Authorities in Azerbaijan are strongly committed to developing renewable energy (RE) sources. Reflecting this commitment, a new legislative framework for the support of renewable energy sources is currently under preparation. This legislative framework (the draft “Renewable Energy Law”) will provide the legal basis for developing RE projects in the country. The draft Renewable Energy Law envisages different support mechanisms, including a competitive procurement scheme to select, and determine the level of support provided to, RE projects (i.e. RE auctions).
The electricity sector in Azerbaijan is dominated by two state-owned companies: Azerenerji OJSC responsible for power generation and transmission; and Azerishiq OJSC responsible for distribution. Azerenerji operates around 8 GW of generation capacity consisting primarily of thermal power plants – mostly gas-fired, and to a smaller extent of hydropower plants of various sizes. In 2017 annual production was around 24 TWh with thermal power accounting for around 91%. Production from renewable energy sources has been opened to independent producers (wind and solar), however, its share is less than 1% of total generation. At the moment there is a small number of variable renewable energy plants in operation consisting of 6 solar PV plants with a total capacity of around 28 MW and 4 wind farms of around 62 MW.
Various parts of the country have good quality resources for renewable energy. The Absheron peninsula, the coastal areas along the Caspian Sea, as well as the Caspian basin, the Nakhchivan Autonomous Republic and Baku are considered to be suitable for developing wind energy projects. Baku, Kura-Araz lowland, Absheron Peninsula and the Nakhchivan Autonomous Republic are considered to be suitable for developing solar power projects. Total potential capacity of solar power is estimated at 8,000 MW, wind – 15,000 MW, biomass – 900 MW, geothermal – 800 MW, and small hydro – 600 MW.
As part of EBRD’s engagement in Azerbaijan, a Letter of Intent was signed between the Bank and the Ministry of Energy of the Republic of Azerbaijan (the “Ministry”) on the 8 September 2017 (the “Letter of Intent”). The Letter of Intent aims to provide a general framework for cooperation between the EBRD and the Ministry to support the priority policy initiatives of establishing an independent energy regulatory agency and to foster the development of renewable energy in Azerbaijan. Following this, the energy sector regulator in Azerbaijan (the “Regulator”) was set up at the end of 2017, initially under the supervision of the Ministry of Energy but expected to become independent at a later stage.
2. Supporting the authorities on implementing and administering tenders for renewable energy investments, including support to the relevant institutions (including, but not necessarily limited to, the auctioneer) on practical aspects of implementating and administering RE tenders up to financial close, such as responding to bidders’ requests for clarifications, evaluating bids, negotiating with the winning bidders, etc.