also underscore Azerbaijan’s growing potential as a regional energy leader.