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Need for KfW loan for alternative energy development in Azerbaijan to be determined in 2014

Oil&Gas Materials 14 January 2013 17:29
By May 2014, German consulting company MVV Decon will have completed a feasibility study for the development of a renewable energy sources project in Azerbaijan. Its implementation was planned around a loan from the German Development Bank KfW, the Baku office of KfW told Trend on Monday.

Azerbaijan, Baku, Jan. 14 / Trend, I. Khalilova /

By May 2014, German consulting company MVV Decon will have completed a feasibility study for the development of a renewable energy sources project in Azerbaijan. Its implementation was planned around a loan from the German Development Bank KfW, the Baku office of KfW told Trend on Monday.

"Work will be conducted in two phases and last for 18 months. The project's technical aspects will be developed during the first phase of the feasibility study preparation, while its environmental and social aspects will be developed within the second phase", the bank said.

Work within the first phase will be completed in mid-2013.

The project aims to increase the proportion of renewable energy in total electricity production levels in the country and ensure the continued and effective use of resources. The consultant's tasks also include supporting the development of a legal framework for the renewable energy source field.

KfW is ready to allocate 130 million euros to Azerbaijan to create the Pirekeshkul air fleet. According to the State Company for Alternative and Renewable Energy Sources, the project cost is estimated at 165 million Manats.

According to the government, the need to attract foreign loans for the project will be determined following completion of the feasibility study.

Since beginning cooperation, KfW has financed projects in the Azerbaijani energy sector, in particular, the construction of AzGRES - Imishli power lines, for which the bank allocated 30 million Euros. Funds have been provided at the rate of 0.75% per annum for a period of 12 years with a 2 year grace period.

It is expected that by 2015, production of electricity from alternative and renewable energy sources in Azerbaijan will reach 2.6 billion kilowatt/hours per year, leading to fuel savings of one million tons. The greatest electricity losses are recorded at power stations and work is currently conducted in the country on their reduction.

In particular, losses stand at 4.4% during electricity transmission, and 16% during distribution. In general, the amount of electricity loss in transmission and distribution reaches 20-21%.
At present, the share of alternative energy sources in Azerbaijan is less than 1% and accounts for small hydropower plants. Decision have been made in Europe and other developed countries to increase the annual share of alternative energy up to 10-15% of the total electricity production.

According to preliminary research, construction of up to 100 facilities for alternative energy generation is planned in Azerbaijan during five years.

A single retail electricity price at 0.06 Manats (0.076 dollars) per kilowatt per hour at a wholesale price no higher than 0.04 Manat has been in force in the country for six years. Introduction of tariffs on electricity produced from renewable and alternative sources exceeding the existing wholesale electricity price in the country today is planned in the future. The tariff for the sale of electricity produced from alternative sources to consumers will remain unchanged, while the prices for transmission of electricity to the operator are currently being negotiated.

Total power generation in Azerbaijan currently exceeds 6,500 MW, while the total capacity of power plants under construction will reach about 1,500 megawatts.

The official exchange rate on January 14 is 0.7848 AZN / USD.

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