SOLAR ALLIANCE

The energy partnership stands as a crucial aspect of Azerbaijani-Emirati collaboration. A new suite of documents aimed primarily at bolstering relations between Azerbaijan and the United Arab Emirates in the realm of clean energy was signed on January 9 in Baku during the official visit of UAE President Sheikh Mohammed bin Zayed Al Nahyan.

It has become a cherished tradition for Azerbaijan to sign significant contracts in the renewable energy sources (RES) sector with Middle Eastern companies, particularly those from the UAE, at the outset of each new year. For instance, in January 2020, Baku inked its first contract with Masdar (UAE) for the construction of a solar power plant (SPP). A year later, on January 16, 2023, during Azerbaijani President Ilham Aliyev's official visit to the UAE, agreements were signed to develop offshore wind energy, implement hydrogen projects, and establish solar photovoltaics and land-based wind farms.

This time around, the parties agreed to investigate investment opportunities related to solar panels, the production of clean aviation fuel, and "green" hydrogen and ammonia. The collaboration holds promise, given the UAE's extensive experience and the mutual interest of both nations in clean energy and energy efficiency.

Transitioning from Trade to Energy

Azerbaijan and the UAE have long-established economic ties, which until recently were primarily developed in the non-oil sector. The UAE is Azerbaijan's largest trade partner among the member countries of the Cooperation Council for the Arab States of the Persian Gulf. It supplies mechanical devices, food and chemical industry products, polyesters, gold, jewellery, among others. In return, Azerbaijan exports metal products, engineering products, and turboprop engines to the UAE.

The energy partnership between the two nations commenced with the OPEC+ deal to cut oil production, which both countries entered to regulate global oil prices in late 2016. Then, on October 17, 2018, Azerbaijan's Energy Ministry and Masdar agreed to cooperate on alternative and renewable energy sources, signing a framework document on the extensive use of RES.

On January 9, 2020, Masdar signed an executive contract for the construction of the Garadagh solar power plant in Azerbaijan, which was commissioned in October of the same year.

Fast forward to January 9, 2024, a series of strategic cooperation documents were signed in Baku following talks between Sheikh Mohammed bin Zayed Al Nahyan and President Ilham Aliyev. Four of these documents pertain directly to the energy sector.

Simultaneously, the Ministries of Energy of Azerbaijan and Investment of the UAE agreed to outline the framework of investment cooperation in the energy sector, particularly on projects of electricity transmission, network development, and the exchange of technical knowledge and experience.

The strategic cooperation agreement signed by the parties provides for the exploration of opportunities for the construction of onshore and offshore wind power plants (WPP), SES, as well as solar rooftop projects, production of "green" hydrogen and ammonia, synthetic methane, etc.

Additionally, a Calendar of Measures - a roadmap for the construction of onshore solar and wind power plants in Azerbaijan with a capacity of 1 GW was defined. The document outlines the activities to be carried out until 2027 for the construction of one WPP and two SES in Azerbaijan.

SOCAR and Abu Dhabi National Oil Company (ADNOC) also signed a strategic cooperation agreement. The agreement aims to develop relations between the two companies in various areas, ranging from oil and gas to green energy.

Baku is confident that the agreements reached will lay a solid foundation for future partnership with the UAE.

Based on the signed contracts and memoranda of understanding, we plan to produce 10 GW of green energy in Azerbaijan, funded by your country's investments," President Aliyev addressed Sheikh Mohammed bin Zayed Al Nahyan.

The Azerbaijani leader referred to his visit to Baku as a historic event, highlighting that it was "the first official visit of the President of the United Arab Emirates to Azerbaijan".

"I am confident that this visit will significantly contribute to the development of amicable, fraternal relations between our two countries. Our cooperation is diverse and covers many areas. In the recent past, we have made substantial efforts in the energy sector, particularly in the field of green energy. Last October, a 230MW solar power plant was inaugurated in Azerbaijan, made possible by your country's investments. This is just the beginning," Aliyev stated.

In his response, the UAE President expressed Abu Dhabi's readiness to foster cooperation with Baku and share experiences across all sectors, especially in hosting COP29.

"Relations between our two countries are on a positive trajectory, and we are witnessing continuous development and success in various fields. We, in the United Arab Emirates, are also ready to enhance cooperation between our two countries in various fields for the benefit and prosperity of both countries and peoples... (...) We, in turn, will mobilise efforts to further strengthen relations and build new bridges between our countries," he emphasised.

Green Ambitions

The UAE is a frontrunner in the field of renewable energy and energy efficiency. The country is actively advancing sustainable development programmes, implementing green projects, introducing new technologies, and investing in renewable energy.

The UAE has adopted the UAE Net Zero strategic initiative with the aim of becoming a carbon-neutral country by 2050 and is closely monitoring the use of environmentally harmful energy sources, which remain crucial for the global energy industry. In addition, the Emirates is actively investing in the development of not only its own "green" energy but also in RES projects abroad. To date, the country has already allocated more than $50b to clean energy projects in 70 countries and has pledged to invest the same amount over the next decade.

Azerbaijan plans to implement green energy projects with a total capacity of over 8 GW onshore and offshore by 2030, funded by foreign investments, both for domestic needs and for decarbonising the economy and exporting electricity. The country's authorities intend to increase the share of renewable energy sources in Azerbaijan's installed power generation capacity to 33 per cent by 2030. So cooperation is beneficial for both sides, especially given the UAE's high interest in the Caspian region and its hydrocarbon and renewable resources.

By the way, Azerbaijani Energy Minister Parviz Shahbazov noted in his microblog on X that the agreements signed with the UAE "will be a manifestation of our solidarity in the name of an environmentally friendly world and will contribute to further strengthening of partnership in the field of "green" energy. Revealing the details of future cooperation, the minister added that the country plans to start construction of two solar power plants with a total capacity of 760MW by the end of this year in collaboration with Masdar, and one 240MW wind farm next year. Investment agreements were signed with Masdar on October 26, 2023 to carry out these works.

According to foreign experts, the total investment in these three projects is estimated at $1b. The capacity of the power plant in Neftchala district will be 315MW and in Bilasuvar district 445MW.

As previously mentioned, Azerbaijan has already seen successful outcomes from its joint ventures with Masdar. In October 2023, the Garadagh Solar Power Plant, the largest solar power plant in the CIS and the Caspian region, was commissioned in the country. With a capacity of 230 MW and a cost of $262 million, this project is a significant achievement.

Caspian Asset

Another key area of cooperation between the two countries is hydrogen energy. The UAE is leading the Middle East in the race to develop "blue" and "green" hydrogen production capacity, accounting for 29 per cent of export-oriented hydrogen projects. SOCAR and ADNOC have agreed to develop a partnership in this direction. The agreement, signed in December 2023, provides for further expansion of joint activities in the field of environmental protection, cooperation in blue hydrogen, geothermal energy, and carbon management.

Both companies share common goals for achieving carbon neutrality: ADNOC aims to achieve it by 2045, while SOCAR intends to cease flaring in the normal production process by 2030, and achieve "zero methane emissions" (Net Zero) by 2050. Therefore, ADNOC's experience can positively contribute to achieving Azerbaijan's "green" goals in the fuel and energy complex.

Alongside the development of RES, the Emirati state-owned company continues to invest in oil and gas projects. According to Global Witness, ADNOC plans to spend $100b on oil and gas production by 2030, averaging $1.14b monthly.

Interestingly, the company made its first investments in the upstream sector abroad in Azerbaijan, which confirms its interest in this region. The deal was made in August of last year through the purchase from SOCAR and France's TotalEnergies of a 15% stake each in the Absheron gas condensate field development project. Once the deal is finalised, SOCAR and TotalEnergies will each hold a 35% stake in the Absheron project.

SOCAR believes that this agreement will further strengthen strategic relations between Azerbaijan and the UAE and will significantly contribute to official Baku's position as a reliable supplier of natural gas.

"ADNOC's first investment in an upstream project outside the UAE, specifically in Azerbaijan, is another testament to the favourable investment climate created for foreign investors in our country," the State Oil Company of Azerbaijan emphasised.

Commenting on the deal, ADNOC's executive director of low carbon solutions and international growth, Musabbeh Al Kaabi, said that global gas demand is expected to grow steadily over the coming decades.

"ADNOC will continue to responsibly meet the world's energy needs with world-class assets such as Absheron. We believe that the strategic partnership with SOCAR and TotalEnergies unlocks the potential of the Caspian region for decades to come and complements the broader energy cooperation between the UAE and Azerbaijan. It will accelerate the growth of the global renewable energy sector as both countries take bold steps to transition to a low greenhouse gas emission future," he said.

In addition, SOCAR and ADNOC signed a Memorandum of Understanding providing for the participation of the Azerbaijani state company in projects in Abu Dhabi and relevant support from ADNOC in this matter. An agreement was also reached to explore areas of potential cooperation on renewable energy and low-carbon solutions, as well as on investment opportunities in the oil and gas sector in third countries.

In general, the UAE's relations with Azerbaijan are developing dynamically. We are optimistic that cooperation in new areas of energy will be fruitful and effective and will contribute to the development of the industry.