Azerbaijan’s new strategy is to become a green energy hub

COMMENT: Azerbaijan’s new strategy is to become a green energy hub

Two agreements signed at the end of May advanced Azerbaijan’s efforts to establish itself as a key energy provider in Southeast Europe, going beyond its role as a producer of hydrocarbons to enter the electricity markets in the region as well.

On May 29, Azerbaijan, Georgia, Romania and Hungary signed a memorandum to create a joint venture as part of the implementation of the Black Sea Energy Caspian-Black Sea-Europe Green Energy Corridor project. The first agreement regarding the submarine cable was signed in 2022 and it is supposed to be fully operational in 2029. The Black Sea submarine cable will be 1,195 km long and is set to be an important pillar of the transition to green energy, with the plan to integrate it into the EU’s internal electricity market. As an attempt to diversify energy supplies in response to Russia’s war in Ukraine in February 2022, the Black Sea cable is of particular importance.

In this vein, Romanian power grid operator Transelectrica has signed a memorandum of understanding with Azerbaijan’s energy operator Azerenerji, Georgia’s State Electricity System, and Hungary’s MVM to establish a joint venture for green energy located in central Romania overseen by Italian consulting company CESI S.p.A. Hence, the establishment of a new joint venture will facilitate trade in decarbonized energy, in the form of electricity and hydrogen, between the South Caucasus and the EU within the submarine cable project.

The project is of strategic importance for Azerbaijan as Baku puts enormous efforts into boosting its influence in the Eastern and Southern European energy markets, with an emphasis on its potential to produce and export green energy to Europe in addition to oil and natural gas. In 2024, the Azerbaijani government revealed plans to turn regions like Karabakh and Nakhchivan Autonomous Republic into a net zero emission zone by 2050. The plans were outlined ahead of the COP29, the largest climate event, in Baku in November 2024.

The promotion of a green energy strategy required Azerbaijan to demonstrate more commitment to switching to untraditional energy sources. Therefore, Baku opted to boost the role of local energy companies other than SOCAR in order to create a new brand for the future exports of electricity. As such, in the case of a recent agreement on the joint venture, Azerenerji, the largest electrical power producer in Azerbaijan, is set to be the main stakeholder. Such a decision enables Azerbaijan to decrease the role of SOCAR in the green energy transition while expanding the role of local energy bodies and organisations.

Azerbaijan is keen on obtaining a new role as an electricity exporter in addition to the long-term oil/gas exporter image. Indeed, the role of the green energy producer will be an additional asset for Baku, thus giving it more space for diplomatic manoeuvres, considering its uneasy partnership with the EU. Unlike the EU institutions, some individual member states like Bulgaria, Greece, Hungary and Romania, as well as non-EU member states, developed pragmatic partnership formats with Azerbaijan for additional volumes of gas and green energy imports.

For example, Romania has long been a leading energy partner of Azerbaijan through SOCAR Trading, a subsidiary company of SOCAR. As a result, In May 2024, Romania repeatedly expressed its willingness to import green energy from Azerbaijan within the framework of the long-term energy partnership. In addition to green energy produce and exports, Azerbaijan actively attracts foreign investments, mainly from the wealthy Gulf states. Given the recent positive dynamics in this field, it is safe to note that Azerbaijan’s Ministry of Energy became an influential governmental body in charge of green energy strategy, particularly intensive negotiations with foreign stakeholders.

In this vein, on June 4, the Minister of Energy Parviz Shahbazov, alongside the AzerEnerji Open Joint Stock Company, announced the laying of the foundations of the 445 MW Bilasuvar solar power plant, 315 MW Neftchala solar power plant, and 240 MW Absheron-Garadagh wind power plant in partnership with the United Arab Emirates (UAE). Consequently, unlike previous years, when SOCAR was the only state-owned company with unlimited influence and power in all energy-related projects, the Azerbaijani authorities have gradually enabled the emergence of relatively new state bodies to oversee the country’s renewed energy strategy.

The strategy of diversification of energy management would pay off well as it significantly cut down SOCAR’s duties, allowing it to focus more on gas exports to Europe. This seems to be a rational choice as Azerbaijan revealed plans to increase the transit of volume of natural gas up to 12bn cubic metres (bcm) by the end of 2024.

Published by BNE Intellinews

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