ALTERNATIVE CHOICE

There has been a trend in Azerbaijan in recent years to use the potential of wind, water and sun. The starting point for the development of alternative energy was a resolution signed by Azerbaijani President Ilham Aliyev a little more than two years ago to set up the State Agency for Alternative and Renewable Energy under the Ministry of Industry and Energy. The implementation of several related projects is expected this year.

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Mankind has used the energy potential of wind, water and sun since ancient times. Nevertheless, the history of the exploitation of alternative energy sources on an industrial scale is a little more than 50 years old. Several European and North American countries have set out to diversify their generating systems so that at least 20 per cent of their total electricity production comes from alternative sources by 2020. In countries such as Denmark, Holland and Spain renewable sources already exceed the 20-per-cent mark, while in Germany this figure will amount to half of all electricity produced in the country in 15 years' time. Public interest in the development of renewable energy increased after the recent accident at Japan's Fukushima-1 nuclear power plant. In particular, Germany has decided to gradually shut down its nuclear power plants and replace them not only with conventional gas, fuel oil and coal-fired thermal power plants, but most of all with generating facilities that use renewable energy sources.

Azerbaijan's first state program on the development of alternative energy was approved more than six years ago. The main focus then was on studying the natural potential and the choice of the best locations for the construction of alternative energy sites. Over the past years only a handful of wind turbines were built and solar panels installed in the country as part of research and pilot projects. As an example we could point to a project by the Environmental Department of the State Oil Company. At the department's initiative, four wind turbines and several solar panels produced by China's MaxWind with a total capacity of 60 kilowatt-hours began at the H. Z. Tagiyev oil and gas production unit's environmental park.

Two and a half years ago the country launched a campaign to construct small hydropower facilities. International donors and private investors are involved in the projects - the government is ready to provide them with tax and other benefits. In building small hydropower facilities, specialists of the Azerenerji JSC and the Ministry of Industry and Energy rely primarily on the small mountain rivers of the Greater Caucasus. Small turbo-generators with a capacity between 0.5 and 5 megawatts will be installed there - they do not need dams and complex hydro facilities. These will largely be derivational stations that do not require the construction of reservoirs and significant investment. According to the calculations of the Azerbaijani Scientific Research and Design Institute of Energy, the construction of 36 small but highly effective hydro power stations is envisaged at the first stage. Their capacity is expected to be 113.29 MW. "Small-scale hydro energy is developing in the country relatively successfully - small hydro power stations are built on mountain rivers and a map of all water sources has been approved. Last year, I personally took part in laying the foundations of three small hydroelectric power stations," President Ilham Aliyev said in remarks at an expanded Cabinet meeting early this year. At the same time, the head of state stressed the need to quickly accelerate the construction of solar and wind energy plants on an industrial scale, thereby using the potential of renewable energy more fully.

"To achieve this goal, the State Agency for Alternative and Renewable Energy under the Ministry of Industry and Energy is developing a new long-term strategy and preparing a set of measures to develop the sector. The country will have special sites for the construction of alternative energy facilities, and this system will work in parallel with the country's power grid," the deputy director of the State Agency for Alternative and Renewable Energy, Camil Malikov, said.

Details of these projects were elaborated during two international forums held in Baku in early September - the final report on a "Study of the potential of wind power in the Azerbaijani sector of the Caspian Sea", developed within an INOGATE Commission program, and a workshop on the "Legal framework for the 'green economy' in Black Sea Economic Cooperation Organization member-countries: regional analysis and dialogue on systems and prospects".

Millions and millions of LED light bulbs

A number of ambitious projects on the construction of wind and solar energy installations will be implemented and a plant manufacturing solar panels commissioned in Azerbaijan this year and in years to come. The solar panel plant is located in Sumqayit, where the project initiator, private company Azguntex, is completing the installation of German equipment and plans to build the first solar panels by the end of this year. The production capacity of the enterprise will exceed 100,000 photovoltaic modules with a total capacity of 25 MW per year. According to preliminary information, the prices of these panels will be comparable with the products of Chinese manufacturers, which opens up broad prospects for export. The plant will also be producing 1 million energy-efficient LED light bulbs every year.

It is worth noting that just over a year ago another company, STP Solar, also based at the Sumqayit industrial park, started producing two types of solar collectors, SPL and SPS, which use solar energy to heat water. These collectors have been designed by Azerbaijani engineers, and only some components are purchased in Germany. In the near future STP Solar plans to build another enterprise manufacturing photovoltaic cells that would convert sunlight into electricity. The demand for the panels is, apparently, beyond doubt - a solar power plant is already under construction on Abseron.

According to research by the State Agency for Alternative and Renewable Energy, the best option is the construction of so-called hybrid plants in Azerbaijan. Through the simultaneous use of solar, wind, hydro or biomass energy, these plants can generate electricity and heat uninterruptedly and regardless of weather conditions. The agency intends to commission the first hybrid plant in Azerbaijan and indeed in the South Caucasus in September this year. It will run in parallel with the Azerenerji power grid. Located in Qobustan, the station will become a platform for various tests and studies and will help in the training of professional personnel for the continued operation of such facilities. "The capacity of the first hybrid power plant will be 5.5 MW and its generators and other systems will be using solar, wind and biogas energy," the head of the department for investment and the reconstruction of industrial facilities at the Ministry of Industry and Energy, Ramiz Rzayev, says.

According to Rzayev, a series of pilot projects was launched this year and last. A company called Caspian Technology has installed two wind farms each with a capacity of 850 kilowatts at the Surabad site in Xizi District's Yasma settlement. Also installed here is a wind farm with a capacity of 550 kilowatts, which is designed for the professional training of state agency personnel. This is just the first part of the project. The launch date of the whole park will depend on the delivery of equipment from Germany and Denmark and is tentatively scheduled for late 2011 or early 2012. The total capacity of the park, which will consist of 16 Vestas wind turbines, will reach 48 MW. After commissioning it will produce 200 million kilowatt-hours of electricity annually, which, in turn, will save 57 million cubic metres of gas.

In order to further expand sites with wind generators, the Ministry of Industry and Energy has embarked on the development of a wind register. "Measurement stations are being set up at 21 sites in the country to explore the potential of wind: to do that, the speed, direction and duration of the wind at a height of 80 meters must be determined. The State Agency is developing a database, which will reflect electronic maps, inventories, etc. Eventually, the best installation locations will be selected," the deputy director of the State Agency for Alternative and Renewable Energy, Camil Malikov, said.

New strategy 

In general, according to the ministry's assessments, all forms of renewable energy will account for up to 10 per cent of the country's total generating capacity over the next decade, which is approximately 600-700 MW of additional power. To achieve this goal, the Ministry of Industry and Energy and the State Agency for Alternative and Renewable Energy are developing a new strategy, which involves the development of short-, medium- and long-term action plans until 2015, 2020 and 2030.

The new strategy will be based on state regulation of the alternative energy sector, improving the legal framework and funding aspects.

A complete legal framework is also expected to appear in the near future, as are various preferential terms in the alternative energy sector. An important milestone in the legislative process and determination of the rules of the game has been the development of a procedure for issuing special permits (licences) to operate in this market segment. The procedure was approved by the Cabinet last summer. The rules apply to businesses and individuals regardless of their ownership and legal form. The ministry issues the licences on a competitive basis to persons who are ready to design, build and operate small hydro power facilities in geothermal waters and facilities designed to obtain energy from wind, solar and biomass.

The State Agency has completed the development of internal procedures for obtaining such permits. They will soon be issued within 30 or 45 days from the date of receipt of the application - the time the State Agency under the Ministry of Industry and Energy needs to monitor and assess the project. In parallel, the agency will maintain a register of permits that have been issued, registered, renewed or revoked. The only exception is the commercial sale of the energy derived from wind, sun or biomass if the capacity of the generating source does not exceed 10 kW.

The agency is also developing rules governing relations between producers of alternative energy and Azerenerji's existing generation and transmission system. This is a rather complex issue because the determination of tariffs for renewable energy is fraught with difficulties - it is necessary to take into account a variety of economic indicators, in particular, the seasonal factor, the availability of raw materials (biogas), the quality of the land used, as well as other parameters important to pricing.

For example, it should be noted that the cost of electricity in most alternative energy areas is higher than in conventional thermal and hydro power plants. In order to equalize opportunities for small producers of alternative energy, countries such as Spain and Germany have used a system of subsidies to compensate for the difference in the cost of electricity. In the last decade, due to government subsidies, these countries have rapidly developed solar power, while major investors have invested hundreds of millions of euros in solar stations. The Spanish government has signed long-term contracts with private energy producers whereby the latter were to be compensated for their costs by stimulating tariffs - around 0.4 euro per kilowatt-hour. The production of solar energy is increasing every year, and Spain is suffering huge losses. And the contracts signed for 20-25 years are not even half-way through yet. Under the circumstances, the governments of several European countries are forced to impose strict quotas and even reduce the volume of annual solar energy generation. With regard to Azerbaijan the issue of preferential pricing is still under consideration: proposals on tariffs for renewable energy are being prepared by the Ministry of Economic Development and will then be submitted to the Tariff Board. Meanwhile, the rates involving the purchase of electricity from wind power generators at a wholesale price of 0.045 manats, which the country adopted four years ago, are still in force. The tariff for hydro power plants is 0.025 manats.

Another stimulating measure will be the issuing of preferential credits for the purchase of energy equipment: international financial institutions are ready to allocate the necessary funds - the European Bank for Reconstruction and Development, the Asian Development Bank, the Development Fund of Abu Dhabi. Meanwhile, it will be possible in early 2013 to take a loan of 5,000 manats for the purchase of a biogas plant and 10,000 manats for solar panels. The annual interest rate on such loans is less than 5 per cent. In the more distant future, foreign investment and technology will be attracted to set up plants producing biogas and biodiesel in the country.

Finally, the issue of fiscal and customs incentives for companies importing and operating alternative energy equipment still needs clarification. In particular, importers of wind turbines are exempt from import duties and VAT, and such benefits will soon apply to other types of equipment for this sector. The State Agency believes that in order to facilitate the development of other forms of renewable energy, tax benefits and incentives should be retained for at least 10 years.