The Finance Ministry is in charge of providing finance stipulated in the order and the Cabinet of Ministers is in charge of resolving the issues arising from the order.
The study sets a goal of creation of new energy sources for expansion of national energy security. The decree says that geographical situation and favorable climatic conditions of Azerbaijan create great opportunities for generation of eco-friendly alternate and renewable energy. The State Agency for Alternate and Renewable Energy Sources has been already established under the MIE.
The State Oil Fund of Azerbaijan (SOFAZ) is to begin financing this direction in 2010, while Azerbaijan Investment Company is ready to become co-investor in similar projects.
South Korea’s STX Energy Co. Ltd. has delivered a presentation of Gobustan Wind Power Station Project. The company president Lee Sang-ok said Gobustan, which is located on the shore of the Caspian Sea, has favorable weather for wind power generation and the average wind speed is 8.5 meters/second there.
“If we agree with Azerbaijan on this project, the wind power station will be brought online,” he added. Azerbaijan’s Industry and Energy Minister Natig Aliyev noted that they are having deep feasibility study of the project now.
Korean experts estimate that the plant will generate a combined 20 megawatts of power daily on average at the expected annual capacity of 85,000 megawatts. The project is estimated to worth $40 million of which 20% will be funded by STX Energy Co. Ltd. and the rest will come in loan from commercial banks. STX Energy Co. Ltd. was established in 1976. Its profit for 2007 beat $120 million.
Azerbaijan has large reserves of oil and gas. This acts as a disincentive for the promotion and development of the potentially significant renewable energy resources. Built during the Soviet era, Azerbaijan’s power infrastructure is generally in poor condition, with minimal public investment and maintenance since the country’s independence.
The country’s economic contraction during the mid-1990s, along with systemic problems (such as prices capped below the market rate and frequent non-payment by customers) have left Azerbaijan’s power sector without sufficient capital to upgrade aging power generation facilities.
The country has a large potential for renewable energy power generation in the areas of wind, hydro and biomass. Total wind power technical potential is estimated to be 1,500 MW. Biomass and hydro also have substantial potential for power production. The Nakhchevan autonomous republic is particularly suited to renewable energy development due to its separation from Azerbaijan proper and the fact that it has a power deficit.
With the cooperation of the German company Energy Competence Centre GmbH (ECC) from Berlin and the Azerbaijan company Caspian Technology Company, the operation of the first wind energy turbine started in March 2009. In Yeni Yashma, Khizi Region, the pilot project consisting of two VESTAS V52 with each 850 kW power was connected to the grid.
Projects of wind power plants in Baku suburbs were presented at the conference “Renewable Energy: International Best Practice & Prospects for the Development in Azerbaijan” organized by OSCE.
German companies Vestas Alpha New Tecnology Services GmbH, Mitaki GmbH and AirWerk GmbH are ready to become equipment suppliers for these ends and commission the first wind power plant in Azerbaijan already in 2010 or 2011.
But the problem is only in too high cost of electric power generated in such a way for Azerbaijan. This cost exceeds the tariff (0.06 manats) the country applies for electricity by 0.04-0.05 manats. In this connection the suppliers offer to introduce governmental grants and any other stimulus for power consumers.
Climatic conditions favour the use of wind power. On the Absheron peninsula, on which rests a part of the Azerbaijani capital, average wind speeds vary between 7 and 8 meters per second. These speeds were recorded 280 days out of the year. Furthermore, facilities for offshore wind power could be constructed in the Caspian Sea.
They could border the oil platforms that can be seen by the dozens from Bakus\’ peer. Azerbaijan’s first wind park is already planned. The South Korean company KEPKO is presently negotiating details for the construction of a facility in Baku\’s Garadag district with the Ministry of Energy.
The problem of introducing wind power in the electricity network has not yet been resolved, says Michael Nosiadek from the German-Azerbaijani Economic Foundation. However, he thinks that the problem can be resolved in the future with the know-how of German businesses: the use of wind power would be ideal for this country, which is the size of Austria and in where a very large number of small towns are located next to the city of Baku which counts 2.8 million inhabitants.
Precisely for the villages, effectively functioning units could be created with wind power. Because no costly large-scale electricity network would have to be created, it would be possible to maintain stable energy costs in the long-term. At the start of the year, prices tripled. With the alternative of wind power, they could be uncoupled from oil and gas prices, argues Nosiadek.
The region between the Large and Small Caucasus is rich in mountain streams and lakes. Using small hydraulic installations, this low cost energy source is already in use. According to statements from the Ministry of Energy, negotiations are currently underway to increase their number.
Azerbaijan has strong solar intensity per square kilometre. Plans for the low cost use of thermal or photovoltaic solar installations can be established. However the use of these techniques is made difficult by the high rate of air pollution and by frequent sand storms, particularly on the Absheron peninsula, where a large part of Azerbaijan\’s 8.1 million residents live. However, an interesting market of economic photovoltaic installations could be created due to the large number of private homeowners, provided that the economy continues to develop as rapidly as it has.
Rafig M. Aliyev hopes to use the technological potential of German enterprises in the domain of renewable energies, particularly wind power. In May, Azerbaijani experts from the energy sector visited Germany to inspect first-hand installations for such renewable energies, to study the appropriate legislation and to research investors for future projects.
The Ministry of Industry and Energy and the Ministry of the Environment are responsible for investors in the renewable energies sector. The German embassy, the German-Azerbaijani Economic Foundation and the GTZ (German Agency for Technical Cooperation) of Baku provide information and supplementary support aimed at generating business and holding newcomers in the market.
Michael Nosiadek is optimistic that the use of renewable energy will be a success in the medium term. He believes with certainty that an interesting market can develop. Investments in the next five years will be important for the future of Azerbaijan if the oil reserves are depleted in the near future. It is therefore not only a matter of buying the know-how from abroad. Just as important will be the training of qualified experts and the creation of new jobs in the country itself. “If oil revenue is reinvested in a targeted manner, with a priority placed on the education of young people, this country could certainly attain widespread prosperity and secure prosperity for the long term. This must be one of the most important tasks in the coming years.”
Several projects are already underway. On the highway leading from Baku across the Absheron peninsula to northeastern Azerbaijan, a consortium of three companies is constructing a 48-megawatt wind power plant. The project is expected to be completed by the summer of 2010.
The Caspian Sea peninsula "is a perfect spot for wind energy," said Stefan Simon, the managing director of ALPHA New Technology Services, a Berlin-based company working on the wind project. Wind speeds average 8 meters per second, well above wind turbines’ minimum requirement of 4-5 meters per second. Top speeds can reach as high as 40 meters per second, according to climate data from the European Union-sponsored CASPINFO service.
In addition to legal questions, practical challenges remain. Many Azerbaijani energy consumers still expect to obtain energy essentially for free — a legacy of the Soviet period. Transitioning to a pay-for-power system is vital to making wind power profitable and, therefore, attractive to potential investors. In addition, all infrastructure for the wind-energy generators must be imported, which is "difficult and expensive," said Nosiadek.