Following the Soviet Union’s collapse in 1991, Azerbaijan benefited from its wealth of hydrocarbon resources. Skyrocketing oil prices boosted its economy while attracting substantial foreign investment in the energy sector. This helped finance social programs along with massive public investments in infrastructure. The country’s official poverty rate dropped from around 50 percent in the early 2000s to about 5 percent a decade later.
Times change, though. In the midst of the current oil price volatility, the country is now exploring sectors outside of hydrocarbons that could support Azerbaijan’s ongoing resilience.
“The world is changing with oil and gas reserves depleting and significant price fluctuations,” says Ivana Fernandes Duarte, IFC’s Regional Manager in the South Caucasus. “Major changes in the geopolitics and energy systems throughout the region are impacting the economy. A hydrocarbon-rich Azerbaijan is now at a crossroads. A fast-track journey to decarbonization is crucial to remain competitive in the global economy, ensuring a prosperous future for generations of Azerbaijanis.”
To address the challenge, one of Azerbaijan’s five priorities for 2030 is to accelerate the country’s energy transition to establish a new growth model and diversify the country’s economy.
Aliya Azimova, IFC’s Country Representative in Azerbaijan, says: “The recent global acceleration toward renewables may challenge the historically dominant role of hydrocarbons as the main energy source. At a time like this, diversifying its energy sources will help Azerbaijan create jobs and stimulate economic growth. For that, the country needs large amounts of investments and Azerbaijan is on the path of attracting private sector participation. This will help boost funding in priority areas—such as renewables—while ensuring fiscal sustainability. Hence, we at IFC look forward to supporting Azerbaijan on its path towards diversification and decarbonization through sustainable private sector investments.”
Winds of change
In a timely effort, a new roadmap—released by the Ministry of Energy of the Republic of Azerbaijan, the World Bank, and the International Finance Corporation (IFC)—shows that Azerbaijan has the potential to install 7 gigawatts of offshore wind power by 2040, with the right long-term vision, infrastructure development, investment, and policies.
According to Azimova, implementation of this first-of-its-kind offshore wind roadmap can turn the nation into a renewable energy powerhouse, supporting the country’s energy resource diversification strategy.
According to an analysis by the World Bank Group’s Energy Sector Management Assistance Program (ESMAP), the estimated technical potential of Azerbaijan’s offshore wind potential is 157 gigawatts, which is massive when compared to the country’s current total installed capacity of around 8 gigawatts.
While helping the country reach net zero emissions in the power sector—a key national priority—harnessing wind power is also expected to create jobs and new economic opportunities. Analysis in the roadmap estimates that if 7 gigawatts of offshore wind is installed in the country by 2040, this could create over 69,000 full-time employment years and up to $7 billion in local gross value added.
Moreover, Azerbaijan will be able to transfer infrastructure, equipment, knowledge, and workforce from the country’s established oil and gas sector to offshore wind.
A new era in the Caspian Sea
“The offshore wind roadmap for Azerbaijan charts two potential pathways in the context of its future electricity needs — a low-growth and a high-growth scenario,” says Sean Whittaker, IFC’s principal industry specialist. “The first will only see offshore wind supplying 7 percent of Azerbaijan’s electricity needs by 2040 – not enough to decarbonize its energy system. A high-growth scenario, though, will supply 37 percent of national demand and see offshore wind play a key role in Azerbaijan’s decarbonization targets.”
Whittaker emphasizes, “As Azerbaijan pursues a new private-sector led growth model, developing offshore wind generation will help improve competition in the power sector, strengthening essential infrastructure and tackling climate change.”
The new roadmap sets out a range of recommendations. These include setting targets for 2030 and 2036, developing and competitively bidding a 200-megawatt demonstration project followed by larger projects, further exploring potential offshore wind development zones, modernizing infrastructure, adopting international best practices to attract financing, and educating all government agencies and the future workforce to build the knowledge and capacity needed to deliver a pipeline of offshore wind projects.
Fernandes Duarte says, “We look forward to supporting the country in its journey toward renewable energy deployment that can create new economic opportunities, by providing both advisory services and financing to support private sector investment in this sector.”
As Azerbaijan makes great strides in narrowing its climate and development targets, IFC is well positioned to support the country’s dynamic future—a sustainable, inclusive, and private sector-led growth story.