Azerbaijan’s Brave New Green Energy Strategy with a Stated Role for Islamic Finance, Investment and De-risking Solutions
Given that Baku is the host city for COP29 at the end of 2024 and Azerbaijan is a recent ICIEC accession member state, it is no surprise that the Government of President Ilham Aliyev is prioritising key economic development areas such as the promotion of regional connectivity (rail, gas pipelines, and electricity transmission), decarbonization especially through solar and wind renewable energy, the ‘Middle Corridor’ project which is aimed at supporting SMEs through collaboration with local domestic banks, and the promotion of Islamic finance and ICIEC’s credit and investment de-risking insurance. Oguz Aktuna, Acting Manager, Asia Region Division, Business Development Department at ICIEC, profiles Azerbaijan’s clean energy transition status and its Net Zero pathway, and ICIEC’s recent and future involvement in the country’s SDG and decarbonisation journey.
Azerbaijan joined membership of ICIEC in January 2023. Azerbaijan will host the COP29 Climate Summit in Baku in 2024. This signifies a crucial global event, with the country hosting the climate conference for the first time in the Central Asian region. ICIEC on the other hand, with its experience in renewable projects will support Azerbaijan’s clean energy transition and its Net Zero pathway.
Azerbaijan plays a crucial role as an energy hub and as a transportation corridor in the region by connecting the CIS (Commonwealth of Independent Central Asian States) to Europe. In 2023, ICIEC, together with the Government of Azerbaijan, outlined key priorities to participate in projects for the economic development of the country, such as the promotion of regional connectivity (rail, gas pipelines, and electricity transmission), decarbonization (renewable energy – Solar, Wind), the “Middle Corridor” project, supporting SMEs through collaboration with local domestic banks, promotion of Islamic finance and Islamic insurance and supporting the reconstruction of the Karabakh enclave.
Azerbaijan’s economic progress has historically relied on oil and gas exploration, constituting 95% of its export revenue. Despite this, the country has embraced global efforts to combat climate change, ratifying the Paris Climate Agreement in 2017. Azerbaijan announced a goal of reducing greenhouse gas emissions by up to 35% by 2030 and 40% by 2050 compared to 1990 levels.
The International Energy Agency (IEA) predicts a 25-year lifespan for Azerbaijan’s oil reserves, emphasizing the need for alternative energy sources. It should be mentioned that the climatic conditions in Azerbaijan present significant opportunities for generating electricity through solar and wind resources. Key renewable energy sources include onshore and offshore wind farms/clusters, solar power, and hydroelectricity. The potential for solar and wind power generation is particularly noteworthy.
Azerbaijan is currently entering a strategic development phase. The focus is on creating economic opportunities in newly liberated territories (Karabakh, Eastern Zangazur and Nakhchivan), emphasizing a modern construction model and a “Green Energy Zone” with stated net-zero emissions. The government has undertaken extensive infrastructure development, including power transmission lines, substations, and hydroelectric projects. The Central Bank of Azerbaijan is developing a strategy to incorporate sustainable finance principles into the financial sector, including banking, insurance, and capital markets. Commitment to clean technologies, the use of clean energy, recycling, and environmental remediation is a key aspect of Azerbaijan’s policy.
Azerbaijan’s Green Energy Focus
To adhere to the targets Azerbaijan has initiated partnerships in “green energy” projects involving key players such as Masdar (Abu Dhabi Future Energy Company), ACWA Power, BP, and others. Such plans include the construction of the solar and wind energy projects with Masdar, for a total capacity of up to 1.0 GW onshore and offshore. ACWA Power has entered into implementation agreements with the Azerbaijani Ministry of Energy for the development of a 1.0 GW onshore wind farm and a 1.5 GW offshore wind farm featuring energy storage. In October 2023, the Garadagh Solar Power Plant (230 MW) constructed in cooperation with Masdar, came on stream.
The country aims to strengthen its electricity network to integrate 1,862 MW of “green power” by 2027. Efforts are underway to establish the “Caspian-EU Green Energy Corridor” and the “Azerbaijan-Turkey-Europe Corridor”, with plans to export approximately 5 GW of green electricity through various routes by 2030. To achieve this objective, leaders of the governments of Azerbaijan, Georgia, Hungary, and Romania have collectively signed a Memorandum of Understanding (MoU) for the construction of the Black Sea Energy Subsea Cable. Furthermore, Azerbaijan expresses a keen interest in involving other Caspian littoral countries, such as Kazakhstan and Turkmenistan, in this project.
In 2019, the IsDB’s Board of Executive Directors (BED) approved the IsDB Climate Change Policy. During COP28, ICIEC announced the launch of its groundbreaking Climate Change Policy and ESG Framework and an agreement to join the Energy Transition Accelerator Financing (ETAF) Platform, managed by the International Renewable Energy Agency (IRENA). ICIEC recognizes that export credit insurance and political risk insurance are essential tools to bridge the Climate Action finance gap by de-risking investments and access to capital goods and green technology, thus making them more attractive and bankable to private sector participation.
Spanning the Water-Energy-Food Value Chain
Climate Action encompasses the range of vital value chains that span the Water- Energy-Food as relates to climate change resilience, mitigation and adaptation, which is reflected in the range of projects and interventions that ICIEC continues to support in its Member States. ICIEC’s innovative solutions provide protection against nonpayment risks associated with international trade transactions, while also providing support for green investments in renewable energy projects, low-carbon transport systems, clean technology transfers and other sustainable initiatives.
ICIEC is committed to helping our 49 Member States achieve their development goals, including resilience, mitigation and adaptation to the threats posed by climate change. ICIEC cover has been directed towards various sectors over the years, with US$2.35 billion going specifically into clean energy initiatives such as solar energy systems and wind farms – assisting with their importation and use in national infrastructure projects. With this commitment to ICIEC Member States’ development goals, we strive to help mitigate threats from climate change so that all stakeholders may benefit from a better future together.
Historically, ICIEC, as a multilateral credit and political risk insurer, has been playing an important role in facilitating renewable energy projects in its Member Countries. For example, in 2016, ICIEC supported 316 MW Wind Farm Projects in Turkey and provided a US$80 million reinsurance cover to Eksport Kredit Fonden (EKF), – the Danish ECA, now rebranded as EIFO. In 2018, ICIEC provided US$68 million in political risk cover to support Alcazar Energy’s (UAE) investment in four 50MW solar plants. The project is part of Egypt’s Nubian Suns Renewable Energy Feed-in Tariff (FiT) programme announced in September 2014, which is in line with the Egyptian government’s Sustainable Energy Strategy 2035.
In Sharjah, UAE, ICIEC supported the waste-to-energy (WtE) project, led by Masdar, and Bee’ah (Sharjah Environment Company). ICIEC provided insurance cover for the project’s construction financing, working in partnership with SMBC, the leading Japanese bank. During COP 28 ICIEC and Standard Chartered Bank signed a Non-Honoring of Sovereign Financial Obligation (NHSFO) policy for supporting the project of procuring and installing 50,000 off-grid solar-powered streetlamps across Senegal’s rural areas.
We will continue our support for clean energy projects in our Member Countries. In 2023, ICIEC and Masdar signed an MoU to promote renewable energy projects in Member Countries using ICIEC’s credit enhancement and risk mitigation solutions. During COP 28, ICIEC and GE Energy Financial Services, Inc. (GE Vernova) inked an MoU aimed at bolstering sustainable development and climate action across ICIEC’s 49 Member Countries.
