Azerbaijan hopes to become an energy-exporting country instead of relying on oil. Petrostrategies 

The article was published in the World Energy Weekly (February 20 issue), a publication of Petrostrategies, a French think-tank specializing in energy issues.

Azerbaijan hopes to eventually become an energy-exporting country instead of relying on oil Azerbaijan is preparing for its post-oil era by seeking to become an energy-exporting country rather than relying on oil and gas sales alone. For Baku, this is the backdrop to a recent agreement, signed with Georgia, Romania and Hungary on December 17, 2022, to lay a 1,100-km cable with a capacity of 1,100 MW across the Black Sea. The cable will serve to export electricity that Azerbaijan has pledged to generate from wind turbines, thus guaranteeing its European customers a supply of clean energy, and will be accompanied by a fiber-optic link. A 1,000-MW electricity export “corridor” through the Azeri Autonomous Republic of Nakhichevan to Turkey and then to Europe is also planned. At the same time, Baku is trying to reduce its domestic gas consumption in order to increase its exports accordingly. In mid-February 2023, it launched a project to equip its Mingachevir gas-fired power plant with four AE94.3A gas turbines, with 340 MW of power output and 40.3% simple cycle efficiency, manufactured by Italy’s Ansaldo Energia. In 2025, when the project has been completed, it will save 0.8 to 1 bcm/annum of natural gas, according to President Ilham Aliyev. At present, 93% of the electricity generated in Azerbaijan comes from very old and inefficient thermal power plants.

Power generation from renewable sources isn’t very common in Azerbaijan. In 2022, some 27 TWh of the country’s total output of 29 TWh was generated by gas-fired power plants, and a further 1.6 TWh from hydropower, the rest coming from biomass (205 GWh), wind power (83 GWh) and solar power (61 GWh). The country exported some 3 GWh of electricity. If the proposed cables through the Black Sea and Nakhichevan were actually built, and operated at full capacity (8.8 TWh each), transmitting only green electricity, Azerbaijan would have to increase its renewable electricity generation by a factor of ten. But in terms of its calorific value, the energy exported via these cables would still only be equivalent to 1.6 bcm/annum of natural gas (or twice as much, if one assumes a thermal efficiency of 50% in the event of conversion from gas to electricity). Azerbaijan exported 22.3 bcm of natural gas in 2022.

In 2020, Baku signed its first agreements with foreign partners – namely the Saudi company ACWA Power and Abu Dhabi’s Masdar – to generate green electricity in Azerbaijan. ACWA is currently building a 240-MW wind farm, which is expected to start delivering power in late 2023 or early 2024. It aims to generate 1 GWh of electricity. Masdar is also building a 230-MW solar farm which could come on stream this year. The Abu Dhabi company has great ambitions in Azerbaijan. In June 2022, it signed two “implementing agreements”. Under the terms of the first, it has to build 1,000 MW of onshore wind power and 1,000 MW of solar photovoltaic capacity. The second agreement is far more ambitious, as it provides for the creation of a 2,000-MW green hydrogen capacity based on offshore wind power.

Baku wants to produce green hydrogen and blend it with pipeline gas exports. In December 2022, it therefore signed a framework agreement with Australia’s Fortescue Future Industries to develop up to 12 GW of green hydrogen production capacity. Furthermore, BP (Azerbaijan’s main oil and gas producer) has pledged to build a 240-MW solar power plant in the Jabrayil district. As the district’s population is very small, the Azeri authorities agreed to sign a “Virtual Power Transfer Arrangement” with BP, thus allowing the project to sell solar power to public and private customers in other parts of the country.

An offshore wind power roadmap for Azerbaijan, prepared by the World Bank and its subsidiary International Financial Corporation, sets the sector’s potential at 157 GW, including 35 GW from turbines fixed to the seabed and 122 GW from floating ones. Baku estimates Azerbaijan’s onshore potential (both solar and wind) at 27 GW. According to Aliyev, Azerbaijan’s operational capacity will include 3 GW of wind power and 12 GW of solar power by 2027, 80% of which will be intended for export. At least 6 GW should be added to this in 2037. Azerbaijan’s power consumption is expected to rise to 25.5 TWh in 2030 and to 31 TWh in 2040, according to the World Bank.

The plan to import electricity from Azerbaijan is arousing widespread criticism in Europe, as it would increase the European Union’s energy dependence not only on the country itself (the EU imports 12 bcm/annum of Azeri gas and wants to increase this to 20 bcm/annum), but also on its political regime (the Aliyev dynasty has ruled with an iron fist for forty-four years). Furthermore, there are also purely economic considerations. The proposed underwater cable, which will have to be laid at water depths of 2,250 meters and take the presence of two Russia-Turkey gas pipelines (Blue Stream and TurkStream) in the Black Sea into account, would cost some E1.8 billion (plus costs of around E300 million for transformers, etc.). This would be financed almost entirely by the EU. In contrast, the 720-km NorthSeaLink (Norway-United Kingdom) underwater cable, which has a capacity of 1,400 MW, started operating in October 2021 and cost only E890 million. It took six years to build, whereas the Black Sea cable’s promoters are promising to complete their project in only three or four years.

Not many people are aware that the idea of the Black Sea cable was first proposed by Georgia during its partnership talks with the EU in 2018. Tbilisi had planned to supply it from hydropower plants. A feasibility study was launched by Italy’s CESI in May 2022, and is due to be completed in November 2023. At the time, the project was known as the Georgia-Romania Black Sea Cable. Azerbaijan’s role in the project, which has now become dominant, was added after the EU signed a Memorandum of Understanding (MoU) with Baku on July 18, 2022. This suited the MoU’s two architects: European Commission President Ursula von der Leyen, who wanted to add a green dimension to the EU’s proposed gas cooperation with Baku; and Ilham Aliyev, who hoped to promote energy exports rather than sales of oil and gas alone, leaving Georgia to play the role of a hub, or transit country.

Romania will also probably become a transit country for electricity from Azerbaijan. It doesn’t need it for domestic consumption, as it is already an electricity exporter (of its output of some 59 TWh, it exported 2 TWh in 2022).

Its exports will increase further with the planned commissioning, in 2025 and 2030, of two nuclear power plants (1.3 GW in total) in Cernavoda, where it already has a nuclear capacity of 1.4 GW. The end-consumers of Azeri electricity passing through the Black Sea will therefore be countries such as Hungary (a co-signatory to the protocol of December 17, 2022) and other countries in Eastern and Central Europe. A few regulatory difficulties between EU countries will have to be resolved to allocate electricity flows (Single Day-Ahead Coupling or Joint Allocation Office, etc.). If Georgia agrees to be nothing more than a transit country, what will Romania do? Transit alone, or trading?

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