Baku, January 31, AZERTAC

Dr. Cyril Widdershoven, Director for Energy, Geopolitics, and Supply Chains at the Cyprus-based think tank and consultancy Strategy International, gave an interview to AZERTAC.

-How do you assess Azerbaijan's current position in the context of the global economy?

- The position of Azerbaijan in the global context has improved, as it has become a major strategic asset, not only in the region but also for the European Union and the USA. As we all know, the course taken by Azerbaijan is seen as positive, so increased trade between the two Western economic blocks and Azerbaijan is to be expected. At present, especially the energy relation with the EU is growing, mainly, of course, caused by the ongoing Russian invasion of Ukraine and the growing sanctions of Western countries on Moscow’s energy exports.

The country is still seen as promising, with a significant opportunity to be part of the Asian block (China or India). Arab countries (GCC) are also monitoring the developments in Azerbaijan. Possible Arab/GCC investments are to be expected, especially in light of countering Iranian influence and linkages.

-How do you assess the investment climate in Azerbaijan, and what else needs to be done to attract international investors?

- The current investment climate in Azerbaijan is positive; no factual issues are on the horizon, even though legal and political differences sometimes will intervene. International organizations are also relatively optimistic about ongoing developments, government strategies, and investments. Still, there are global concerns about the country being landlocked, so international trade is mainly linked to routes via Turkey and Russia. At the same time, there is a growing need for economic diversification, as Azerbaijan’s GDP is still around 50% based on hydrocarbons, while its exports are 90% hydrocarbons. Financial institutions also ask for a more transparent banking system and more precise credit support for the private sector. Governance is also on the top list of international institutions and possible industrial investors.

-Azerbaijan has traditionally been focused on hydrocarbons. How do you assess the steps being taken to develop renewable energy in the country?

-The first steps have been taken, as seen by significant investment schemes from Arab SWFs and utilities. At the same time, the road is still long, but this also could be an opportunity. Azerbaijan could take a slow approach and learn from the mistakes made in other regions, such as the North Sea, Germany, and overall EU and UK. Diversification of energy and decarbonization of the economy is going to be needed. Still, it should be based on a rational and functional approach, not being led by political dreams or the influx of foreign investments. The main course to be taken is to decarbonize specific sectors and low-hanging fruits while still supporting hydrocarbons, as they are the main backbone of the economy (also worldwide). Using these revenues to set up renewable energy schemes and diversify the economy also prevents a debt trap or the destruction of society (look at the EU).

-What are Azerbaijan's main advantages for developing green energy, such as solar and wind energy?

- It may sound strange, but the availability of natural gas and crude oil at very low prices is a significant advantage in these developments. Setting up wind or solar farms is very energy intensive, considering concrete and metals. Using Azerbaijan oil and gas to support these projects is an advantage. It will also help to diversify the economy, as low-carbon steel, etc., is needed worldwide, so it should be promoted.

When looking at the options for renewable projects, Azerbaijan’s offshore is very attractive. Offshore wind, even floating wind, could be used increasingly, removing part of the economy's use of hydrocarbons. At the same time, offshore and onshore wind could be used to decarbonize the production and use of hydrocarbons by using renewable energy to produce oil and gas or decarbonize downstream sectors.

Solar energy is, of course, also of interest, considering the geography of the country. When it comes to green or blue hydrogen, Azerbaijan can use its oil and gas technology knowledge to push them in the coming years.

-Are there any significant green energy projects in Azerbaijan that could serve as an example for other countries in the region?

The world is looking at developments related to the SOCAR – MASDAR cooperation, which involves the setup of two solar plants and a wind power plant. As they entail three plants – the 445-Megawatt (MW) Bilasuvar solar facility, the 315 MW Neftchala solar plant, and the 240 MW Absheron-Garadagh wind farm, the SOCAR–Masdar operations are being scrutinized and, if successful, will be a state-of-the-art example for other significant investments. It fits into Azerbaijan’s targets set for 2030, which is 30% of renewable energy production overall.

-What opportunities and challenges do you see in Azerbaijan's transition to renewable energy?

- The opportunities are vast, as the International. Energy Agency (IEA) and IRENA have stated that the main challenges are the slow pace of investments, lack of real urgency, and the hydrocarbon addiction. For Azerbaijan, these factors should, however, not be seen as a significant issue, as most countries worldwide, especially in Europe, are showing the same issues. The urgency, however, could be much more on the forefront. Remember that any increase in renewable energy in the country's economic system will free up additional volumes of oil and gas for exports, not domestic use. At the same time, additional renewable energy production could be used to decarbonize the hydrocarbon sector, as ADNOC is doing in the UAE. Low-carbon oil and gas are much more attractive to potential customers in the future.

-How can the development of renewable energy impact Azerbaijan's economy and its position in the international arena?

- As stated above, decarbonizing the total system doesn’t mean stopping using oil and gas but making all production low-carbon or using it to produce renewables. Global economies will still need oil and gas after 2050, maybe not as primary fuel but as products, such as plastics, chemicals, or fertilizer.

-How can Azerbaijan use its resources to improve economic integration with neighboring countries and international partners?

-The current economic integration is already reasonably high. Diversifying its existing economy to new products or manufacturing sectors could increase its overall regional standing. Simultaneously, producing renewable energy will be a high priority for neighbors to take off. New energy links with regional powers and the EU are in the offering.

-Which economic sectors could become Azerbaijan's primary growth drivers in transitioning to sustainable energy?

-Manufacturing of steel, concrete, plastics, and high tech. Using hydrocarbon revenues for these opportunities will be an advantage that most countries don’t have. An always undervalued sector is food and food processing, so more attention should also be given to this. Take the Netherlands as an example. It is a tiny country, but in agriculture, it is a superpower, bringing in billions of dollars each year.

-How do you assess the prospects for creating new industries and clusters in Azerbaijan related to innovative technologies and the green economy?

-Relatively high, but all will depend on the attractiveness of the economy and the political system. Most innovation is being pushed by Western countries, and the interest to invest in Azerbaijan is there, so make use of it. Geopolitics can also be a major instrument to push the position of the country in the future.