While interest in using renewable energy and energy efficiency has begun to increase only in recent years, the Azerbaijani government recognises that renewable energy in power generation can help diversify energy sources and divert natural gas from power generation for potentially more profitable exports and use in petrochemicals, and also help meet climate policy objectives.

Moreover, Azerbaijan has strong potential for renewable energy development. The country has excellent solar and wind resources and significant prospects for biomass, geothermal and hydropower. Practical deployment has been limited, however, compared with the scale of the country’s available resources and long-term ambitions. That focus is changing, however. The government is now drafting legislation to promote renewable energy and is aiming for renewable energy to provide 30% of electricity generating capacity by 2030, roughly twice the current share. Major contracts for building wind and solar power capacity were signed in early 2020, and construction is currently underway.

Renewable energy, together with energy efficiency, also offers the most promising low-carbon solution to meeting Azerbaijan’s climate targets. At COP26, Azerbaijan committed to reducing its GHG emissions by 40% by 2050, measured from the 1990 base year set in its NDC under the Paris Agreement, roughly equivalent to a 20% reduction from the current emissions. The government is also working to meet the United Nations’ (UN’s) 2030 Sustainable Development Goals (SDGs), among which SDG 7 (access to affordable, reliable, sustainable and modern energy resources) is a priority for Azerbaijan.

The share of renewable energy sources (RES) in Azerbaijan’s TES has remained stable but low since the 1990s. The share in electricity generation has declined from 18% in 2010 to 5.1% in 2020, mainly due to a reduction in hydropower output. The dominance of hydropower in RES leads to similarities in the patterns of RES in TES and RES in TFC.

Hydropower accounted for 53% of total renewable energy supply in 2020. The remainder came mainly from renewable municipal waste and bioenergy. With a combined installed capacity of 102 megawatts (MW) in 2020, wind power and solar PV remain small, but the government has indicated strong ambition to develop the sector. Statistics for heat pumps were available for the first time in 2018, showing a total installed capacity of 1.4 MW. Heat pumps, too, are in the early stages of utilisation in the country.

For the past decade, Azerbaijan has been working to put together strategies on renewable energy, and has passed key legislation that will allow for faster deployment of renewables. While draft strategies were put forward in the 2010s, nothing was formally adopted. The 2016 Strategic Road Map for the development of utilities (electricity, heating, water and gas) in the Republic of Azerbaijan included a target to add 420 MW of renewable electricity capacity by 2020, comprising 350 MW of wind, 50 MW of solar and 20 MW of bioenergy.

The European Union has been supporting the Ministry of Energy of Azerbaijan in its work to build a Long-term Energy Strategy from 2021-2050. This Strategy has not yet been adopted, but remains under consideration.

In May 2020, the Cabinet of Ministers approved the Action Plan on Attracting Additional Investments in the Renewable Energy Field. The role for renewable energy in heat supply is small, and no direct role for it in transport was envisaged, with the focus mainly on investment in the power sector.

In early 2021, President Aliyev approved Azerbaijan 2030: National Priorities for Socio-economic Development, which set out the government’s development strategy across the economy. This strategy envisions Azerbaijan as a “clean environment and green growth country,” and envisions the increased use of renewable energy sources. In May 2021, Parliament approved the Law on the use of renewable energy resources in electricity production. This new law will allow Azerbaijan to take advantage of its renewable energy potential by setting the legal basis to develop renewable energy projects, and introducing competitive bidding processes and support mechanisms for active consumers i.e. prosumers. In addition, draft laws on electricity and gas supplies are currently under review.

In July 2021, Parliament also approved the Law on rational use of energy resources and energy efficiency. Prior to this, the country had no legal framework or targets for energy efficiency. Having the legal framework in place will open the door for Azerbaijan to begin to take rapid action on energy efficiency, via tools such as stringent standards and support for more efficient energy use in all subsectors.

At present, countries around the world are facing myriad challenges, such as ensuring energy security, recovering from the impacts of the Covid-19 pandemic and the increasing effects of climate change. These challenges often intersect, and can arise unexpectedly. Long-term energy policy planning and the process of creating and maintaining an energy strategy are important tools to help countries face these challenges coherently and successfully. Long-term energy policy planning and target-setting are ongoing processes that evolve, rather than conclude. A priority for governments should be to build these processes in a serious but flexible manner, making sure that the policies are impactful but also adjustable in the face of unexpected developments and crises.

Azerbaijan has been working towards a long-term energy strategy for several years. As the oil and gas sector remains the backbone of the economy, the country has been looking to improve the efficiency with which it uses its energy resources.

Azerbaijan 2030: National Priorities for Socio-economic Development is now the main framework for policy reforms and strategy. However, long-term energy policy planning and target-setting remain important for the country’s energy sector development. In the lead-up to COP26 in 2021, an increasing number of countries announced new targets, and many were specifically focused on achieving net zero emissions, including Azerbaijan, which updated its target to a GHG emissions reduction of 40% (UN, 2021).

Across the world, many countries have embarked on policies and targets to increase the share of renewable electricity in their systems for a mix of reasons, including to protect the environment, improve energy security and reduce costs. For those who rely heavily on imports of fossil fuels, increasing the share of renewables in the energy mix can help reduce import dependence. For other countries, increasing the share of renewables may increase the amount of fossil fuels available for export. In the case of Azerbaijan, it may be most useful to look at the policies introduced by other oil- and gas-producing countries.

Europe’s main gas producers are the Netherlands, Norway and the United Kingdom (UK), and all have policies to support the growth of renewable electricity. As in many countries there are a number of policies involved to meet their set targets. And as targets are met and the policy context shifts, new targets are added and policies are either changed or streamlined.

In the Netherlands, a key policy is the Energy Agreement for Sustainable Growth. This is a negotiated plan between the government and organisations and interest groups to further the energy transition in the country. It includes a target to increase the proportion of energy produced from renewable sources from below 5% at the time of establishing the agreement in 2013 to 14% in 2020 and to 16% in 2023. In addition, the Netherlands has developed a detailed policy framework, the 2019 Climate Agreement, to help achieve its climate targets. This framework, combined with other initiatives, allows the government to implement key legislation, policies and measures to effectively target support for the energy transition across the full spectrum of the Dutch economy (IEA, 2020).

In the UK, the Contract for Difference (CfD) was introduced in October 2014 to replace Renewable Obligations. The CfD scheme is designed to support the deployment of large-scale renewable projects (over 5 MW), while separate policies such as feed-in tariffs support smaller-scale renewables, and is based on the difference between the market price and an agreed “strike price”. If the “strike price” is higher than a market price, the CfD counterparty must pay the renewable generator the difference between the “strike price” and the market price and vice versa (Government of the United Kingdom, 2022).

As the figure below indicates, renewable electricity generation has grown by around 60% over the past four years in both countries, and with it the share of renewables in total generation.

One of the challenges in working out the potential for renewables in a country is how to access information on the best areas or regions in which to deploy different types of renewables. The International Renewable Energy Agency (IRENA) has launched an atlas to assist countries and investors in finding information on these areas (IRENA, 2022).

Norway, one of Europe’s main oil and gas producers, has ambitious 2050 climate and energy targets. It is an energy-rich country, but its abundant and affordable hydropower has enabled a high degree of electrification (IEA, 2017). Yet Norway still needs to focus on how to further reduce emissions in key sectors in order to meet 2050 goals. At the same time, the country’s support for renewable energy through its policy planning process led it to become a global leader in increasing the penetration of electric vehicles (EVs) in its overall fleet (Norsk elbilforening, 2022). It has instituted a range of measures, including:

• no purchase/import taxes (1990‑present)
• exemption from 25% value added tax on purchase (2001‑present)
• no annual road tax (1996‑present)
• no charges on toll roads or ferries (1997‑2017)
• free municipal parking (1999‑2017)
• access to bus lanes (2005‑present)
• 50% reduced company car tax (2000‑2018)

As a result, Norway has seen very strong growth in EVs in its overall fleet, with nearly 350 000 EVs in 2020, an almost fourfold increase over five years.

It is not just oil- and gas-producing countries from Europe that have policies or targets to support renewables. Particularly in the wake of COP26 and the general global push to a net zero future, producer economies around the world are taking the prospect of the energy transition seriously. This is reflected in government policies and new targets, as well as investment deals with companies.

In late 2021, the UAE announced a commitment to a net zero target by 2050. The country’s 2050 energy strategy includes a total energy mix involving 50% clean energy sources (renewables and nuclear and 50% hydrocarbon-based sources, mainly natural gas). The UAE has worked with external consultants and international organisations to build an integrated energy model that has allowed the government to put forward policies that will help it achieve these targets. This modelling is now fully in-house and serves to inform government policy at the federal level.

In addition, Algeria has established a 27% renewable energy target by 2030, and has committed to building 15 000 MW of renewable generation capacity by 2035 (IEF, 2021). Iraq has signed USD 27 billion worth of deals with TotalEnergies, including work on addressing gas flaring, as well as a 1 gigawatt solar power plant (Reuters, 2021).

Meanwhile, Egypt has prioritised investment in renewable energy, as a way to ensure long-term energy security. The country has set ambitious targets, including 20% of electricity generation from renewable sources by 2022 and 42% by 2035. Egpypt is now on track to surpass its 2022 target, thanks to strong government support, and an active push to attract international financing while committing to regulatory reforms.