WORTHY ALTERNATIVE

The introduction of new industrial plants and the increase in the number of residential areas contribute to the continuous increase in energy consumption in Azerbaijan. Until now, Azerbaijn has been reliably ensuring the growing demand for electricity mainly through the reconstruction of existing and construction of new generating capacities operating exclusively on traditional types of fuel. However, priorities are changing, and now the focus is on replacing fossil fuels with alternative sources in electricity production.

Azerbaijan has significant resources of renewable energy sources (RES) including hydropower, solar energy, wind energy, biomass, which today makes this sector a promising and attractive investment direction for the development of the energy sector. According to the Ministry of Energy, Azerbaijan's potential for the use of renewable energy is determined at 26.94 thousand MW. Of these, 23,040 MW is the share of solar electricity, 3,000 – of wind, 520 MW - of hydropower and 380 MW - of bioenergy. However, in addition to hydropower, RES has not yet been widely used in the country.

Currently, the share of electricity generated from traditional sources (natural gas) is 91.9%, and renewable - only 8.1%. Taking into account the capacities of large hydroelectric power stations, the share of renewable energy sources in the production of electricity reaches 17% (1,300 MW).

By 2030, the Ministry of Energy is set to bring the installed capacity of renewable energy sources to 3,500 MW and to increase the share of alternative energy in the total volume of generated power to 30%. In addition, the production of 1 billion kW/h of electricity through renewable energy will allow Azerbaijan to save 200 million cubic meters of natural gas, which is important for the country, which aims to further increase the export of natural gas.

In comparison with developed countries, the renewable energy sector and improving energy efficiency in Azerbaijan is only at the beginning of its development. It is rather early to talk about the imminent change in the state of affairs and the structure of the energy balance. However, it is encouraging that Azerbaijan is moving in this direction, and in some aspects even very dynamically.

New contracts

Large financial injections, along with the adoption of regulatory documents that create the legislative basis for the development of renewable energy sources, are a priority task to have a positive influence on the industry as a whole and to provide a growth. In 2018-2019, the Ministry of Energy signed a number of memorandums on cooperation the renewable energy sector with nine leading world companies, including BP, TEKFEN, Avelar Solar, Total, Equinor, Masdar, ACWA Power, Mitsui & Co and Quadran International.

In addition, the Ministry prepared a number of regulatory documents, including the draft Rules for the application of the guaranteed tariff mechanism for the purchase of electricity generated from renewable sources of electricity. "The rules will regulate requirements for investors, the terms and conditions of purchase and sale agreements, determine the cost of electricity generated, the process of returning investment costs to an investor," Parviz Shahbazov, Minister of Energy, explained.

The first successful result of this work is the signing of executive agreements with ACWA Power companies from Saudi Arabia and Masdar from the UAE, which took place on January 9 in Baku. The contracts include the implementation of pilot projects to create 440 MW generating capacities in Azerbaijan. At the same time, ACWA Power committed to build a 240 MW wind farm, and Masdar — a 200 MW solar plant. It is expected that these two stations will ensure annual electricity production of 1.4 billion kW/h.

The search for new energy sources to meet the energy needs of the dynamically developing Azerbaijani economy is a strategically important task for the country's leadership. President Ilham Aliyev emphasized that contracts with ACWA Power and Masdar testify to confidence in Azerbaijan, as they provide for large investments from these companies. "This will open a new page in the development of energy projects in Azerbaijan, because renewable energy is one of the priorities in the energy sector of Azerbaijan. We hope that this year we will see the ground-breaking ceremony of solar and wind power plants. These are very important projects for us," Aliyev noted.

According to preliminary estimates of the Ministry of Energy of Azerbaijan, the cost of the above projects is more than $300 million. At the same time, the companies will guarantee the entire amount of financing for these projects.

"The signed contracts provide for investments in the renewable energy sector of Azerbaijan, which will boost the national economy and create new jobs. These projects will ensure Azerbaijan’s energy stability and contribute to the development of a green economy,” Prime Minister Ali Asadov said.

According to the operating companies, the implementation of both projects will be carried out on the principle of build-own-operate. It is also known that the solar station, which will be built by Masdar, will be located 75 km south-west of Baku and put into commercial operation by 2022. There are no details on the wind farm project yet, except that ACWA Power estimated the investment in the construction of this energy facility at $200 million.

By the way, the choice of these Middle Eastern companies was due to their quite rich experience in the field of renewable energy.

"The investments in the renewable energy project in Azerbaijan reinforce the key role that ACWA Power is committed to diversifying Saudi foreign investments to help decarbonise electricity production by supporting ambitious sustainable development plans and programs implemented by an increasing number of countries," ACWA Power CEO Paddy Padmanatan said.

Masdar’s CEO, Mohamed Jamil al-Ramahi, noted that "the signing of the agreement marks an important step forward for Azerbaijan and its ambitions to diversify the energy balance. As a world leader in the development of commercially viable renewable energy projects in more than 30 countries, Masdar is proud to support the government of Azerbaijan and its transition to clean energy."

Search for new investors

Nevertheless, the process of attracting new investors continues, since there are enough projects to implement in the renewable energy sector of Azerbaijan. The country's leadership instructed the Ministry of Energy to involve the remaining participants of the October contest in the construction of new renewable energy facilities.

"Nine largest companies are ready to invest in Azerbaijan for the production of renewable energy. Two of them were selected because they offered more favourable conditions. However, we also welcome other companies to invest in this particular sector. They should reconsider their proposals, make the conditions acceptable for our country. I instruct the Cabinet of Ministers to consider the proposals of the companies participating in the competition, to individually negotiate with them so that they implement similar projects in Azerbaijan," President Aliyev said during the January meeting of the Cabinet of Ministers.

By the way, the first auction on renewable energy will start in Azerbaijan this spring, which will be a good opportunity for all companies wishing to implement projects to develop this sphere. "The auction will cover 8 pre-selected geographical areas where we plan the construction of new power stations. Of these, 5 sites are intended for wind energy, and 3 more for solar energy," said Samir Akhundov, Chairman of Board of the State Agency for Regulation of Energy Issues.

Following the auction, it is likely that a new participant from Russia will appear in the energy market of Azerbaijan. In December 2019, the Russian Hevel Group of Companies expressed interest in participating in the auction for the construction of industrial solar power grids in Azerbaijan. This issue was raised during the 18th meeting of the Azerbaijani-Russian intergovernmental commission on economic cooperation in Baku.

In addition, the company expressed its readiness to organise export of heterostructured solar modules of its own production to potential partners in Azerbaijan and to consider proposals for joint implementation of projects in the field of solar energy.

New projects

Another significant event in the energy sphere of Azerbaijan will be the construction of a 84 MW Shurabad wind farm in 2020. Implementation of the project was entrusted to Azerenerji OJSC, which launched a 50 MW Yeni Yashma wind park in 2018. The park covering an area of ​​540 hectares is located in the villages of Yeni Yashma and Shurabad. Currently, 20 turbines are operating at full capacity at the station.

In addition, by March 2021, the Ministry of Energy, with the support of the Asian Development Bank, plans to complete the installation of a system of three photovoltaic panels with a capacity of 100 kW each on the Boyuk-Shor Lake. A project called Floating Solar Energy Development was approved by ADB on August 17, 2018. Bank experts are confident that this will contribute to the diversification of energy sources, increasing energy security and reducing harmful emissions into the atmosphere.

The construction projects for two wind farms ($1.2 billion) in the Azerbaijani sector of the Caspian Sea is currently developed by the State Agency for Alternative and Renewable Energy Sources (ARES) under the Ministry of Energy.

The Wind Island-1 project will generate electricity on the Chilov and Pirallahy islands to provide power to the Absheron Peninsula. The project involves the development of a wind farm to be connected to the national power grid to serve domestic consumers.

The construction of the Pirallahy wind farm is tentatively estimated at $800 million. The implementation period is one year, and the payback period is 15 years. "The main advantage of this project is that it will create a kind of bridge between the islands of Pirallahi and Chilov. The station will play an important role in providing electricity and the creation of new jobs. The implementation of this project will lead to the development of local infrastructure and economic welfare," the government officials said.

The Ministry of Energy predicts an increase in electricity consumption in Azerbaijan to 25-28 billion kWh by 2025. Of course, most of this energy will be generated using conventional types of fuel. However, if the work on the development of renewable energy in Azerbaijan continues, these sources may take their rightful place in the energy balance of the country. Moreover, the introduction of renewable energy technologies does not only guarantee the increase in Azerbaijan's energy security, but will also be a reasonable attempt to improve the environmental situation, which is rapidly deteriorating every year.