Azerbaijan’s role as an energy producing and exporting country has long been associated with hydrocarbons. Since 1994 and the signing of the “Contract of Century,” the country has embarked with its international partners on the extraction and transportation of the oil resources of the Caspian Sea to international markets. However, oil is not the only hydrocarbon that Azerbaijan exports; natural gas is, as a clean energy source, becoming an increasingly important component in the country’s energy exports. With the commissioning of the Southern Gas Corridor (SGC) in late 2020, Azerbaijan reports having exported about 18.5 billion cubic meters (bcm) of natural gas to Georgia, Turkey, and Europe in 2021 (including January 2022). It is reported that, during this time, Europe alone received 8.9 bcm of Azerbaijani gas under both long-term contracts and short-term, spot transactions. Azerbaijan plans to increase natural gas supplies in 2022 and will export 16.2 billion bcm, mainly to Europe, and is considering doubling its capacity in the future.
Azerbaijan’s gas exports are valuable in ensuring diversification of energy sources and routes, although they cannot match or compete with the volumes of gas that Europe received from Russia. Particularly in the wake of rising prices for natural gas, Azerbaijan’s valuable role in providing an alternative source of energy for European markets has been acknowledged by the European Union. During a recent visit to Baku to take part in the 8th Advisory Council meeting on the SGC, Kadri Simpson, EU Energy Commissioner, underscored this emphatically: “Reliable, competitive, affordable gas is making its war to Southern Europe… And with rising energy prices and tightened gas supplies, the Corridor’s role is strategically important for the EU, now more than ever.” Despite the EU’s plan to be carbon neutral by 2050 under its Green Deal, it is also estimated that, until 2030, gas will make up as much as 22% of Europe’s energy mix. The role of Azerbaijan is therefore appraised as being that of a reliable, predictable partner that can provide diversification at affordable prices. There have also been reports of Europe hoping to receive greater volumes from Azerbaijan in the wake of recent gas-supply shortages and the escalation of the situation with the Russian Federation that has brought war to Ukraine.
It has taken considerable work, cooperation, and coordination of efforts by Azerbaijan and its international partners to reach this point. Despite the voices of sceptics, the SGC was completed on time and under budget. Natural gas is a low-carbon, clean energy source and, very recently, the EU announced plans to classify nuclear and gas-fueled plants as green investments by 2030 if they meet certain criteria, including emissions limits. Azerbaijan’s contribution to Europe’s energy security through the SGC also accords with Europe’s decarbonization plans and the country’s objective to reduce greenhouse gas emissions 35% by 2030 compared with the base year, 1990. Given its long-term objective to be a reliable and effective provider of clean energy to Europe, Azerbaijan plans to remain so in the near future by virtue of the development of its potential gas reserves in the Caspian in addition to Shah Deniz 1; these include the Absheron, Babak, Umid, and other fields. Azerbaijan’s proven gas reserves are 2.6 trillion cubic meters and the country also possesses the infrastructure required to continue sustained energy cooperation.
The SGC was built to be an expandable diversification infrastructure, with the existing capacity in TANAP and TAP able to be increased as required. TANAP could be expanded up to 31 bcm transmission capacity, while TAP’s throughput could be doubled to 20 bcm. During the 8th Advisory Council meeting it was announced that market research is under way regarding the further expansion of TAP. Apart from these potential volumes of gas, there are additional potential markets that Azerbaijani gas could be reaching. These include countries in the Western Balkans as well as Hungary and Romania, which hope to receive some volumes in the near future. The interconnectors, such as BRUA (Bulgaria–Romania–Hungary–Austria), IAP (Ionian–Adriatic Pipeline), and IGB (Interconnector Greece–Bulgaria) should enable the delivery of this strategic asset to different corners of Europe.
Going clean in Azerbaijan is accompanied by a process of going green. Despite its oil and gas reserves, Azerbaijan has embarked on increasing the country’s renewable energy output. The country’s overall renewable energy potential is estimated to be 27,000 MW and the technical potential of the Caspian Sea is estimated at more than 150,000 MW.
The government’s aim is to hit a target of 30% renewable energy in Azerbaijan’s energy mix by 2030. Currently, the figure is about 17%, and this mostly consists of hydropower. However, recent developments in Azerbaijan’s renewable energy sector promise to boost this through the utilization of wind and solar energy. Agreements have been reached with Saudi Arabia’s ACWA Power of and Masdar of the United Arab Amirates on the construction of a 240-MW wind and a 230-MW solar power plant in Khizi-Absheron and Absheron-Baku respectively. Already, in January 2022, the ground-breaking ceremony for the wind power plant to be built by AKWA Power has taken place. These projects have attracted foreign investment to Azerbaijan’s energy sector: $300 million and $200 million for wind and solar plants respectively. The wind and solar facilities are expected to produce about 1.5 billion kWh of electricity per year, which will enable saving 300 million cubic meters or more of natural gas for export.
Azerbaijan’s plans for green energy were also approved through an Order of the President of the Republic of Azerbaijan of February 2, 2021, titled “Azerbaijan 2030: National Priorities for Socio-Economic Development,” which, among five national priorities for the coming decade, lists “clean environment and green growth.” This, in turn, is expected to facilitate the application of environmentally friendly, green technologies and increasing the share of renewable energy in the energy mix of the country. In addition, on 31 May, 2021, a law “On the Use of Renewable Energy Sources in Electricity Production” was adopted.
The renewable energy potential of Azerbaijan reached a new level after the 44-day Karabakh War and the liberation of the formerly Armenian-occupied territories. According to initial calculations, the renewable energy potential in the liberated territories is 9,200 MW.
With the decree of the President of the Republic of Azerbaijan dated May 3, 2021, the Azerbaijani Ministry of Energy is set to develop a concept and a master plan for a green energy zone in the liberated territories. Moreover, in June 2021, the Azerbaijani Ministry of Energy signed a Memorandum of Understanding with the UK’s BP on building a 240-MW solar power plant in the liberated Zangiln/Jabrayil region, and work towards this is in progress. In addition to work with regard to solar energy, Azerbaijan is also working with the Islamic Republic of Iran to build the Khudafarin and Qiz Qalasi hydropower plants with a total installed capacity of 280 MW (140 MW on each side).
It is clear that Azerbaijan, apart from remaining an oil-rich country where the first oil well was drilled in 1846 using an industrial technique, is assertively diversifying its energy mix and contributing to the decarbonization efforts of the European continent by exporting clean energy and increasing the share of its own green energy. Supporting clean and green energy has thus become a very significant element of Azerbaijan’s energy strategy.