Investing in Renewable Energy in Azerbaijan : A Valuation of Three Alternative Investment Scenarios

The government of Azerbaijan has expressed ambitious plans to ramp up the share of electricity generated from renewable and alternative energy. Currently, most electricity in Azerbaijan is produced from fossil fuels, including natural gas. Beyond being the source of almost all electricity produced in Azerbaijan, oil and gas exports form the backbone of the Azerbaijani economy – making it highly susceptible to price volatility in the global markets. Between 2018 and 2020, however, the government aims to increase its capacity for generating electricity from wind, solar and biomass by 420 MegaWatt. Because of the central place that energy takes in Azerbaijan’s economy such a change in the country’s energy portfolio calls for careful evaluation. Furthermore, the investment comes at a time when Azerbaijan faces significant natural gas export commitments it has made to both Turkey and the European Union. In the case of the latter Azerbaijan has pledged and already made substantial financial contributions to the development of the Southern Gas Corridor which would connect, in part, the European market and the gas reserves in the Caspian Sea. From the European perspective, this project would allow many European countries, especially those in Central and South East Europe, to diversify their gas import sources