Yes, Azerbaijan has an emerging yet increasingly established renewable energy industry. Although the country has long relied on fossil fuels, recent years have seen a strategic shift toward diversifying its energy mix by tapping into its considerable renewable energy potential.

The main types of renewable energy resources in Azerbaijan include wind, solar, hydropower, biomass, and geothermal energy. Among these, solar and wind power have received the most attention in terms of both investment and development.

The technical potential of renewable resources in Azerbaijan plays a significant role in the formation of such plans. Onshore and offshore resources are estimated to have a capacity of 135 GW and 157 GW respectively. In particular, the Caspian Sea region offers an immense wind energy potential of 157 GW, which remains largely untapped and presents a major opportunity for future development.

Power plants with a total capacity of 2070 MW operate in our country on renewable energy sources. 65 hydroelectric power plants with a total capacity of 1 443.5 MW, 6 wind power plants of 303.5 MW, 9 solar power plants of 278.2 MW, a BIO power plant of 37 MW and 3 hybrid power plants of 7.3 MW are being operated. Renewable energy sources account for about 20.8% of the total energy capacity. In January–February of 2026, Azerbaijan’s wind power plants generated 141.6 million kWh of electricity, which represents 41.6 times more compared to the same period in 2025.

In terms of existing projects, Masdar’s landmark 240 MW Garadagh Solar Power Plant is currently the largest solar power facility in the Caspian and CIS region, operating since 2023. Masdar’s 315 MW Neftchala Solar Power Plant and 445 MW Bilasuvar Solar Power Plant (due for completion in 2026), all jointly developed with SOCAR Green, will contribute to Azerbaijan’s growing renewable energy portfolio. The 240 MW Sunrise Solar Project is launched by bp in Bilasuvar in 2021.

240 MW Khizi-Absheron Wind Power Plant launched by Saudi Arabia’s ACWA Power was officially opened on January 8, 2026. The green hydrogen project initiated by Australia’s Fortescue Future Industries, which has a planned capacity of 12 GW, have been in progess since 2022. Projects of a 1.5 GW offshore wind power and a 1 GW onshore solar plant are planned with ACWA Power in 2023. There are also cooperative initiatives in the Nakhchivan region, led by Nobel Energy and A-Z Czech Engineering. In April 2025, Azerbaijan signed 6 documents on cooperation in the field of renewable energy with China. These documents cover the construction of solar power plants with a total capacity of 260 MW, 100 MW floating solar power plant, 30 MW battery energy storage system, 2 GW offshore wind energy project, development of another 2 MW wind power project.

Hosting COP29 in 2024 Azerbaijan further showcased its green credentials and signed a slew of deals. Three important energy initiatives – COP29 Global Energy Storage and Grids Pledge, the COP29 Green Energy Pledge: Green Energy Zones and Corridors, and the COP29 Hydrogen Declaration were officially presented at the COP29 event. COP29 Global Energy Storage and Grids Pledge has committed to supporting the delivery of and ambitious scale-up to 1,500 GW of energy storage globally by 2030. 3.5 gigawatts of offshore wind projects will be developed in the Caspian Sea on the basis of A Memorandum of Understanding signed with Masdar and ACWA. A 240-megawatt solar power station will be built in the district of Jabrayil according to an Agreement with bp from the UK.

In 2025, the government announced plans to commission more than ten solar and wind plants in the next two years, totaling over 2,000 MW in capacity and $2.7 billion in investments. By 2027, it is planned to implement green energy projects with a total capacity of more than 2 gigawatts. Among these projects, wind and solar plants implemented jointly with local and international partners are of particular importance. By 2030, renewables are expected to account for 38 percent of national energy production, with ambitions to generate over 6 GW of combined onshore and offshore solar and wind energy by 2032.

Azerbaijan has set forth a series of carbon reduction and net-zero targets that reflect both international commitments and national strategic priorities. These targets began with its accession to the Paris Climate Agreement in 2016, where Azerbaijan committed, through its first Nationally Determined Contribution (NDC), to reduce greenhouse gas (GHG) emissions by 35% by 2030, using 1990 as the base year. As per the latest version of Azerbaijan’s NDCs renewed in 2023, Azerbaijan will seek to reduce greenhouse gas emissions by 40% by 2050 if international support is provided through financing, technology transfer and capacity building. Furthermore, the country declared the newly liberated territories—comprising approximately 20% of its land—as a “Net Zero Emission Zone.” Recently, on 14 October 2025 Azerbaijan ratified the Kigali Amendment to the Montreal Protocol on Substances that Deplete the Ozone Layer, which was endorsed by Presidential Decree. This amendment is closely linked to carbon reduction efforts, as it targets the phase-down of hydrofluorocarbons (HFCs) – potent greenhouse gases that can have a significantly higher global warming potential than carbon dioxide – thereby contributing to the reduction of overall greenhouse gas emissions.

According to Azerbaijan’s Nationally Determined Contribution 3.0 submitted on 05 November 2025 largely touches upon the topic of decarbonization. NDC 3.0 outlines comprehensive decarbonization pathways economy-wide, covering all domestic sectors contributing to GHG emissions. Across power, buildings, oil and gas, transportation, industry, waste and Agriculture, Forestry, and Other Land Uses (AFOLU) sectors, four decarbonization themes, which are feasible in the country, were explored to define sectorial pathways:

1. Electrification generated by Renewable Energy Source (RES): Transitioning from gas-fired power plants, machine drives, and heat to electricity to electricity produced by renewable energy.
2. Biofuels: Substituting high-emission fuels consumption by switching to sustainable fuels.
3. Operations upgrade and equipment changes: Upgrading operational processes or replacing equipment to reduce emissions.
4. Energy efficiency: Achieving abatement via reduced high-emission fuel consumption.

Major steps have already been taken regarding regulations and policy to strengthen Azerbaijan’s climate actions. A number of cross-sectoral policies are in place to support decarbonization across sectors. The “Law on Environmental Protection” focuses on preventing harmful impacts of economic and other associated activities on ecological systems, supporting reduced GHG emissions, and achieving sustainable development goals. This legislation provides a legal basis for decarbonization efforts and targets to reduce emissions, ensuring that economic activities are aligned with environmental conservation. The “Law on Protection of Atmospheric Air” aims to limit irreversible environmental damage from air pollution and highlights initiatives and efforts to protect air quality.

The priority directions of the “State Program on the Great Return to the liberated territories” and “Action Plan for the Creation of a ‘Green Energy’ Zone in the Territories Liberated from Occupation for 2022-2026” include constructing sustainable settlements, providing infrastructure, improving the ecological environment, and applying environmentally friendly technologies in the liberated territories. The country is also exploring various carbon pricing mechanisms, including allowances, taxes, and incentives. According to NDC 3.0, revenue generated from carbon taxes or allowances can be reinvested into decarbonization efforts, such as funding public transportation projects, supporting clean technology R&D, and subsidizing low-carbon products and services. These funds can also mitigate the socio-economic impacts of transitioning to a low-carbon economy.

Major sector-specific regulations to address decarbonization efforts have been introduced as well, mainly relating to increasing the renewable energy share in the power sector’s technology mix. In power sector, several initiatives have been implemented that primarily focus on transitioning from conventional gas turbines to more efficient Combined-Cycle Gas Turbines. These include the construction of new hydropower and solar plants in accordance with the “State Program on the Great Return to the liberated territories” and “Law on the Use of Renewable Energy Sources in Electricity Production.” Oil and gas players in Azerbaijan are signatories of the Oil & Gas Decarbonization Charter (OGDC) launched during COP28. This charter aims to achieve Zero-Routine Flaring by 2030 (ZRF) among other measures. OGDC signatories commit to reaching Net-Zero in all operations by 2050.

Regarding scaling renewable energy in the energy mix, the country is committed to developing its renewable energy potential, as stated in the “Socio-economic development strategy in 2022-2026,” by aiming to increase the installed capacity of renewable power to 30% in the country’s overall energy balance by 2030. In accordance with the “Action Plan for the establishment of a ‘green energy’ zone in 2022-2026 in the liberated territories,” priority areas of Eastern Zangazur and Karabakh were approved for sourcing electricity entirely from local RES (which have a technical potential of around 10 GW) and the application of green technologies. Further, Azerbaijan’s National Hydrogen Strategic Outlook has been prepared and presented within the framework of COP29. It is planned to form an “Implementation Plan” of the said document within the framework of the socio-economic development strategy for 2027-2030 in the first half of 2026. Through this strategy Azerbaijan aims to position itself as a leader in the global hydrogen economy by leveraging the renewable resources and utilising CCUS technology.

Additionally, amendments are planned to the “Land Code” and the “Law on the Use of Renewable Energy Sources in Electricity Production” to grant permission for agricultural land to be designated as an area for RES without changing its category and without hindering its use for its intended purpose. All of these taken cumulatively are directed to contribute to the decarbonization.

Azerbaijan voluntarily committed in 2017 to actions under the “Batumi initiative on green economy (BIG-E) actions by Azerbaijan until 2030”, which aims to contribute to the SDGs and implement actions such as shifting consumer behaviour towards sustainable consumption patterns, encouraging green and fair trade. The National Forest Programme (2015-2030) aims to first, identify and monitor carbon storage volumes of the forests; and second, to increase carbon storage through rehabilitation and improvement of the existing forests and by expanding forest areas and tree planting on suitable land.

Further, climate change mitigation and green energy transition are emphasized in paragraph 5 (“Clean Environment and Green Growth Country”) of the “Azerbaijan 2030: National Priorities for Socio-economic Development,” a presidential order dated 2 February 2021. This document frames environmental sustainability as one of the nation’s key development priorities and aligns with the broader goals of the UN 2030 Agenda for Sustainable Development. Through this initiative, Azerbaijan has placed increasing emphasis on the use of renewable energy sources and the integration of green technologies across various sectors of the economy. Notably, the Government has set a goal to increase the share of renewables to 30% of the installed energy capacity by 2030, which serves as a major operational step toward fulfilling its climate targets.

To support the implementation of these goals, Azerbaijan has also entered into international partnerships and initiated concrete institutional mechanisms. One such example is the Memorandum of Understanding signed between the Ministry of Energy and BP in February 2021, which aims to explore large-scale decarbonized energy and transport systems. The plan includes the development of a Master Plan on decarbonization for various regions, focusing on clean energy, low-carbon transport, green buildings, and waste management. Although this signals serious intent, the Memorandum and associated actions are more programmatic and strategic in nature, rather than codified legal instruments.

Within the framework of cooperation between SOCAR Trading and Azerenergy OJSC, the “Hydro-3” project – covering the Mirik and Garagishlag small hydropower plants located in the Lachin district – has successfully entered the international carbon market. According to SOCAR, this represents a milestone achievement of historic significance for Azerbaijan’s energy sector. The project was registered on 28 May 2025 by Gold Standard, one of the world’s leading carbon certification organizations, and carbon credits under the “Hydro-3” project were officially issued on 28 January 2026. The carbon credits cover the period from April 2024 to August 2025 and total 10,745 carbon units.

These are the first international carbon credits obtained from renewable energy sources in Azerbaijan’s history and confirm the project’s real and measurable contribution to reducing greenhouse gas emissions.

Yes, there is a legal definition of “renewable energy” in Azerbaijan’s jurisdiction, formally provided under the Law on the Use of Renewable Energy Sources for the Electricity Generation, adopted in May 2021. According to Article 1.0.7 of the law, “renewable energy sources” (RES) are defined as energy sources that are constantly present in the environment or are regularly generated (hydropower, wind power, solar power, geothermal energy, biomass energy, wave energy in the seas and oceans, tidal energy, energy of water currents, etc.).

In Azerbaijan, the development of the renewable energy industry is guided by a mix of key governmental institutions, regulatory authorities, and a growing number of private sector actors. These entities together shape policy, oversee implementation, and drive investment in green energy projects.

The Ministry of Energy of the Republic of Azerbaijan is the central political authority responsible for energy policy, including renewable energy development. It leads the formulation of strategic directions, drafts regulatory reforms, and signs key international cooperation agreements (such as the MoU with bp for decarbonization efforts). The Ministry also oversees the implementation of national targets related to greenhouse gas (GHG) emissions reduction and green transition commitments made under international agreements like the Paris Climate Accord.

From a regulatory standpoint, the State Agency on Renewable Energy Sources (AREA)—operating under the Ministry of Energy—is the dedicated regulatory authority for renewable energy. Its role includes promoting investments in renewable energy, conducting feasibility studies, supporting the development of infrastructure (especially for solar and wind projects), coordinating with international partners, and overseeing the permitting and auctioning of RES projects. AREA is instrumental in streamlining procedures for foreign investors and ensuring technical compliance with national and international standards.

SOCAR Green, a subsidiary of the State Oil Company of Azerbaijan (SOCAR) is currently implementing seven major renewable energy projects with its partners: the 240 MW Shafag (Sunrise) solar power plant (SPP) project in Jabrail is being implemented by BP. Also, together with the strategic partner Masdar (UAE), SOCAR Green is realizing three renewable energy projects: two solar and one onshore wind project with a total capacity of just under one gigawatt. It also has two pilot offshore wind projects with a capacity of 200 MW each, with the possibility of expanding to 2-3 GW with Chinese partners.

On the legal side, the Tariff (Price) Council of the Republic of Azerbaijan also plays a role in setting electricity tariffs, including those relevant to energy produced from renewable sources. This affects the profitability and viability of RES projects and is thus a lever in either encouraging or discouraging private sector investment.

In terms of private sector involvement, one of the most influential players is bp, which has partnered with the Azerbaijani government to assess and develop integrated low-carbon energy and transport systems. This includes the preparation of a Master Plan on decarbonization for regions and cities across the country. Additionally, Masdar (a UAE-based renewable energy company) and ACWA Power (from Saudi Arabia) have entered into agreements to develop large-scale solar and wind projects, marking significant foreign investment in Azerbaijan’s renewable sector.

Another key actor is TEPSCO (Tokyo Electric Power Services Company), which was contracted to prepare a Green Energy Zone concept and master plan for the newly liberated territories. This area, covering roughly 20% of Azerbaijan’s land, has been declared a “Net Zero Emission Zone” and serves as a testbed for the country’s broader green ambitions.

In Azerbaijan, businesses have several approaches to accessing renewable energy sources, including, inter alia:

1. On-site Generation: Businesses invest in on-site renewable energy generation systems, such as solar photovoltaic (PV) installations.
2. Power Purchase Agreements (PPAs): Through these agreements with renewable energy developers, companies purchase a predetermined amount of energy generated from renewable sources over a specified period.
3. Government Incentives: Azerbaijan offers various government incentives to encourage businesses to transition to renewable energy. These include tax and customs incentives provided by the Tax Code and Customs Code. For example, profit of renewable energy producers based on Public-Private Partnership or PPAs up to 30 years is exempted from income tax.

There are no regulatory limitations for generating solar power using rooftop installations with a capacity of up to 200 kW—installations below this threshold can operate without a permit, if the electricity is for personal use and the system is off-grid. However, if the business intends to sell the electricity, the system must be connected to the grid. In such cases, the producer is required to enter into agreements with state power company Azerenergy OJSC, or Azerishiq OJSC, electrical grid operator.

There has been no noticeable shift in the business approach toward renewable energy in the past year. However, Azerbaijan hosting the COP 29 has surely incited businesses to play a more active role in renewable energy goals.

In 2025, Azerbaijan has demonstrated accelerating commitment to renewable energy development, underpinned by a series of high-profile international partnerships and large-scale infrastructure projects. By the end of 2025, the country operated 1,829 MW of renewable capacity. According to the figures, the total installed capacity of renewable energy sources in Azerbaijan increased by approximately 2% last year compared to 2024 (1,792 MW). That year, the 230 MW Garadagh and 240 MW Shafag solar plants and the 240 MW Khizi-Absheron wind farm produced over 2.3 billion kWh and cut 860,000 tons of CO₂. Renewable energy now accounts for 18.8% of Azerbaijan’s total installed electricity capacity, with over 2 GW of new projects planned by 2027.

Data from 2026 also proves the point that the sector shall prosper, as only on April 6, 2026, a total of 62.6 million kilowatt-hours of electricity was generated in Azerbaijan, of which 18.2 million kilowatt-hours were produced from renewable energy sources. According to the Ministry of Energy, renewables accounted for 29.1% of the country’s total electricity generation on that day.

2025 has showcased that many businesses are interested in the investment on renewable energy of Azerbaijan. On 2 June 2025, within the framework of the initiatives to transform the liberated territories into a green energy zone, implementation contracts were signed at the Baku Energy Week for the Ufug and Shams solar power plants, each with 50 MW capacity, which are planned to be built in Jabrayil district by Nobel Energy.

Further capacity additions are progressing across multiple jurisdictions within the country. The Khizi–Absheron Wind Power Plant (240 MW), being developed with Saudi Arabia’s ACWA Power, is advancing toward full grid integration, while the bp-backed Shafag Solar facility (240 MW) in Jabrayil is under active construction, deploying a virtual power transfer mechanism to materially reduce the carbon footprint of the Sangachal terminal. Masdar’s broader portfolio – comprising the Bilasuvar (445 MW), Neftchala (315 MW), and Absheron-Garadagh wind (240 MW) projects – continues to attract institutional and sovereign-backed investment at scale.

On the cross-border infrastructure front, Azerbaijan has emerged as a transit jurisdiction for green electricity. The Black Sea Submarine Cable project – linking Azerbaijan, Georgia, Romania, and Hungary across approximately 1,195 km – secured EU Project of Mutual Interest designation in December 2025, unlocking accelerated regulatory approvals and European Commission financing commitments of €2.3 billion against a total estimated cost of €3.5 billion. The corridor is expected to transmit between 1,000 and 1,300 MW of renewable electricity upon completion.

Complementing this, formal bilateral agreements with Kazakhstan and Uzbekistan, supported by feasibility work commissioned through the Asian Development Bank and the Asian Infrastructure Investment Bank, have institutionalised a Central Asia–Azerbaijan green energy corridor. A further Memorandum of Understanding concluded in April 2025 among Azerbaijan, Georgia, Türkiye, and Bulgaria formalises renewable electricity transmission arrangements and sets a framework for progressive integration with the European Network of Transmission System Operators for Electricity (ENTSO-E).

Reducing carbon emissions isn’t just a buzzword in Azerbaijan right now — it’s a headline national priority. Backed directly by the President, Azerbaijan’s long-term development strategy — Azerbaijan 2030: National Priorities for Socio-Economic Development — puts climate action front and center under Priority 5: Clean Environment and Green Growth Country. The push is clear: decarbonization, renewable energy, and green economic transition. To translate this into real-world momentum, the government has launched a range of powerful incentives targeting the renewables sector. These include long-term exemptions — up to 30 years — from corporate and personal income tax, VAT, customs duties, property tax, and land tax for projects operating under Public-Private Partnerships or Power Purchase Agreements. These fiscal perks are specifically designed to pull in both local and international capital and position Azerbaijan as a competitive player in the global clean energy space.

According to the Socio-Economic Development Strategy of the Republic of Azerbaijan for 2022–2026, the Ministry of Energy has been tasked with implementing the following measures under the activity area of ensuring energy efficiency:

1. Ensuring energy efficiency in various sectors of the economy and in households;
2. Ensuring energy efficiency in energy production and supply (transportation, transmission, distribution);
3. Preparing and implementing the National Program for the renovation of individual (residential, commercial, office) and public buildings;
4. Developing normative and technical acts on energy efficiency, and introducing monitoring and reporting systems.

Furthermore, SOCAR Green, founded in 2024, is actively involved in the exploration and development of carbon capture, utilization, and storage (CCUS) technologies as part of its broader efforts to drive Azerbaijan’s energy transition. While specific CCUS projects are still in the early stages of development, SOCAR Green is focused on advancing innovative solutions to reduce carbon emissions across the country’s energy sector. In 2025, an Implementation Agreement was exchanged on the evaluation, development and implementation of a 160 MW solar power plant project signed between SOCAR Green LLC, PowerChina Resources Limited and the Ministry of Energy. The plant is scheduled to be commissioned in 2028, and it is projected to save 73 million cubic meters of natural gas and reducing carbon emissions by 160 thousand tons.

In terms of energy efficiency, Azerbaijan made a legislative leap with the adoption of the Law on Effective Use of Energy Resources and Energy Efficiency in 2021, which entered into force in mid-2022. This law sets the legal foundation for energy-saving measures across supply and consumption chains. It covers everything from mandatory energy audits in large non-residential and public buildings to building energy passports, eco-design and labeling requirements for energy-related products, smart metering, and consumer awareness campaigns. It also envisions tailored financing tools like concessional loans, grants, and the establishment of a dedicated Energy Efficiency Fund — which is now operational.

The Ministry of Energy leads on energy efficiency policy and regulatory development. It collaborates with other ministries to set technical standards, including those for eco-design and energy labeling. To reinforce this effort institutionally, an Energy Efficiency Department was established within the Ministry in early 2023.

Strengthening this legal and policy framework, Azerbaijan adopted a new set of state standards on April 10, 2025, specifically aimed at improving energy efficiency in critical sectors. These standards set specific requirements for the effectiveness, safety, and energy efficiency of air conditioners, liquid cooling systems, and electrically powered compressor dryers used for heating and cooling premises. Their implementation is expected to improve the operational performance of such equipment, lower energy consumption costs, and support more competitive pricing in the market. Building on this momentum, for example, on April 11, 2025, Azerbaijan also amended the Law “On Efficient Use of Energy Resources and Energy Efficiency” to phase out conventional incandescent lamps used for lighting in alternating current circuits, with the exception of lamps intended for specific industrial processes or non-lighting applications. Under the new provisions, the import, manufacture, and sale of incandescent lamps rated at 60 W and above will be prohibited from January 1, 2026, while lamps in the 25–60 W range will be subject to the same prohibition from July 1, 2026. Together, these measures signal a coordinated legislative push to modernize energy consumption standards.

Beyond the immediate energy savings, the standards also lay the groundwork for broader innovation and development across the economy by encouraging the use of higher-efficiency technologies and setting a clear regulatory framework for manufacturers and suppliers. Further, among the objectives of the First State Program on the Great Return to the Liberated Territories of the Republic of Azerbaijan are the efficient and effective use of natural resources, and the promotion of concepts such as smart city, smart village, and green energy zone.

In Azerbaijan, the process of setting up and operating renewable energy projects—whether solar, wind, or other forms—requires navigating a legal and regulatory framework that ensures consistency across different energy sources. Regardless of whether a project involves solar PV, onshore or offshore wind, hydropower, geothermal, hydrogen, biomass, CHP (combined heat and power), battery energy storage systems (BESS), or biomethane, the procedures and requirements for obtaining rights and approvals are essentially uniform.

Securing rights to land or water bodies for the construction of renewable energy facilities is a key step. If the area has not been officially designated as a “territory of renewable energy sources” – a special status granted to areas with recognized renewable energy potential – then land or water use rights must be acquired under the terms of the Land Code, Water Code, and Urban Planning and Construction Code. However, if an area has been designated as such a territory, the government initiates a producer selection process under the relevant legislation. This process is managed by the Ministry of Energy, which either conducts an auction or uses direct recruitment to select a developer.

When the producer is selected through either of these methods, following contracts are concluded with him:

1. Investment contract (which includes the list of licenses and permits to be obtained) – between the Ministry of Energy and the producer. When the produces is selected through the auction, the investment contract is signed within 20 (twenty) business days after the end of the auction. When the produces is selected through the direct recruitment, the investment contract is signed after the negotiations with the prodecure on the basis of the consent of the President;
2. Power purchase agreement – between the Azerenergy OJSC and the producer. Through this agreement, a predetermined amount of energy generated from renewable sources is purchased over a specified period;
3. Electricity grid connection contract – between the transmission or distribution system operator and the producer, depending on the grid to which the power plant will be connected.

Later, chosen producers must secure the necessary permissions for electricity transmission, distribution, and cross-border trade in accordance with the country’s energy legislation. Any entity wishing to design, construct, or install a power plant must comply with the Urban Planning and Construction Code of the Republic of Azerbaijan as well as associated regulatory acts. Projects involving electrical installations exceeding 200 kW must obtain a commissioning certificate from the Energy Regulatory Agency under the Ministry of Energy.

The thresholds differ slightly based on the type of technology. For hydroelectric plants and facilities that generate both electricity and thermal energy using biomass-derived fuels or natural gas, a permit is required for capacities above 500 kW. For other renewable energy projects, a production permit is necessary for capacities exceeding 150 kW.

Once operational, the generated electricity must be connected to the national grid. This is done under non-discriminatory terms, with tariffs regulated by energy law. Notably, renewable energy producers are given priority access to the grid for both transmission and distribution purposes. A grid connection agreement must be concluded between the producer and the relevant system operator, with new rules for distribution system operators that became effective from July 2025.

Yes, the government of Azerbaijan is directly involved in the renewables industry. The state plays a structuring role at many stages, from designating land for renewable energy use to selecting producers and formalizing their rights through binding contracts.

The process begins with the Cabinet of Ministers, which adopts a decision designating a specific land plot or water body as a renewable energy territory. This decision opens a window of up to two years for the selected producer to obtain the necessary construction permit under the Urban Planning and Construction Code. Within that same period, the Ministry of Energy takes measures to select a producer for the territory and transfer the relevant land rights to them.

Producers are selected through one of two procedures:

1. Direct recruitment – Pilot and other projects necessary in terms of state interests and strategic importance are implemented on the basis of the direct recruitment. At this case, the Ministry of Energy prepares the appropriate justification and applies to the President of the Republic of Azerbaijan for permission to use the direct recruitment method.

2. The Auction – It is a procedure in the forms of an open auction and competition for the selection of a producer who will produce electricity over 150 kW in the territory of renewable energy sources and for determining the guaranteed tariff to be applied in the electricity purchase agreement. The auction is carried out in accordance with Rules for Selecting an Electricity Producer in the Area of Renewable Energy Resources. For example, first energy auction in Azerbaijan has been held in 2024, the outcome of which was announced during COP 29 event. As a conclusion of this auction, supported by EBRD, Universal International Holding Limited submitted the lowest bid of US$ 3.540 cents per kilowatt-hour (kWh) It will start working towards commissioning a 100 megawatt (MW) solar power plant in Garadagh region.

In terms of companies, a subsidiary of the State Oil Company of Azerbaijan (SOCAR), SOCAR Green is the only state-owned renewable energy company. Established within the framework of the tasks arising from the decree of the President of the country dated December 25, 2023 on declaring 2024 the “Year of Solidarity for a Green World” in Azerbaijan, the main goal of the company is to effectively manage SOCAR’s strategic renewable energy projects, expand cooperation opportunities with international partners in this field, as well as support decarbonization processes in oil and gas operations. The company owns a renewable energy project portfolio with a capacity of 1.4 gigawatts. It closely monitors larger-scale projects in the region, such as the approximately five-gigawatt green energy corridors intended for export to the European market, the Black Sea submarine cable, and the Caspian-Black Sea-Europe energy corridor projects. In 2025, SOCAR’s “Green Bonds” has already commenced to trade on the Baku Stock Exchange (BSE). Other some of grand state-owned companies have already started to take action on transitioning towards renewable energy sources. Azerenergy OJSC – the largest electrical power producer in Azerbaijan – has embarked on a strategic initiative to promote the integration of renewable energy into the existing energy infrastructure through the Azerbaijan Scaling-Up Renewable Energy Project (AZURE), approved in March 2025.

The Government of Azerbaijan has taken a strategic and structured approach to developing the renewable energy sector. Central to this effort is the Azerbaijan Renewable Energy Agency, established under the Ministry of Energy by Presidential Decree No. 1159 dated 22 September 2020, with the mandate to oversee and coordinate the sector’s growth. One of the key pillars of Azerbaijan’s renewable energy framework is the Law on the Use of Renewable Energy Sources for Electricity Production (“the Renewable Energy Law”), adopted on 31 May 2021, which laid the groundwork for more robust regulatory mechanisms and support for investors in this space.

In terms of legislative infrastructure, in addition to the Renewable Energy Law, several other laws intersect with or support the sector, including the Law on Electro Energetics (2023), Law on Public-Private Partnership (2022), Law on the Efficient Use of Energy Resources and Energy Efficiency (2021), and Law on Environmental Impact Assessment (2018), among others. These laws provide a comprehensive framework covering everything from energy efficiency to the protection of hydro-technical structures and water resources. In terms of regulatory infrastructure, Rules on Implementation of Supervision on Supply of Electrical and Thermal Energy, as well as Gas (2018), Rules for Selecting an Electricity Producer in the Area of Renewable Energy Resources (2023), Procedure for Issuing a Certificate of Origin for Electricity Produced from Renewable Energy Resources (2023), Rules for the implementation of the mechanism for supporting active consumers (2023) can be put as examples.

In the context of legislative proposals, to reduce GHG emissions in the oil and gas sector, the “Law on the Management of Greenhouse Gases Emitted into the Atmosphere” has been drafted, which will regulate procedures for managing GHG emissions. Amendments are planned to the “Land Code” and the “Law on the Use of Renewable Energy Sources in Electricity Production” to grant permission for agricultural land to be designated as an area for renewable energy sources without changing its category and without hindering its use for its intended purpose.

Azerbaijan has implemented a series of tax and customs incentives to stimulate investment in renewable energy, particularly for projects developed under Public-Private Partnership (PPP) models or Power Purchase Agreements (PPAs) with durations of up to 30 years. These incentives are codified in the Tax Code and Customs Code of the Republic of Azerbaijan and include both direct and indirect support mechanisms:

1. Income Tax Exemption: Profits earned by renewable energy producers operating under PPP or PPA arrangements are exempt from personal and corporate income tax for up to 30 years.

2. Customs and VAT Exemptions: Imports of machinery, technological equipment, and devices used for renewable energy production are exempt from value-added tax (VAT) and customs duties, provided they meet a minimum capacity threshold set by the Cabinet of Ministers.

3. Property and Land Tax Exemptions: Real estate and land utilized for renewable energy production projects are also exempt from property tax and land tax under the same 30-year PPP or PPA framework.

4. Residential Consumer Incentives: Individuals who produce electricity from renewable sources for personal use—with installations up to 150 kW—are exempt from income tax on that electricity.

The Law on the Use of Renewable Energy Sources for the Electricity Generation provides the issuance of a certificate of origin for electricity produced from renewable energy sources in order for producers to use the support mechanism. The mechanism covers active consumers – a legal entity or individual who, in addition to consuming electricity, produces up to 150 kW (including 150 kW) of electricity from renewable energy sources. It allows electricity consumers to install their own power plants and feed excess electricity into the grid for compensation. At the end of each reporting period, if they contributed more than they used, the electricity supplier pays them for the excess at wholesale rates.

There is also guaranteed tariff within the framework of a support mechanism, which is determined for electricity supplied to the grid per kilowatt-hour for producers. Guaranteed tariffs are determined through an auction held for the selection of an electricity producer in the territory of renewable energy sources, and when the producer is selected through direct recruitment, based on an agreement reached between the producer and the Ministry of Energy.

These financial incentives are designed to significantly reduce the upfront and ongoing costs associated with renewable energy development, thereby improving bankability and attracting both domestic and international investment.

At present, Azerbaijan’s regulatory environment does not include any explicit disincentives for renewable energy development.

Azerbaijan’s energy mix remains heavily concentrated in fossil fuels, with oil and gas making up more than 98% of the total energy supply. Electricity generation is predominantly based on natural gas, which accounts for approximately 90%, while large hydropower contributes around 4%.

Although no formal pricing de-linkage has been announced, the government is actively promoting the development of the renewable energy sector as a strategic step toward diversifying the energy mix and reducing long-term reliance on natural gas for electricity generation. This shift may gradually lessen the influence of gas prices on overall electricity pricing.

There are no announced plans to keep open coal plants originally scheduled for retirement.

Currently, there are no formal legal or regulatory barriers that significantly impede the renewables industry or businesses’ access to renewable energy in Azerbaijan. However, a key practical consideration is the capacity and readiness of the national electricity grid. While the grid has not yet reached its technical limits, there is a risk of capacity constraints in the near future as more renewable projects come online.

A major restructuring of Azerenergy OJSC, a state-owned entity managing electricity generation and distribution, is planned for 2027–2028 to address these concerns and enhance the grid’s ability to accommodate increased renewable energy integration. Until then, developers should remain mindful of potential bottlenecks in transmission and connection capacity.

Considering that, according to the Competition Code, the transmission and distribution of electricity and heat (except for energy produced at the expense of sources belonging to municipalities and (or) private property) are areas of natural monopoly activity, many activities in the field remain under the state control. The established system reflects a government-led model where public authorities select and subject the producers to the contracts signed with state-owned bodies, before the application for any permit. Despite such a regulatory influence, the legislation stipulates that every subject of energy obtaining goods, works and services of a natural monopoly or state monopoly entity operating in the energy sector shall act without any obstacles or discrimination.

In Azerbaijan, a typical new-build renewable energy project involves following key contracts:

1. An investment contract with the authorized state institution;
2. A power purchase agreement (PPA) with the guaranteed buyer (often a state-backed entity);
3. A grid connection agreement with the relevant transmission or distribution system operator (distribution-related agreements will only take effect starting July 1, 2025);
4. Engineering, Procurement and Construction (EPC) and Operation and Maintenance (O&M) contracts;
5. Land Lease and Easement contracts;
6. Project financing agreements, such as by Development/Investment Finance Institutions.

There are currently no restrictions on the export of renewable energy from Azerbaijan, nor are there any local content or domestic supply obligations imposed on renewable energy projects. As for the EU’s Net Zero Industry Act (Regulation 2024/1735), its implementation is not expected to have any direct impact on Azerbaijan at this stage, given the country’s non-EU status and the absence of binding trade or energy alignment mechanisms in this area. In the same vein, as Azerbaijan is not defined in the list of covered nations, the “foreign entity of concern” regulations in the U.S. are not expected to have any adverse impacts on Azerbaijan. On the contrary, the relations between two states are strengthening, as the Charter on Strategic Partnership, concluded on 10 February 2026, cover energy as well.

A general provision in this regard is about the export of energy. Under the Law on Electro Energetics (2023), electricity producers and suppliers shall have the right to participate in regional electricity markets under bilateral or multilateral international agreements of the Republic of Azerbaijan, subject to obtaining authorization for the import or export of electricity.

There is no specific reports or statements about the deployment of renewables in Azerbaijan being impacted by non-country-specific factors such as geopolitical uncertainties , or foreign tax or subsidy policies.Local market conditions and national regulatory frameworks continue to be the primary drivers of renewable energy development.

However, several factors need to be mentioned. In the past 3 years, Azerbaijan’s role in EU energy supply has increased due to geopolitical events. Moreover, the need to diversify non-oil exports and shifting to clean energy (Baku COP 29 event in this context) have also played an important role in increased attention to this area.

Since 2020, Azerbaijan has been actively cooperating with a range of international energy companies to advance its renewable energy agenda. Key partners include Masdar, ACWA Power, bp, Fortescue Future Industries, China Gezhouba Group Overseas Investment, Total Energies, Nobel Energy, A-Z Czech Engineering, and Baltech. These collaborations mark a significant shift in the country’s energy strategy, with a strong focus on diversifying its energy mix and reducing carbon emissions.

Masdar, the UAE-based renewable energy company, has been at the forefront of this cooperation. One of the most prominent initiatives is the Garadagh Solar PV Plant, a 230 MWac facility located near the Alat settlement. This project, which began commercial operations in October 2023, is Azerbaijan’s first independent utility-scale solar development based on foreign investment and structured as a public-private partnership. The plant produces approximately 500 million kilowatt-hours of electricity annually, enough to supply more than 110,000 households, and is expected to reduce carbon emissions by around 200,000 tonnes each year. The project has also provided employment opportunities for the local population, contributing to both environmental and socio-economic development.

In addition to the Garadagh plant, Masdar is currently developing the 240 MW Absheron-Garadagh Onshore Wind Project, another major step toward enhancing Azerbaijan’s renewable generation capacity. Furthermore, the 315 MW Neftchala Solar Project represents a new chapter in this partnership. Following the signing of investment and operational agreements in October 2023, the project officially broke ground during Baku Energy Week in June 2024, with construction expected to start in 2025. Beyond these specific projects, Masdar has signed agreements to develop a broad portfolio of renewable energy assets in Azerbaijan, including onshore wind, solar, offshore wind, and green hydrogen projects, totalling 4 GW of capacity with the potential to scale up to 10 GW. These initiatives directly support Azerbaijan’s national objective of generating 30 percent of its energy capacity from renewable sources by 2030.

British energy giant bp is also engaged in Azerbaijan’s renewable energy sector. In October 2024, bp entered into a joint venture with SOCAR Green and the Azerbaijan Investment Company to co-invest in the Shafag Solar Project, a 240 MWac plant to be constructed in the Jabrayil region. The venture, named Shafag (Jabrayil) Solar Limited, marks a significant collaboration in a liberated area and will pilot a unique “Virtual Power Transfer Arrangement.” This model involves delivering the solar-generated electricity to Azerenergy OJSC in Jabrayil, which will then transfer an equivalent volume of energy to bp’s Sangachal terminal, enabling the terminal to operate partially on renewable electricity.

ACWA Power, a major Saudi energy developer, is undertaking the construction of a 240 MW wind power plant in the Absheron and Khizi districts, specifically near the villages of Chayli and Sitalchay. This greenfield Independent Power Project (IPP) is being developed under a Presidential Order issued in December 2019, which initiated the implementation of pilot renewable energy projects in Azerbaijan. The key contractual agreements—Investment Agreement, Power Purchase Agreement, and Transmission Connection Agreement—were all signed in December 2020, and the project is designed to operate under a 20-year framework.

The Gobustan SPP with a capacity of 100 MW is being implemented by the China`s company – Universal International Holdings Limited, which won the auction in 2024. The plant is projected to generate about 260 million kWh of electricity annually. This will save 57 million cubic meters of natural gas and reduce carbon emissions into the atmosphere by 124 thousand tons.

On 2 June 2025, within the framework of the initiatives to transform the liberated territories into a green energy zone, implementation contracts were signed at the Baku Energy Week for the Ufug and Shams solar power plants, each with 50 MW capacity, which are planned to be built in Jabrayil district by Nobel Energy.

On July 29, 2024, the opening ceremony of a 100 kW photovoltaic system on Boyukshor Lake was held within the pilot project Knowledge exchange and technical assistance support for the development of floating solar panels system, implemented with the support of the Asian Development Bank. The experimental facility is the first solar power plant in the country to be commissioned over a watershed. Within the pilot project, it is planned to develop business models and strengthen national potential through trainings in order to promote the participation of the private sector in the installation of solar facilities. Studies are being conducted to implement large-scale projects on water bodies in the future.

The Azerbaijani government is making significant efforts to expand power generation in the renewable energy sector. Within this framework, cooperation is underway with the Saudi company ACWA Power, Chinese partners, the World Bank, and the Asian Development Bank (ADB) to develop BESS installations at energy facilities across the country.

A major milestone in this direction has been the launch of the country’s first large-scale Absheron Battery Energy Storage Centre, commissioned by Azerenergy OJSC. The company, using its own funds, has established large energy storage centres at two main substations—the 500 kV Absheron substation and the 220 kV Aghdash substation—with a total capacity of 250 MW and an energy storage capacity of 500 MWh. As part of the project, 50 battery units and 13 container inverters have been installed on the site of the Absheron Centre. During the commissioning ceremony in March 2026, it was also highlighted that a BESS centre of this scale has been created in Azerbaijan for the first time and has no equivalents in the CIS region. As the installation has been put into operation recently, the developed business models are to be observed in the future.

Although there are no definitive statistics on co-located or hybrid deals, recent BESS deployments suggest that standalone PPAs are currently more prevalent in the market. As a result, the impact of the implementation of these business models on financing structures is not clear yet.

To facilitate confidence in new development and financing in emerging sectors in Azerbaijan, several key requirements must be addressed. In regards to the offshore wind projects, following points are pointed out:

First, a clear and long-term strategic framework is essential. While the national roadmap shows that offshore wind can play an important role in the energy mix, investors need predictable policy direction and committed deployment targets. This is especially important given that Azerbaijan’s offshore wind market is expected to develop at a smaller scale compared to more established global markets, limiting the natural economies of scale that typically attract investment.

Second, improving infrastructure and logistics is critical. Current access constraints—particularly through the Volga-Don canal system—limit the size of equipment and vessels that can reach the Caspian Sea. Addressing these bottlenecks and ensuring the availability of suitable local installation vessels would increase investor confidence.

Third, grid integration capabilities must be strengthened. Offshore wind is a variable energy source, so investments in modern grid infrastructure, including smart grids, storage solutions, and flexible generation, are necessary. Integrating complementary technologies such as hydrogen production, electric vehicles, and potential interconnectors with other electricity markets will help manage variability.

Fourth, financial viability needs to be supported. Initial offshore wind projects are likely to have higher costs compared to existing thermal generation and onshore renewables. To mitigate this, mechanisms such as concessional financing, government-backed incentives, and policies that enhance revenue certainty (e.g., long-term power purchase agreements) are essential to attract private capital.

As for hydrogen projects, according to 2024 Azerbaijan National Hydrogen Strategic Outlook, prepared on behalf of and with the collaboration of Ministry of Energy, several coordinated measures are required:

First, strong institutional coordination is needed. This includes maintaining active collaboration between government bodies, developers, private sector actors, and international partners, such as through a centralized Hydrogen Working Group, to ensure alignment in policy direction.

Second, building human capital helps de-risk investment. Conducting skills and knowledge gap assessments, followed by targeted education, training, and apprenticeship programs, ensures that a workforce can support project development.

Third, regional and international cooperation enhances scalability and bankability. Deepening collaboration with neighboring countries, especially on shared infrastructure and export opportunities (e.g., hydrogen and renewable energy corridors), signals long-term market viability.

Fourth, like offshore wind projects, robust infrastructure and system planning are necessary. This includes studies on transport (rail and shipping), grid capacity, and export routes, as well as broader energy corridor development to ensure that production can reach markets efficiently.

Together, these measures create a well-planned ecosystem that reduces risk and builds confidence in investors for financing and developing new energy sectors.

Renewable energy projects in Azerbaijan are commonly financed via the following methods:

1.  Investments by project developers or companies mainly coming from abroad. The capital investment for a solar power plant with a capacity of 1 megawatt is between $600,000-$800,000, and for a wind power plant it is between $1.2-$1.4 million. That is, by 2027, the amount of direct foreign investments solely for the development of green energy in Azerbaijan is envisaged at $2 billion.
2. Loans from multilateral development banks such as World Bank, EBRD, ADB, AIIB. The Azerbaijani banking sector is also ready to allocate significant financial resources to support “green transition” projects by 2030. For example, Kapital Bank provides green loans to entrepreneurs and supports projects such as solar panel installations.
3. Government Incentives which are provided to support renewable energy projects in the form of public-private partnerships (PPPs), power purchase agreements (PPAs), tax and custom incentives.

Digital transformation, artificial intelligence, and the development of data centres are becoming central pillars of Azerbaijan’s long-term economic strategy. Global trends show that countries investing in these areas are shaping their future competitiveness, and Azerbaijan has already taken steps to position itself within this evolving digital landscape. With experience in delivering large-scale infrastructure, the country is well equipped to support the expansion of data-driven industries.

A key advantage highlighted in this context is Azerbaijan’s growing energy capacity. Over the past two decades, the country has significantly increased its electricity generation potential, including investments in gas, hydro, solar, and wind energy. There remains a considerable reserve of unused generation capacity, which creates a solid foundation for energy-intensive infrastructure such as data centres. Combined with ongoing efforts to expand fiber-optic connectivity and strengthen its role as a regional connectivity hub between Asia and Europe, Azerbaijan is positioning itself as a destination for digital infrastructure development.

Against this backdrop, while the global surge in demand for data centres has raised concerns in many countries regarding pressure on electricity grids and rising costs for consumers, Azerbaijan currently does not experience such impacts. The existing surplus in generation capacity and proactive infrastructure planning have ensured that increasing interest in data centre development has not translated into higher electricity prices for end users at this stage.