Azerbaijan’s Green Energy Moves

FEBRUARY 19, 2024

Azerbaijan will host the United Nations Climate Change Conference (COP29) this year. After this was finalised, Baku has taken some steps to transition to renewable and clean energy. The announcement of Socar Green has caused some controversy. This is because fossil fuels form the basis of Azerbaijan’s economy and industry. The income from fossil fuels accounts for approximately 90 per cent of Azerbaijan’s export revenues and is one of the government’s largest revenue items.

The establishment of Socar Green is of great importance for Azerbaijan before COP29. Socar Green aims to invest in solar and wind projects, green hydrogen production and carbon capture and storage (CCS). This investment will allow Azerbaijan to emerge as a more reliable player in clean energy exports to EU member states. For Azerbaijan, which is the largest gas exporter in the region, adding green energy moves to the energy equation will add extra value to its energy exports. However, the fact that Azerbaijan currently has 100 years of natural gas reserves (based on current production) compared to its estimated 25 years of oil reserves seems to be a major obstacle for a return to green energy. Gulmira Rzayeva, Senior Fellow at the Oxford Institute for Energy Studies, commented on Azerbaijan’s green energy transition moves ahead of COP29 as follows:

“Consumers in Europe, Turkey and Georgia currently need these hydrocarbons, and if Azerbaijan alone stops extracting oil and gas, it will certainly not change the world’s energy transition. If there are such plans, they need to include all producers.”

Before assessing the moves towards green energy transition, it is useful to analyse Azerbaijan’s energy outlook. Azerbaijan’s Ministry of Energy has announced gas, oil and electricity production data for 2023. According to the Ministry, Azerbaijan produced 48.3 billion cubic metres of natural gas in 2023. This is an increase of 37% compared to 2022. Of this amount, 12.9 billion cubic metres was extracted from the Azeri-Chirag-Guneshli field, 26.2 billion cubic metres from the Shah Deniz field and 0.8 billion cubic metres from the Absheron field. The state-owned company SOCAR produced 8.4 billion cubic metres of gas during the year. In 2022, this figure was 8.1 billion cubic metres. Gas exports amounted to 23.8 billion cubic metres in 2023. This corresponds to an increase of 5% compared to the previous year. Of this, 11.8 billion cubic metres was sold to Europe, 9.5 billion cubic metres to Turkey and 2.5 billion cubic metres to Georgia. Azerbaijan produced a total of 30.2 million tonnes of crude oil in 2023, including condensate. This represented a 7% decrease compared to 2022.

The share of the Azeri-Chirag-Guneshli field was 17.8 million tonnes, while the share of Shah Deniz was 4.3 million tonnes (condensate) and the share of Absheron was 0.3 million tonnes. SOCAR’s oil production was 7.8 million tonnes (including condensate). Oil exports amounted to 25.2 million tonnes in 2023. This means a 5% decrease compared to the previous year. Azerbaijan’s total electricity generation was 29.3 TWh in 2023, an increase of 1% compared to the previous year. Of this, 27.2 TWh came from thermal power plants, 1.8 TWh from hydropower, 57 GWh from wind, 79 GWh from solar and 223 GWh from waste heat plants. Azerenergy accounted for most of this energy production (26.4 TWh, including 24.7 TWh thermal and 1.6 TWh hydroelectric), followed by Nakhchivan AR Energy Agency (481 GWh), Azerishigi (42 GWh wind power) and other IPP (2.3 TWh). Electricity exports totalled 3.3 TWh, up 8% year-on-year, while imports increased by 54% to 212 GWh.

In this sense, understanding the place of fossil fuels in the economy and national policies shows whether Azerbaijan is committed to green energy transformation or investments. However, in December 2022, Georgia, Hungary and Romania agreed on a project to generate green energy from renewable sources from Azerbaijan and export it to Europe via a submarine cable under the Black Sea.  This project came about because Azerbaijan has the potential to generate energy from onshore and offshore wind farms on the Black Sea coast and also has the potential to generate solar energy. In 2021, the U.S. Agency for International Development (USAID) and the U.S. Energy Association completed a technical assessment that concluded that Georgia and Romania’s existing power transmission grids were strong enough to transmit up to 1,000 megawatts with minimal upgrades.

The project became more formalised with the signing of a Strategic Partnership Agreement on 17 December 2023 by Azerbaijani President Ilham Aliyev, Georgian Prime Minister Irakli Garibashvili, Romanian Prime Minister Nicolae Chuke and Hungarian Prime Minister Viktor Orban. The agreement was signed by Ursula von der Leyen on behalf of the European Union, which signed an aid agreement with Azerbaijan in July 2022 after Baku agreed to double its natural gas exports to Europe by 2027 in exchange for assistance with Azerbaijan’s renewable energy plan. The project, agreed between the four states, envisages the laying of a cable with a capacity of 1,200 kilometres. This cable is located on the Black Sea between Georgia and Romania and also includes the expansion of the capacities of local transmission lines. This project has been hampered by the deepening of the Russia-Ukraine Crisis and growing security concerns in the Black Sea.

Finally, Azerbaijan’s renewable energy potential should also be assessed.  Unlike other alternative energy sources such as solar, hydropower, geothermal and biomass energy, wind energy is the most suitable for production due to its difficulty of production, environmental impacts and inexhaustibility. The Absheron Peninsula, the Caspian Sea coastal lands, the western part of Azerbaijan (Ganja, Dashkesen) and the Nakhchivan Autonomous Republic (Sharur, Culfa) are the regions with the highest wind energy potential. 

The development of the use of solar energy can partially solve the energy problem in many regions of Azerbaijan. It should be especially noted that the efficiency of solar power plants depends on the natural climate and geographical location of the country. Thus, the amount of solar energy falling on 1m2 of the earth’s surface for 1 year is 1500-2000 kW/h in the USA, 800-1600 kW/h in Russia, 1800-2000 kW/h in China, 1200-1400 kW/h in France and 1500-2000 kW/h in Azerbaijan. As can be seen, the amount of solar radiation falling on the territory of Azerbaijan is higher compared to other countries. This makes investments in solar energy valuable.