WIND MONEY

Relations between Azerbaijan and Saudi Arabia in the energy sector have been mainly based on cooperation under the OPEC+ deal to limit oil production.

Meanwhile, there has always been a mutual interest and desire to deepen this cooperation, which eventually led to agreements to build a new 240MW power plant in Azerbaijan. In 2020, Azerbaijan's Ministry of Energy and ACWA Power, a Saudi energy giant with 66 assets in 13 countries, agreed to develop, build, and operate the Khizi-Absheron wind farm. It took an entire year to get prepared for the signing of respective agreements. And on January 14, 2022 a solemn groundbreaking ceremony of a new wind farm was held at the Gulustan Palace with participation of the President of Azerbaijan. The plant will be the first major foreign investment by Saudi Arabia in both Azerbaijan's renewable energy sector and the national economy.

Single goal

Both sides place high expectations on this project. It is a public-private partnership and the power plant is the first wind power facility in Azerbaijan to be created thanks to foreign investment. It is, of course, intended to contribute to the country's goal of achieving a 30 percent share of renewable energy by 2030. Once completed, the power plant will supply 300,000 households. At the same time, it will help to save 220 million cubic metres of gas and reduce carbon dioxide emissions by 400,000 tonnes annually. In addition, Azerbaijan will increase its own energy export potential and will canalise the saved volumes of natural gas to meet the growing local demand or to export. In fact, this is the main advantage of building the RES power generation facilities working on sunlight, water, thermal water and wind. As a result, it is possible to reduce the volumes of fuel oil and natural gas for power generation, saving both fuel costs and reducing the negative environmental impact.

“This plant will contribute to Azerbaijan's energy security. It once again shows that Azerbaijan attaches great importance to the production of renewable energy,” President Ilham Aliyev said at the groundbreaking ceremony.

Speaking of close and friendly ties between the two countries, Mr. Aliyev mentioned the political support provided by Saudi Arabia to Azerbaijan during the occupation. In particular, Riyadh's principled stance on the issue of Garabagh by not establishing diplomatic relations with Yerevan because of the Armenian occupation of Azerbaijani territories.

As for the construction of the Khizi-Absheron wind farm by the world's largest energy company, Mr. Aliyev believes it can be a good example for other investors to intensify their activities in Azerbaijan, given that the development of RES is a priority for the country. There is a potential, a favourable investment climate, and huge opportunities given the plans to create green energy zones on the liberated lands.

Prince Abdulaziz bin Salman Al Saud, Saudi Minister of Energy, said that ACWA Power’s activities in Azerbaijan will strengthen cooperation between the two countries and will also support the efforts of the Azerbaijani authorities to meet national energy needs to the highest global standards.

Diversification revisited

Incidentally, the $300 million investment in this project will be ACWA Power's largest investment outside Saudi Arabia. The company is one of the largest in the world in this area, with a total installed capacity of 42,800 MW in the power sector (including 14,900 MW in RES) and an investment portfolio of $67.2bn.

ACWA Power Chairman Mohammad Abu Nayan believes the wind power project is an important step in Azerbaijan's energy diversification plans and will help meet the country's growing demand for electricity as it continues to invest in economic growth and sustainable development.

The company expects to launch the plant as early as in 3Q2023, hence providing about 3.7% of the total capacity of Azerbaijan's national energy grid.

To date, the largest operating alternative energy production facility in Azerbaijan is the 50 MW wind farm in Yashma (60 km north of Baku).

The Khizi-Absheron plant will use 40 turbines with a capacity of 6 MW each (17 in Perekishkul, Absheron and 23 in Sitalchai, Khizi). The plant will be a build-own-operate facility with the annual capacity of 1 billion kWh of electricity.

“Azerbaijan's main benefit from this project is that we were able to attract a foreign investor with the current tariff on wholesale electricity sales in the local market,” Deputy Energy Minister Elnur Soltanov said. Thus, ACWA Power will get ₼0.055, or $0.032 per kilowatt hour for the sale of its wind energy.

In addition, Mr. Soltanov noted that no funding will be provided to the project from the state budget. It is not planned to use traditional fuel to generate electricity either.

“With the electricity generated at this plant, we will be able to meet the demand of 300,000 households in the country,” Mr. Soltanov explained.

Sea energy

Apparently, the Khizi-Absheron wind farm is unlikely to be the only facility of ACWA Power in Azerbaijan. During a solemn ceremony in the Gulustan Palace, the company and Azerbaijan's Ministry of Energy also signed a Memorandum of Understanding on cooperation for the generation of offshore wind energy.

Parties agreed to jointly define the basic principles of cooperation in this area, assess the potential and create conditions for profitable investments in renewable energy projects in Azerbaijan.

Minister Al Saud later explained that the memorandum with Azerbaijan envisages the construction of a 500 MW offshore wind farm by ACWA Power. “At the initial stage, the company will study the potential of wind energy and its possible application in the production of green hydrocarbons,” the minister said.

The development of offshore wind energy is not something new. The Caspian Sea coast is the most promising location for this purpose. Potential and possibilities of this endeavour are still being studied, but the prospects are interesting, especially in terms of energy supply for SOCAR's oil and gas facilities. The key advantage of offshore wind farms is the higher utilisation rate of their installed capacity, as offshore wind strength is higher than that of onshore. Disadvantages are higher construction costs and expensive infrastructure for power transmission. But according to data from leading world companies specialising in such facilities, the construction period for 1 MW of installed capacity in offshore wind power generation has fallen by 71% between 2000 and 2017. This is mainly due to the increase in turbine capacity from 3 to 10-12 MW. Thus, companies now need to install fewer wind turbines, which reduce, for example, the amount of building materials needed for their foundations. The cost of building wind farms is expected to fall further by 2024. This means that the price of offshore electricity will continue to fall too. So this area of RES can be interesting for Azerbaijan in the future. And Azerbaijan can get support to implement such projects both from ACWA Power and the International Finance Corporation (IFC).

Thus, in early 2021, Azerbaijan’s Ministry of Energy and IFC signed a Memorandum of Cooperation on the generation of offshore wind energy. The document provides for an assessment of the potential of offshore wind energy in the country, development of a road map, organisation of tenders for the implementation of relevant offshore projects, identification of partnerships with the private sector, and implementation of ancillary investments. All these works under the MOU will be carried out in line with IFC's Offshore Wind Energy Development Programme. It is funded under the Energy Sector Management Assistance Programme (ESMAP) initiated by the World Bank. By the way, according to preliminary estimates, the technical potential of offshore wind energy in Azerbaijan is estimated at 157 GW.

Solar energy

Numerous studies on the development of alternative and renewable energy have been carried out in Azerbaijan in recent years. As a result, large wind, solar and hydro potential, biogas and thermal energy resources have been identified in the country. The use of solar energy could significantly help to solve the problems related to energy supply in certain areas of Azerbaijan. Some developed countries have widely introduced programmes on photovoltaics (a branch of science that studies the process of electric current generation under the action of light, R+), which is also relevant for Azerbaijan. In February, the Ministry of Energy plans to commission another RES facility with international co-operation.

This is a solar floating plant on Lake Boyukshor jointly constructed with the Asian Development Bank (ADB). General contractor for the project is the Spanish company Gamma Solutions. “This is a pilot project with a small capacity, only 100 kW. Construction is already in its final phase and we hope to deliver the plant in February. It will be the first floating station in Azerbaijan with a small capacity,” Azerbaijan’s Minister of Energy, Parviz Shahbazov, said.

There are also plans to build a larger plant on the Boyukshor Lake with a capacity of about 40-50 MW. In addition, the construction of large solar floating plant at the Mingachevir Reservoir is under review.

“We are also thinking about the Mingachevir Reservoir, as there is quite a lot of potential for such plants there. Initial consultations with our partners suggest that we may be working on a rather large project to build a 200 MW solar floating plant at the Mingachevir Reservoir,” the minister said.

This is by no means a complete list of RES projects in Azerbaijan. A study showed that about 10,000 MW of renewable wind and solar power could be generated in the liberated areas of Azerbaijan alone.

The commissioning of new wind farms, solar farms and other RES generation facilities will solve several problems, including diversification of the energy industry, less dependence on carbon-based energy resources, increased share of the non-oil sector in GDP, improved environmental situation and reduced greenhouse gas emissions. However, it is still more expensive to build and operate plants using renewable energy technologies than conventional thermal power plants. So it's just a matter of finding the right investors.