Driven by its abundance of oil and gas resources, Azerbaijan’s energy production is strongly tied to fossil fuels—thermal power plants fueled by non-renewable sources represent about 90% of the country’s electric energy production. In comparison, electricity production from alternative energies such as solar, wind, and biomass account for only a small segment of the power generation picture. According to the European Bank for Reconstruction and Development (EBRD), Azerbaijan has an installed generating capacity of about 7,100 MW, of which thermal power stations contribute 6,100 MW, and hydropower stations make up most of the rest. Renewables and alternatives, however, are heavily on the government’s agenda, as well as that of the private sector, and the share of such energies could soon make their mark on Azerbaijan’s generation mix.
The possibilities for wind power development are very strong in Azerbaijan, especially on the Absheron peninsula where the wind strength ranges from 3 to 27 miles per second, ideal for the efficient operation of wind turbines. In addition, Azerbaijan has 260-280 days of sunshine per year, suitable for a strong solar energy industry. As the country is also rich with geothermal waters, especially in Guba, where the water temperature sometimes reaches 90 °C, the opportunities in this segment are also promising. There is also a strong potential for biomass development. With approximately 54.9% of Azerbaijani land being suitable for agriculture, the ability to generate biomass is considerable. Forest covers 14,400 square kilometers, equivalent to 3.2% of the whole territory. Agricultural production is significant and could provide residues for biomass combustion or gasification, as well as waste products for biogas production from animal manure. Another significant opportunity exists in the waste-to-energy niche, which the government has included as a part of its renewable energy development plan. Indeed, public investments have been directed to the construction of modern solid-waste incineration plants near Baku, displaying the environmentally friendly attitude of the public sector.
There do, however, exist some issues on the feed-in tariffs front. Elmar Geybatov, Managing Director of Alten Group, Azerbaijan’s largest alternative energy service provider, told TBY that in order to guarantee the growth of the sector the local feed-in tariff level needs to be adjusted to favor renewables. Currently, the tariff stands at around $0.04 per kilowatt for wind, and $0.02 for hydro. This situation makes it difficult for companies operating in the renewables segment to make reasonable profits. The second challenge is awareness, which remains extremely low across Azerbaijan. In addition to this, there is a need for effective legislation that supports the development of renewable energy, and at present the government is discussing a new special law on alternative energy production.
In 2004 the Azerbaijani government launched the State Program on the Use of Alternative and Renewable Energy 2005-2013, with the goal of generating 3-5% of its electricity from renewable sources in order to improve the efficiency of the country’s energy sources, as well as to reduce the effect of externalities on the environment. In 2009 the State Agency of Alternative and Renewable Energy Resources (SAARES) was created within the Ministry of Industry and Energy of Azerbaijan (MIEA), and it is in charge of identifying and promoting renewable energy projects and the development of the renewable energy sector in Azerbaijan. Recently, the government also provided AZN25 million to the Agency, showing its commitment to improve the use of renewable resources in the production of electricity, its concern over issues of pollution, as well as the need for stronger energy efficiency in the system.
The MIEA also announced its intentions to create wind parks with 250 MW in total generation capacity, installing 20-30 wind turbines in the areas of Yeni Yashma, Sitalchay, and Gobustan. So far, three wind farms are currently operating in the country, in the areas of Khinzi, Sitalcaj, and Yashama. The installations account for a total production of 5,800 kWh generated by seven turbines. Another wind farm in Guba is under construction and it will have 16 turbines with a total capacity of 4,800 kWh.
Various international institutions have looked to finance the sector. In 2011, SAARES, in cooperation with the United Nations Development Program (UNDP), launched a new project on “Promoting the Development of Sustainable Energy in Azerbaijan”, backed by €500,000 from the European Commission and $790,000 provided by the Norwegian government. Moreover, the Asian Development Bank (ADB) signed in 2006 a grant agreement for $900,000—of which $200,000 came from the Finnish government—to assess the potential for renewable energy development in the country. In addition to this, the EBRD provided a $200 million loan to modernize the AzDRES Thermal Power Plant, the largest natural gas, dual- and heavy-oil fueled thermal power station in Azerbaijan. The financing has the goal of reducing CO2 emissions by 8.2 million tons by 2012, in order to improve the plant’s efficiency under the Kyoto Protocol for Clean Development Mechanisms. Although the national banks are reluctant to involve themselves in alternative energy projects, reducing the line of credit needed to develop the sector, there has been foreign interest. The German aid agency (GTZ), and the German Development Bank (KFW), have displayed interest in dedicating lines of credit specifically reserved for investment in the alternative energy field.
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