From export of energy carriers to export of finished electric energy

Commentary Materials 27 December 2023 10:45 (UTC +04:00)
From export of energy carriers to export of finished electric energy
Elshad Mammadov
Elshad Mammadov
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BAKU, Azerbaijan, December 27. The national economies of the former Soviet republics confronted a grim image following the dissolution of the Soviet Union (USSR) and the rupture of cooperation and technological connections between economic organizations. According to expert estimations, the region's economic crisis had reached 50–60 percent by the mid-1990s. Investment and industrial production were approaching critical levels. The advice of international financial institutions, which had already become highly dominant in the region by those years, also played a negative influence, in my opinion. These recommendations, I believe, resulted in the institution of domestic investment being blocked. This denied countries the chance to develop economic and social objectives. Certainly, the region's states have distinct resource potential. While they had many characteristics, the economic policies they implemented were not the same.

Azerbaijan staked on the "oil strategy" in the uneasy conditions of the 1990s, which implied obtaining investment support for the national economy through the development and increase of oil production. The core of the "oil strategy" was the export of energy carriers to Europe, one of the most solvent regions of the globe. This should have led to a sharp increase in foreign exchange earnings. That in turn meant ensuring an impressive surplus in foreign trade and, in general, in the balance of payments of the state. In the absence of other real resources to support the reproduction of the national economy, it was an alternative way to maintain economic stability and development. As a result of the multiplier effect, related industries also developed. Economic dividends also made it possible to resolve the issues of maintaining the country's defense capability and security. In addition, several social policy issues have been resolved. And of course, the "oil strategy" has significantly strengthened the country's position on the political map.

However, the global economy is undergoing a transformation. And this process is nearing its end. The new technological mode, the introduction of energy-saving and efficient technologies, and the rise and strengthening of alternative energy carriers all bring changes to the economic and energy agendas. The West's "green agenda" creates new obstacles. In the near and medium term, it is unrealistic to forsake existing forms of electricity generation. However, it is clear that even Europe, which is experiencing a severe shortage of energy carriers, is refusing long-term contracts and investments in projects for the supply of traditional energy carriers. This means that novel solutions are required.

In this regard, it is not by chance, I believe, that in recent months, Azerbaijan has been actively preparing and making decisions on launching power generation capacities from alternative sources. Today, the country's energy agenda includes the implementation of projects in three of the four already established main directions of alternative power generation. The water potential of the territories of Azerbaijan liberated from Armenian occupation is an important factor in solving these tasks. According to expert estimates, 20 to 25 percent of the country's water resource potential is concentrated in the liberated territories. Taking into account the presence of mountain rivers in the region, the construction and commissioning of small hydroelectric power plants can have a significant positive impact both in terms of supplying the domestic market and the export track.

I would like to point out that recently the President of Azerbaijan, Ilham Aliyev noted that in 2021–2023, hydroelectric power plants with a total capacity of 170 MW will be commissioned in the liberated territories of Azerbaijan. He added that by the end of next year, the capacity will amount to 270 MW, and in a few years, it will reach 500 MW.

Moreover, the Garadagh Solar Power Plant, with a capacity of 230 MW, was launched in October this year in Azerbaijan. This power plant is the largest in the Caspian and Caucasus regions.

In general, according to expert data, Azerbaijan's potential for wind and solar energy on land is about 37 GW, and the potential of wind energy in the Azerbaijani sector of the Caspian Sea is about 157 GW. According to the head of state, by contract, the production of electricity from alternative sources will reach 10 GW in the country in the upcoming years.

At the same time, with the development of a new technological mode and the solution of technological and infrastructural problems, hydrogen may also become an extremely important area of energy. Here, I believe, Azerbaijan's competitive opportunities will be impressive.

The fourth component of alternative power generation, nuclear power, should certainly not be neglected. I think that underestimating this area is extremely unfavorable. World experience and advanced science convincingly testify to the high efficiency of nuclear power generation, its technology, and its competitiveness. In my opinion, the prerequisites for the development of nuclear energy in the country will only increase. Azerbaijan has considerable economic and resource potential for this purpose.

The data cited above, I believe, clearly illustrates the creation of a new energy agenda. The essence of its export component is an endeavor to change priority from energy carrier export to finished electric energy export.

These new problems, I believe, will cause considerable modifications in many areas of the socioeconomic agenda. Changes in overseas trade and the labor market are two examples.

Without a doubt, the new energy agenda will be regional in nature and cannot be limited to a single country. I am confident that Azerbaijan can serve as a unique hub in this global process.

Professor Elshad Mammadov

Doctor of Economic Sciences