GREEN STRATEGY

The conclusion of the 29th session of the Conference of the Parties to the UN Framework Convention on Climate Change (COP29) in Baku should not be interpreted as a diminution of Azerbaijan's commitment to environmentally sustainable initiatives. On the contrary, the country is actively welcoming new initiatives of this kind. Ulvi Mansurov, the Executive Director of the Azerbaijan Investment Company (AIC), has confirmed that AIC has identified "green" energy and "green" projects as priority investment areas. Consequently, international financial institutions are already announcing their intentions to financially support the development of this segment in Azerbaijan.

Objectives and Challenges

Analysts from the World Bank (WB) have highlighted that the rise in gas and electricity prices in the wake of the Ukrainian conflict has created a need for diversification of energy supply, reducing dependence on oil and gas imports, enhancing energy efficiency, and developing renewable energy sources (RES), particularly in regions reliant on a single supplier of energy resources.

However, to reduce emissions, it is necessary to implement advanced technologies and decarbonise sectors such as transport, industry, and heating. This transition will require substantial financial resources. According to the International Energy Agency, global investments in the energy transition must reach $4 trillion annually by 2030 (approximately 4% of global GDP for 2023). Achieving carbon neutrality may require an additional 2% of GDP each year.

This will undoubtedly place pressure on the economy, especially during periods of heightened inflationary pressures, external shocks, etc. However, the WB believes that inaction would be more costly. Analysts have highlighted that in countries such as Azerbaijan, Kazakhstan, and Romania, the annual cost of climate change damage already amounts to 1-2% of GDP, while in Uzbekistan it exceeds 10%. They have also warned that, as in any technological transition, high initial costs will fall on consumers, businesses, and the state. Therefore, the most sensible solution is to attract additional foreign investments and donor assistance.

Despite the active development of RES, Azerbaijan's economy remains dependent on hydrocarbons; however, as previously mentioned, the country is actively supporting the "green" transition programme. Significant progress has been made in a short space of time.

Azerbaijan recognises the importance of collaboration with international and foreign donors to achieve its ambitious goals of increasing the share of renewable sources in its energy balance. Undoubtedly, such partnerships will accelerate the implementation of "green" energy projects and ensure the long-term sustainability of the energy system.

World Bank Support

A notable example of such collaboration is the project approved by the World Bank, AZURE, which aims to strengthen the country's electricity transmission network.

Reports indicate that the International Bank for Reconstruction and Development (IBRD), a part of the WB Group, will provide a loan of $173.5 million for the modernisation and expansion of Azerbaijan's energy infrastructure.

As highlighted by WB Manager for Azerbaijan Stephanie Stalmeister, the project will ensure reliable, affordable, and sustainable electricity that citizens and businesses in the country can depend upon.

The AZURE project will encompass the modernisation and expansion of key transmission lines and substations. The project plans to connect the Absheron-Garadagh Wind Power Plant, with a capacity of 240 megawatts, to the transmission network, reinforce and expand the 330/500 kV high-voltage network to ensure the safe transmission of up to 1 GW of renewable energy produced by the private sector, and increase grid stability to integrate 1.8 GW of renewable electricity into the system.

This will create favourable conditions for attracting private investments in the renewable energy sector, particularly in onshore wind energy. The project is being implemented at a time when Azerbaijan is considering increasing electricity exports. The project is expected to attract $384 million in private investments in the initial phase, creating a foundation for further investments in renewable energy development.

Furthermore, based on previous statements, the WB Group has no intention of stopping with this project. The WB Group aims to combine efforts from both the state and private sector to assist Azerbaijan in becoming an exporter of "green" energy and integrating into a regional system as part of establishing a "green energy corridor" with neighbouring countries. Additionally, the WB is ready to support initiatives aimed at reducing methane emissions, particularly in combating gas flaring if the government expresses interest in such projects.

The energy programme will focus on increasing the share of RES in the country's energy balance and expanding transmission line capacity for integrating renewable energy. To coordinate these efforts, IBRD, IFC (International Finance Corporation), and MIGA (Multilateral Investment Guarantee Agency) have already developed a working business plan outlining how various support instruments and mechanisms will be utilised at different stages of initiative implementation," said bank representatives.

The WB will act in phases, paying particular attention to reforms in electricity transmission, infrastructure development, and investments in RES.

IBRD will provide technical support in optimising tariff methodology, calculating cost recovery, and developing policies for integrating charging stations for electric vehicles into the energy system. The IFC will participate in discussions on strategies and regulatory reforms, while considering private sector interests. The WB Group will conduct analytical work, including assessing priority investments, exploring geothermal energy potential, hydrogen and distributed RES, as well as developing measures to enhance energy efficiency.

Significant Potential

In addition to the WB, substantial backing for Azerbaijan's "green" sector is being provided by the Asian Development Bank (ADB), which has approved technical assistance amounting to $2.1 million for implementing the project "Implementing More Environmentally Friendly, Sustainable, and Inclusive Approaches for Cities in the Asia-Pacific Region," which will also be realised in our country. The project encompasses countries such as Bangladesh, Cambodia, Mongolia, Nepal, the Philippines, the Marshall Islands, the Solomon Islands, Uzbekistan, and Armenia. The project will be funded by resources allocated from the Urban Sustainability Target Fund within the Urban Financing Partnership Mechanism ($1m), the Water Innovation Target Fund ($500,000), and the High-Level Technology Fund ($600,000).

The project's objective is to provide support to developing countries in the development and assessment of key investment initiatives for environmentally sustainable, climate-resilient, and inclusive development. The ADB is confident that a comprehensive approach will attract additional subprojects funded by various donors, helping to systematise all initiatives and avoid chaos and fragmentation.

Azerbaijan's significant potential in green energy is also a focus for attention from the United Nations Economic Commission for Europe (UNECE). The organisation has acknowledged Azerbaijan's strategic vision for developing RES and has reaffirmed its readiness to support the country in its energy transition process. This support will include assistance with regulatory reforms, capacity building and the development of energy policies.

All these initiatives and endeavours represent an important step towards achieving global climate goals and Azerbaijan's objective of reducing carbon dioxide emissions by 40% by 2050. The consistency and maintenance of momentum suggest that this ultimate goal is achievable.