BAKU, Azerbaijan, June 4. Azerbaijan is well positioned to play a strategic role in regional energy transition, Rebecca Fitz, a founding member of Boston Consulting Group’s Center for Energy Impact, said in an exclusive interview with Trend on the sidelines of the Baku Energy Week.
“I've been impressed by the potential in Azerbaijan on wind and solar. Potential investments are very sizable and very material, and that's an exciting opportunity that can potentially be important and transformative. A lot will depend on attracting investment and capital. To do this, it’s important to note that investors will tend to gravitate towards area with stable, long-term rules and regulations in place. Azerbaijan has a very strong track record of stability in its hydrocarbon sector. At this conference, many people brought up repeatedly how important that stability was, and how stable and constructive the partnerships are,” she said.
Fitz pointed out that wind and solar are still relatively new, and many countries are working to establish their preferred long-term regulatory framework.
“For investors, having that long-term stable framework becomes critical. Otherwise, they’ll be hesitant to deploy capital. The other issue is that, in particular, wind energy has very high upfront capital cost. Incentivizing capital deployment Is therefore important. There are a couple of potential mechanisms to do this. First, a lot of countries have used subsidies and incentives designed to encourage investment in renewables. That is an important part of the puzzle. I don't know many countries that have started widespread renewable deployment without subsidies and incentives in place. Stability over time is also important. If countries frequently change the available incentives to investment, it erodes the investment proposition. Part of the solution to encouraging capital investment likely involves having the right incentives in place,” she noted.
Fitz said that the other part, ties back to the COP29 conclusions where countries agreed to fund $300 billion in energy investment in developing countries as part of $1.3 trillion in overall spend.
“Accessing that funding isn’t always straightforward. Companies that are able to navigate the process and deploy it effectively gain a real competitive advantage—because that's what ultimately unlocks the value of that funding. I think there's part of the COP29 conclusions that could be usefully applied to help address that capital challenge.
The third area is grid infrastructure and integration. It's a challenge in many countries where renewable deployment is increasing. A lot of our grids globally are needing to invest to accommodate more variable renewable power. There's a lot of investment that needs to go into the grid and grid integration to make them suitable for non-dispatchable electricity. I think that's a significant investment need and requirement that sometimes is misunderstood with renewables. A lot of governments and companies focus on building capacity, but actually that capacity has limitations if there's no parallel investment in the grid and in integration.
Probably in Azerbaijan, the grid is underdeveloped relative to the system needs. And we're finding that in country after country. Grids need more investment,” she said.
Azerbaijan’s green corridor initiatives
“I think the Black Sea Cable project is highly strategic, as it aligns with both regional and global goals. This project is strategically an important accomplishment if brought to fruition. Europeans are seeking to diversify away from Russian hydrocarbons, hence it has expanded the strategic importance of Azerbaijan. At the same time, these countries have ambitious green energy ambitions and targets.
If the corridor is used to transport green electrons, it can support both greater energy diversification and progress toward their decarbonization goals—making it a highly strategic and potentially transformative initiative,” noted Fitz.
She pointed out that one of the main challenges is around cross-border coordination.
“The project involves many actors, both government-led, but also private company-led. This increases the complexity. And higher complexity frequently means higher cost and longer development timelines. Identifying the strong management model that streamlines the complexity and can oversee the path to project development, is critical,” said Fitz.
Talking about the Azerbaijan-Uzbekistan-Kazakhstan green corridor project, which is an export-centric project, she noted that it can bring huge opportunities.
“Having a corridor and more interconnectivity actually helps to secure internal, as well as external needs. I’d also mention – and this is relevant for the Black Sea Corridor too - the growing focus on AI and data center needs. Data centers are tremendous users of power. Wherever data centers go, the first thing that needs to be figured out is, where is our power going to come from?
I think many of these projects, which aim to connect countries within the region and link them to Europe, are both forward-looking and forward-thinking. As the region is increasingly discussed as a potential hub for data centers, this kind of interconnectedness will be critical for positioning the region to meet future growing power demands,” she said.
Fitz noted that the world is in an energy transition where hydrocarbons still play a very important role.
“For Azerbaijan, given its connectedness with the world and its role as a regional energy hub, hydrocarbons is part of the answer. The challenge is to focus on reducing emissions in the oil portfolio. Azerbaijan benefits from having lower carbon oil versus many other countries. In terms of longevity of oil, having a lower carbon profile oil is an important bridge when there's still high global oil demand. In addition to oil, gas is an important element and has been a significant focus for investment in Azerbaijan over the past decade. While gas does have significant methane emissions that must be managed, countries that have switched from coal to gas have been able to reduce their emissions profile considerably. Thus, helping the world transition to gas, is another important long-term strategic platform that is well-advanced here in Azerbaijan.
The third pillar for a sustainable energy ecosystem is in low-carbon investment, particularly in wind and solar, but in other low-carbon areas as future options as well. Cleaner oil, more gas, and finding the right model to scale renewables is a pretty durable platform for energy relevancy long into the future,” she concluded.