These initiatives are part of the country’s broader strategy to diversify its economy and reduce its dependence on oil and gas revenues.
Current energy use and carbon footprint
Azerbaijan’s energy sector has traditionally been dominated by fossil fuels. According to the International Energy Agency (IEA), as of 2023, natural gas and oil products account for approximately 82% of the total final energy consumption (TFC) in the country, with natural gas alone contributing 43% and oil products 39%. Electricity, which constitutes 15% of the TFC, is predominantly generated from fossil fuels, with renewable energy sources, including hydropower, contributing only about 6% of the total electricity supply.
The country’s total greenhouse gas (GHG) emissions are significant, primarily due to its reliance on fossil fuels for energy production. Azerbaijan pledged to reduce its GHG emissions by 35% from 1990 levels by 2030 and by 40% from 1990 levels by 2050 as part of its commitments under the Paris Agreement on climate change. This goal necessitates a substantial shift towards renewable energy and improved energy efficiency.
In 2022, Azerbaijan’s electricity generation reached 29 terawatt hours (TWh), with more than 90% generated from natural gas. The country’s sole refinery produced approximately 6.5 million tonnes of oil products from domestic crude oil and natural gas liquids in the same year. Azerbaijan is also a major exporter of crude oil and natural gas, exporting 26.6 million tonnes of crude oil and 22.6 billion cubic meters of natural gas in 2022.
Supporting renewable energy and energy efficiency
The Azerbaijani government has been actively working to enhance energy efficiency in buildings. Collaborating with international financial institutions (IFIs) such as the European Bank for Reconstruction and Development (EBRD) and the Asian Development Bank (ADB), Azerbaijan is receiving both technical and financial assistance for retrofitting public buildings with energy-efficient technologies. For instance, the EBRD has committed USD 50 million towards enhancing energy performance in public buildings by upgrading insulation, installing energy-efficient windows, and incorporating advanced heating and cooling systems.
A new roadmap released by Azerbaijan’s Ministry of Energy, the World Bank, and the International Finance Corporation (IFC) indicates that Azerbaijan could install 7 gigawatts (GW) of offshore wind power by 2040 with appropriate long-term vision, infrastructure development, investment, and policies. This potential development aligns with the country’s decarbonization and sustainable growth objectives. The Offshore Wind Roadmap provides strategic guidance under low- and high-growth scenarios to aid regulatory and infrastructural decisions amid increasing global interest in offshore wind energy.
The Ministry of Energy has also been proactive in promoting renewable energy use in residential and commercial buildings. A notable initiative is the development of a roadmap for offshore wind energy in collaboration with the International Finance Corporation (IFC). This initiative aims to attract both local and foreign investments in renewable energy, potentially generating up to 135 GW onshore and 157 GW offshore from wind energy in the Caspian Sea.
Moreover, the government has signed agreements with international partners to boost renewable energy projects. For example, an agreement with the United Arab Emirates’ (UAE) Masdar includes the development of 1 GW of onshore solar and wind energy projects, a 230 MW Garadagh Solar Park, and a 2 GW offshore wind and green hydrogen project. Similarly, an agreement with Fortescue Future Industries (FFI) aims to explore renewable energy and green hydrogen projects totaling 12 GW.
The ADB has also been instrumental in supporting Azerbaijan’s transition to a green economy. The Bank has committed over USD 4.2 billion in loans, grants, and technical assistance to Azerbaijan, focusing on enhancing public sector efficiency, improving infrastructure, and promoting private sector-led green growth.
Paving the way for sustainable transportation systems
Azerbaijan has undertaken several key projects to modernize public transportation and reduce carbon emissions. In line with Azerbaijan’s green growth goals, Azerbaijan Railways CJSC is making significant strides in eco-friendly transportation. By transitioning to alternating current in key sections of the East-West and North-South corridors, the company aims to enhance energy efficiency and reduce environmental impact, with new traction substations saving up to 30% of electricity. Initial developments are underway at the Balajar and Ganja locomotive depots, marking the beginning of this transformation. The Balajar depot has installed 147 solar panels (66 kW) for electricity and 160 for heating, while the Ganja depot has installed 210 solar panels (66 kW) for electricity and 140 for heating. These upgrades signify a promising start to modernizing Azerbaijan’s railway infrastructure.
Azerbaijan is actively promoting the use of hybrid and electric vehicles (EVs) through a series of government measures. Prime Minister Ali Asadov signed a decision to lower import customs duties on eco-friendly vehicles, including a 15% duty on certain motorcycles and electric bicycles. This decision is part of a broader strategy to expand EV usage, improve infrastructure, and attract business involvement in building charging stations. Currently, Azerbaijan has about 4,000 electric vehicles and 87 charging stations, with plans to increase these numbers significantly to meet growing demand.
The government is also investing in renewable energy infrastructure, such as solar and wind power plants, to support EV charging stations. These measures aim to reduce GHG emissions, improve air quality, and create jobs, contributing to a more sustainable economy. In 2023, Azerbaijan imported significantly more hybrid and electric vehicles compared to previous years, indicating a positive trend towards eco-friendly transportation. Future plans may include subsidies or tax breaks for EV manufacturers to make these vehicles more affordable for consumers.
Minister’s insights and future outlook
Addressing the Baku Energy Forum in June, Energy Minister Parviz Shahbazov emphasized that Azerbaijan’s regional leadership in the green energy transition is driven by President Ilham Aliyev’s vision for implementing climate goals and creating synergy between traditional and renewable energy sources. Shahbazov highlighted that the country’s approach to developing renewable energy, particularly in the context of post-conflict reconstruction and diversifying energy supplies, positions Azerbaijan at the forefront of green energy initiatives. He pointed out that the establishment of green energy zones and corridors is key to these efforts, contributing significantly to the nation’s decarbonization and energy diversification strategies.
The Minister also underlined that in the initial phase of Azerbaijan’s onshore and offshore green energy plans, the country aims to generate over 2 GW of green energy by 2027. This is part of a broader strategy to decarbonize the economy and boost exports. By 2030, the goal is to expand this capacity to over 8 GW. This ambitious plan is expected to double Azerbaijan’s renewable energy potential by 2027 and quadruple it by 2030. These initiatives will increase the share of renewable energy in the country’s installed electricity capacity to 33%, achieving this target three years earlier than initially planned and exceeding the original target by 3%. Moreover, these projects will also enhance the renewable energy potential of European countries.
Looking ahead
Azerbaijan’s efforts to foster PPPs for sustainable development are yielding tangible results. The government’s focus on improving energy efficiency in buildings and enhancing sustainable transportation systems is not only contributing to environmental protection but also promoting economic diversification. PPPs play a pivotal role in supporting renewable energy initiatives, facilitating the integration of green technologies, and attracting the necessary investments. With continued commitment and collaboration between the public and private sectors, Azerbaijan is poised to achieve its sustainable development goals and set an example for other countries in the region.
Kanan Mammadov, MSc in Finance Candidate, The George Washington University
