Azerbaijan will host the United Nations Climate Change Conference (COP29) this year. Following the finalisation of this, Baku has taken a number of steps to transition to renewable and clean energy. The announcement of Socar Green is one of these steps. Fossil fuels constitute the basis of Azerbaijan’s economy and industry. Fossil fuel revenues account for about 90 per cent of Azerbaijan’s export revenues and are one of the government’s largest revenue items.
With this in mind, the Ankara Center for Crisis and Policy Studies (ANKASAM) presents the views of Gulmira Rzayeva, Senior Research Fellow at the Oxford Institute for Energy Studies (OIES) to assess Azerbaijan’s green energy investments.
1. Is it possible for Azerbaijan to transition to green energy gradually at this stage?
The energy sector of Azerbaijan is dominated by the production of hydrocarbons and by the successful export of a substantial share to the world market for oil and to Türkiye/the EU for gas. Like other hydrocarbon rich countries Azerbaijan has to deal with decarbonization efforts of its customers. Like other southern countries Azerbaijan has a substantial potential of renewable energy like photovoltaic but also wind.
Azerbaijan and its foreign partners are aggressively investing in solar and wind energy production in an effort to decorbanise the economy and export renewable energy. The substantial potential for renewable energy production is reflected in a number of renewable projects (for domestic use and for export) and in a policy to achieve a 30% share of renewables in power production by 2030.
However, the potential, the obstacles and the status of such projects are not always clear, nor is the sequencing and prioritization of projects.
2. Can Azerbaijan reduce its dependence on oil and gas by 2030?
In last 3-4 years Azerbaijan started aggressively investing in renewable energy and attracts hundreds of millions USD of foreign investment in wind and solar energy production and making ambitious plans on green hydrogen production and export. If the share of wind and solar as of now is 3.5% of solar (45.9 MWt) and 5.1% (66,1 MWt) respectively of installed capacity as of today, it is planned to increase it to 1500 MWt (of which approximately 50% of solar and 50% of wind) by 2030.
The share of renewable energy sources in the installed capacity of electricity production will be increased to 24% by 2026 and slightly more than 30% by 2030 (1870 Mwt, which is 33%). Therefore, Azerbaijan can potentially reduce its dependence on fossil fuels by around 33% by 2030, which is quite a realistic target.
3. Could nuclear energy be considered to replace oil and gas in parallel with the potential renewable and green energy transformation?
No, Azerbaijan does not have any nuclear reactor and is not planning to have one in foreseeable future.
4. Can we interpret Azerbaijan’s policy of expanding natural gas and oilfields as an effort to move into a global producer position?
Azerbaijan exports slightly more than 25 million tons of oil per year which is accounts about 5% of the total value of worldwide oil exports in 2022. This is not a huge share in the world market, but the country is an important oil supplier to the countries like Italy, Türkiye, Spain, Greece, Bulgaria, Portugal, Croatia, Germany etc.
As per the gas, the country exports 25 billion cubic meter mainly to Türkiye, Georgia, Greece, Italy, Bulgaria and Romania. It does not make Azerbaijan a global gas supplier but it is an important gas supplier to the countries it exports the gas.
5. How do you interpret Azerbaijan’s existing or future energy agreements with EU member countries?
Since the end of 2021, Azerbaijan has been exporting gas from the giant Shah Deniz stage 2 natural gas and condensate field to Greece, Bulgaria and Italy via the Southern Gas Corridor (SGC) and the aggregated annual contract quantity (ACQ) is 10 bcma. In 2023 almost 12 bcma was actually delivered, to help the purchasers deal with the ongoing gas crisis. In July 2022, European Commission President Ursula Van der Layer signed a Memorandum of Understanding on the export of an extra 10 bcma of gas from Azerbaijan to Europe starting from 2027, thereby confirming Azerbaijan as “a crucial, reliable and trustworthy energy partner”.
The European Commission’s RePowerEU plan aims at a massive and immediate reduction of EU consumption of Russian gas, and claims a realistic possibility of phasing out dependence on imported Russian fossil fuels, including oil, gas and coal, well before 2030. Even though it is getting toward summer, SEE and Central European countries are in dire need of gas from alternative sources to fully replace Russian gas, and it seems that this demand will be there for quite a long time. Even though in the new reality Europe is aiming to reduce gas consumption at a faster pace, as reflected in the REPowerEU document, it is most likely that this process will be slower in SEE and Central European markets because most of these countries are reliant on coal, and their primary goal is to replace coal with natural gas, in line with EU clean energy policy objectives. The heads of Romania, Hungary, Bulgaria, Slovenia, Serbia, Macedonia, Greece, Italy, and B&H expressed their strong interest in importing gas from Azerbaijan from 2027 at the 9th SGC Advisory Meeting in Baku on 3 February 2023.
6. To achieve the SOCAR Green 2030 goals, which countries could Azerbaijan initiate collaboration with in the initial stages?
Last year Socar establishes “SocarGreen” energy company which is envisage to implementation of projects such as renewable energy, production of green hydrogen, carbon capture, utilization and storage, provision of appropriate assistance in the preparation of strategic roadmaps for reducing carbon emissions across the country have been defined as the main directions of the company’s activities. At the same time, the newly established company will study international practices in the mentioned fields and implement them in our country.
“SOCAR Green” will implement 1 GW onshore wind and solar energy in the initial phase of the “Mega” project in cooperation with Masdar, and 240 MW of solar energy projects in Jabrayil district within the framework of “Shafaq” project in cooperation with bp. Also by the company It is planned to implement solar and wind energy projects in Nakhchivan Autonomous Republic together with ACWA Power, Masdar and Energy China.
By cooperating with the mentioned reputable companies, “SOCAR Green” is involved in the implementation of green energy, decarbonization and low-carbon projects in Azerbaijan and abroad, creating new business opportunities for SOCAR, forming the personnel base in these areas and strengthening the existing potential, as well as achieving the “Net Zero” emission targets.
