Azerbaijan (2012)

Degree of reliance on imported energy: 

<p>
On average, Azerbaijan imports roughly 2.1 billion kWh, slightly under 10% of total consumption, in order to supply electricity to all parts of the country (including the Nakhchivan exclave). This includes 150MWh from Iran and around 575MWh from Turkey into the Nakhchivan Autonomous Republic (NAR). Azerbaijan exports electricity to neighbouring countries.</p>

Main sources of Energy: 

<p>
Installed power generation capacity (2008): 6GW.<br />
<br />
Electricity generation is entirely based on natural gas, heavy oil and hydro power &ndash; 90% of the capacity is based on fossil fuels. Firewood is used mainly for domestic consumption. The state company Azerenergy manages electricity generation across the country and operates eight thermal power plants (TPPs), six hydropower plants (HPPs) and seven module type power plants. Growth in power generation capacity has been flat since the increases in HPP capacity have usually been offset by decreases in TPP capacity.<br />
<br />
Government statistics suggest that the primary sources of energy are oil (79%), natural gas (15%) and electricity (6%). (It is unclear whether some element of double counting exists since between 80-90% of electricity is generated from natural gas.) Since 2004, the Government has made it a priority to invest the profits from the sale of oil and gas to exploit the onshore and offshore renewable energy (RE) potential.</p>

Country: 

Azerbaijan

Extent of the network: 

<p>
All cities and villages are electrified and are connected to the electricity grid and almost all customers are metered. A new metering system based on smartcard technology has been introduced in Ganja city and the installation of these new meters continues in other cities and villages. Azerbaijan&rsquo;s electricity grid is not connected to the Central Asian Integrated Power System.</p>

Capacity concerns: 

<p>
Only about 75% of the installed power generation capacity is typically available because of obsolete equipment, lack of spare parts and lack of maintenance. The available generation capacity is insufficient to meet peak winter domestic demand and, as such, many areas of the country have electricity for only limited times during the day. Options to meet peak demand include:</p>
<ul>
<li>
expansion and upgrade of existing generation facilities,</li>
<li>
increase in regional trade,</li>
<li>
improvement in the performance of existing facilities, and</li>
<li>
demand side management.</li>
</ul>
<p>
<br />
The deficiencies of the transmission grid present a major risk of systemic, catastrophic failure - overloading and protective relay operations have been major contributors to winter blackouts. Availability could be further reduced due to the suboptimal location of generation plant compared to load centres and the consequent reliance on long transmission lines.</p>

Potential for Renewable Energy: 

<p>
<i><b>Hydro</b></i><br />
Azerbaijan has about 1000MW of operating hydropower and an additional 62MW of planned hydropower. There is significant potential for development of this energy source, with an estimated annual output of 240MWh.<br />
<br />
<i><b>Wind</b></i><br />
It is estimated that about 3GW of wind power capacity remains undeveloped. Interest in the development of the wind generation sector is increasing despite the low current take-up. For example, the Tariff Council was supported by the USAID Trade and Investment Reforms Support Programme (TIRSP) in developing a tariff model to incentivise wind development.<br />
<br />
<i><b>Solar</b></i><br />
The solar energy potential across the entire country is very high due to the favourable climatic conditions but no large scale solar power installation exists. This may be due to the high cost of solar relative to the country&rsquo;s other energy resources.<br />
<br />
<i><b>Biomass</b></i><br />
Only a few small pilot projects using biomass have been developed in Azerbaijan. The area of forests in the country is 14,400km2, equivalent to 3.2% of the overall territory. The significant agricultural operations in the country could provide residue for biomass combustion or gasification and animal manure for biogas production. There may also be potential for methane production from landfills.<br />
<br />
<i><b>Geothermal</b></i><br />
No data relating to the use of geothermal energy exists. Geothermal resources consist of thermal water of low and medium temperatures (35-65&deg;C) and are currently used for heating greenhouses and in balneology. It is planned to use thermal water in the city of Gandzha for heating rooms.<br />
<br />
Exploration and evaluation activities in Azerbaijan indicate a high potential for geothermal development. The production capacity of the Lenkoran, Massaly, and Astara regions has been estimated to be about 25,000m3 per day. Wells have produced waters with wellhead temperatures of about 40&deg;C and rates of 40l/s.<br />
<br />
&nbsp;</p>

Potential for Energy Efficiency: 

<p>
In the Promotion of Renewable Energy, Energy Efficiency and Greenhouse Gas Abatement (PREGA) study, the energy saving potential in the residential sector was estimated to be about 6,732kWh. It is estimates that savings of 962,000 tons of conventional fuel could be achieved in the power engineering sector by:</p>
<ul>
<li>
the decommissioning of obsolete equipment and replacement by new high-efficient equipment,</li>
<li>
construction and commissioning of high- and small capacity power plants,</li>
<li>
construction of new substations and power transmission lines and</li>
<li>
improvement in the overall efficiency of this sector.</li>
</ul>

Ownership: 

<p>
<i><b>Electricity market</b></i><br />
The state-owned company Azerenergy is responsible for the operation of the generation and transmission infrastructure and the import and export of electricity. The electricity network is divided into five regional grids, which have been opened to foreign ownership via joint stock mechanisms. No power exchanges or energy trading entities currently exist.<br />
<br />
<i><b>Petroleum and Gas</b></i><br />
The State Oil Company of the Azerbaijan Republic (SOCAR) was founded in 1992 following the merger of two state oil companies: Azerneft and Azneftkimiya. It is responsible for all aspects of offshore and onshore exploration of oil and gas fields in the country, the pipeline system, oil and gas imports and exports, processing, refining and sale of oil and gas products.<br />
<br />
Azerigaz, a SOCAR subsidiary, is responsible for natural gas processing, transport, distribution, and storage, mainly in the domestic market. Azneft, another SOCAR subsidiary, is responsible for the exploration, development and production from the older onshore and offshore natural gas fields owned directly by SOCAR.<br />
<br />
The Azerbaijan International Operating Company (AIOC) is the largest foreign joint venture in association with SOCAR, and is involved in the development of the ACG oil and gas fields and the Shah Deniz gas field.</p>

Structure / extent of competition: 

<p>
The electricity sector is dominated by the vertically integrated monopoly managed by Azerenergy. Azerbaijan&rsquo;s legislation does not stipulate the separation of transmission and distribution from generation activities or the creation of separate transmission and distribution system operators. Accounting, functional and/or managerial disaggregation has not been accomplished or dictated by legislation. Nonetheless, partial disaggregation has occurred: some mini-power plants have been privatised and two independent regional distribution companies have been created. Involvement of new private generating enterprises (mini-power plants) in the electricity sector is minor thus far though additional investment in new generating capacities and transmission/distribution operations is a medium term policy objective. There is no wholesale electricity market.</p>

Existence of an energy framework and programmes to promote sustainable energy: 

<p>
Power demand is expected to grow by 4.7 % annually through 2015. Therefore, the demand in 2015 will have increased by the factor 1.7 relative to 2004. The current focus of government policy is the development of the non-oil sector, targeting the stability of the country&rsquo;s economy after the oil boom. To support this policy, the following state programmes have been launched:</p>
<ul>
<li>
State Programme for Poverty Reduction and Economic Development 2003&ndash;2005 (launched in 2003),</li>
<li>
Acceleration of Social and Economic Development (launched in 2003),</li>
<li>
State Programme for the Socio-Economic Development of Regions 2004&ndash;2008 (launched in 2004), and</li>
<li>
State Program for Poverty Reduction and Sustainable Development 2006&ndash;2015 is being prepared.</li>
</ul>
<p>
<br />
Under these programmes, the generating capacity of the country&rsquo;s power system is expected to reach 6.5&ndash;7.0GW by 2015 through the construction of new TPPs and HPPs, the modernisation of the existing generating units and the utilisation of renewable power sources (small HPPs, wind, solar power, thermal water etc.). The system is expected to output 37&ndash;38 billion kWh by 2015. Efforts are to be made to reduce electrical network losses.<br />
<br />
&nbsp;</p>

Current energy debates or legislation: 

<p>
Securing long-term energy independence is a stated policy goal for fostering economic growth. However, as the country is already energy independent and is a net energy exporter, the momentum towards harnessing RE potential appears to be linked to recent high international oil and gas prices. As hydrocarbon prices remain high and are anticipated to rise in coming decades, profits will be much higher if oil and gas exports can be maximised by replacing domestic oil and gas consumption with RE and increasing energy efficiency.<br />
<br />
<i><b>Promoting Development of Sustainable Energy in Azerbaijan</b></i><br />
This project is jointly financed by the Norwegian Government and the European Commission. Its overall objective is the promotion of the development of sustainable energy in Azerbaijan. The specific objectives of the project are to:</p>
<ul>
<li>
support the building of a small HPP as a demonstration of its feasibility in Azerbaijan,</li>
<li>
provide training and education to target groups and beneficiaries on sustainable energy,</li>
<li>
assess the potential for renewable power, particularly in remote and rural areas,</li>
<li>
identify which types of renewable power are economic or economic with minimal subsidy in each economic zone within the country, and</li>
<li>
identify in a broad sense the geographic areas that offer good potential for placement of sustainable power generation.</li>
</ul>
<p>
<br />
Azerenergy has prepared a programme of hydro power development of up to 1.3GW including small HPP though funding has not been identified nor site feasibility not investigated. Two projects have been started so far, namely the Sheki and Mughan HPPs. There are also projects on the Yukhari Shirvan and Bash Mil irrigation canals.</p>

Major energy studies: 

<p>
A Roadmap for Renewable Energy in Azerbaijan 2009 Available at <a href="http://greenazerbaijan.org/wp-content/uploads/2011/03/Azerbaijan-Alterna...

Role of government: 

<p>
The Parliament of the Azerbaijan Republic exercises legislative power by adopting laws, ratifying international agreements and conventions etc. In accordance with the constitutional separation of the state power, the Parliament does not exercise management and control functions. The general framework governing the energy sector is enshrined in law.<br />
<br />
<i><b>Ministry of Industry and Energy (MIE)</b></i><br />
The MIE functions as the central executive body responsible for the formulation of national policy relating to the industry and energy sectors. The MIE is also responsible for:</p>
<ul>
<li>
supervision, regulation and control of the efficient use of the Fuel and Energy Complex,</li>
<li>
issuance of special permissions (licenses) in cases provided for by the legislation,</li>
<li>
preparation of the annual fuel and energy balance,</li>
<li>
preparation and implementation of state programmes on the development of the industry and energy sectors, and</li>
<li>
development of renewable resources.</li>
</ul>

Government agencies in sustainable energy: 

<p>
<i><b>State Agency on Alternative and Renewable Energy Sources (SAARES)</b></i><br />
The State Agency on Alternative and Renewable Energy Sources (SAARES) was formed in 2009.</p>

Energy planning procedures: 

<p>
The State Programme on the Use of the Alternative and Renewable Sources in Azerbaijan Republic was approved in 2004 and planned to run up until 2013. This programme involves the execution of RE feasibility studies and the development of small hydro and wind projects. The delivery of the programme has been delayed because of a lack of funding. There is no restriction on foreign investment but Government authorisation is required.<br />
<br />
<i><b>Kyoto Protocol</b></i><br />
Azerbaijan ratified the Kyoto Protocol in 2000. The Ministry of Ecology and Natural Resources is responsible for the implementation of the UN Convention on Climate Change and the Kyoto Protocol and the coordination of the Clean Development Mechanism (CDM).</p>

Energy regulator Date of creation: 

<p>
The Tariff (Pricing) Council (TPC) acts pursuant to authority granted to it by Presidential Decree (26 December 2005), the Regulations on the Tariff Council, and the Resolution by the Cabinet of Ministers (9 March 2006). It is an executive authority that is guided by the Constitution, laws, the President&rsquo;s decrees and executive orders, the Cabinet of Ministers&rsquo; enactments and resolutions, and existing international agreements. It may act upon its own initiative within its tariff jurisdiction.<br />
<br />
&nbsp;</p>

Degree of independence: 

<p>
The TPC is comprised of a Chairman and 12 additional Council members. The Chairperson is the Minister of Economic Development and the 12 Council members are Deputy Ministers (Finance, Taxes, Justice, Transportation, Industry and Power Engineering, Communication and Information Technology, Agriculture, Education, Health, and Labour) and deputy heads of Committees (Customs and Construction). In the event that the President, pursuant to a decree, replaces the Minister and deputy heads of ministries and committees, that decree automatically replaces the Council Chairperson and Council members. There are no fixed terms, with the Chairman and members serving for the duration of their appointment by the President.</p>

Regulatory framework for sustainable energy: 

<p>
The following laws governing the energy sector have been adopted by the Parliament:</p>
<ul>
<li>
Law on Utilization of Energy Resources 30.05.1996</li>
<li>
Law on Electric Energy 03.04.1998</li>
<li>
Law on Gas Supply 30.06.1998</li>
<li>
Law on Energy 24.11.1998</li>
<li>
Law on Electrical Power and Heat Stations 28.12.1999</li>
</ul>
<p>
<br />
There are no specific laws relating to RE but some provisions are contained in the existing energy laws:</p>
<ul>
<li>
Law on Utilization of Energy Resources from 30 may 1996:</li>
<li>
Portions of the Fund of Rational Power Utilization shall be spent among other purposes also for &ldquo;utilization of the Renewable Energy sources&rdquo; (Article 15).</li>
<li>
Subsidies from the Fund may be granted to enterprises for &ldquo;examination of the Renewable Energy sources&rdquo; (Article 16).</li>
<li>
State power standards shall determine &ldquo;[...] proper demands for the energy resources and the renewable power sources.&rdquo; (Article 19).</li>
</ul>
<p>
<br />
Law on Power from 24 November 1998:</p>
<ul>
<li>
One of the objectives of state policy with regard to power is &ldquo;use of renewable power sources&rdquo; (Article 3).</li>
</ul>
<p>
<br />
Law on Electrical and Heating Power Stations from 28 December 1999:</p>
<ul>
<li>
&ldquo;Construction of power plants which run with Renewable Energy sources can be subsidized by the State&rdquo;.</li>
<li>
At the same time &ldquo;unlimited purchase of energy produced at these (small) plants is guaranteed.&rdquo; (Article 3).</li>
</ul>
<p>
<br />
In accordance with Article 3 mentioned above, the following plants are deemed as small:</p>
<ul>
<li>
Solar power plants which produce electrical and heating energy</li>
<li>
Wind power plants with a capacity from 10&ndash;100kW, which generate electrical energy and are located at a distance from immovable property of any third person in accordance with relevant norms and standards</li>
<li>
HPPs with capacities of 50&ndash;10,000kW, are located at stable water streams (steady stream) and immediately return used water to its bed</li>
<li>
Power plants, which produce electrical and heating energy by means of gas or other fuel about 80 % of which is extracted from biomass, excluding natural firewood.</li>
</ul>
<p>
<br />
There are no special provisions that support rural electrification by law. The Renewable Energy Agency was created in 2009.</p>

Regulatory roles: 

<p>
The TPC is responsible for all tariff-related issues. Charges for pipeline transportation and the storage and distribution of natural gas are determined by the TPC but approved by the Ministry of Economic Development and the Ministry of Finance. The tariff-setting mechanism appears to lack transparency.<br />
<br />
Significant problems exist with metering and billing collection for gas (and electricity) consumers and with district heating systems where billing is based on area rather than consumed energy. Metering has yet not implemented on a wide scale.</p>

Role of government department in energy regulation: 

<p>
Governmental bodies may cancel or change decisions made by the TPC as stipulated in legislation. Regulatory decisions may also be overturned by court rulings. Energy companies may challenge TPC decisions, either directly to the Council itself or through court action. Appeals do not automatically overturn decisions but appeals deemed to have merit may result in the amendment of TPC decisions or new determinations.<br />
<br />
Functions of the MIE include licensing, resolution of consumer complaints and the imposition of sanctions against energy companies for non-compliance with energy legislation. The competition authority - the State Committee on Antimonopoly Policy and Support for Entrepreneurship - was established in 1993.</p>

Regulatory barriers: 

<p>
The deficiencies within the existing regulatory structure present the largest obstacle to the exploitation of alternative energy. The regulatory framework may be strengthened by enacting and enforcing laws that promote RE projects. The consolidation of existing, disparate laws that affect RE may be required.<br />
<br />
The current economic conditions are not favourable for generators or consumers of alternative energy. RE technology projects remain more expensive to install and operate than conventional thermal power plants, require loan arrangements with long repayment periods and require long-term energy output purchase guarantees.<br />
<br />
Financing for RE projects from funding institutions tends to be limited to only large-scale projects. Private financing is seen as crucial for the funding of smaller, more diverse, and more economically efficient projects but the financing terms tend to be unfavourable. &lsquo;Feed-in&rsquo; tariffs for wind generation exists but are thought to be too low to attract investment to the sector. Further, this mechanism is not extended to other RE technologies.<br />
&nbsp;</p>

References: 

Jorde, K. and Biegert, A. 2009. Country Chapter: Republic of Azerbaijan. In GIZ, 2009, Renewable Energies in Central Asia: Regional Report on Potentials and Markets. Available at: <a href="http://www.giz.de/Themen/en/dokumente/gtz2009-en-regionalreport-zentrala... 9th September 2013]<br />
<br />
Asian Development Bank, 2008. Proposed Loan - Power Transmission Enhancement Project (Azerbaijan). Available at: <a href="http://www.adb.org/projects/documents/proposed-loan-power-transmission-e... [Accessed 9th September 2013]<br />
<br />
Ratcliff, B., 2010. Solving The Green Riddle: Prospects And Challenges For Reforming The Alternative And Renewable Energy Sector In Azerbaijan. Available at: <a href="http://www.irex.org/sites/default/files/Ratcliff%20Scholar%20Research%20... [Accessed 9th September 2013]<br />
<br />
INOGATE. Azerbaijan: Energy Sector Review. Available at: <a href="http://www.inogate.org/index.php?option=com_inogate&amp;view=countrysect... [Accessed 9th September 2013]