Delve into the legal challenges and opportunities in Azerbaijan's alternative energy sector, and discover proposed regulatory measures to foster sustainable energy development.
Abstract
The Sustainable Development Goals established by the United Nations comprise a comprehensive framework of international targets that aim to tackle diverse social, economic, and environmental issues. Among these goals, Goal 7 emphasizes the importance of providing universal access to affordable, reliable, sustainable, and modern energy. Embracing alternative energy technologies not only drives economic growth and job opportunities but also attracts investments, stimulates technological innovation, and cultivates domestic industries. As a post-soviet nation and an industrial state, the economy of the Republic of Azerbaijan is significantly based on oil production. The combination of these related newly emerged challenges give impetus for Azerbaijan to diversify its economy via a green economy that will pave a way for the long-term economic stability while addressing environmental and social concerns in the country. In this regard, the principal purpose of this article is to explore the legal challenges arising from the alternative energy sector in Azerbaijan and propose appropriate measures for the regulatory framework.
1. Introduction to Azerbaijan's Alternative Energy Landscape
Azerbaijan's diverse topography includes highland areas that benefit from elevated elevations. On average, the country enjoys approximately 250 to 300 sunny days per year, although slight variations may occur depending on the specific geographic region within Azerbaijan. For these reasons, the government of Azerbaijan has demonstrated its interest in solar energy as a sustainable and viable source due to its abundance of sunlight. For instance, the "Strategic Roadmap for the Development of Utilities (Electricity and Heat) in Azerbaijan" approved by the President's decree on December 6, 2016, sets a target for increasing the proportion of renewable energy, including wind power, in the national energy mix. Furthermore, Azerbaijan has established the State Agency on Alternative and Renewable Energy Sources to coordinate and implement policies related to alternative energy. As a member of the International Renewable Energy Agency (IRENA), the country engages in collaborative efforts, knowledge exchange, and the adoption of best practices in the field of renewable energy. In 2023, Masdar, an energy company based in the United Arab Emirates, entered into agreements with the State Oil Company of the Republic of Azerbaijan (SOCAR) to develop Azerbaijan's wind and solar power capacity integrated with green hydrogen projects.
The projects align with Azerbaijan's target of meeting 30% of its domestic power needs from renewable sources by 2030, while also diversifying its economy and reducing greenhouse gas emissions. However, being a developing country, Azerbaijan encounters various legal challenges in the development and implementation of alternative energy projects.
2. Legislative Measures Promoting Alternative Energy in Azerbaijan
The current legal framework regulating the energy market is mainly built with a focus on the role of the government (through public utilities).
- The Law on Energy;
- The Law on Electrical Power;
- The Law on Electrical and Thermal Power Plants;
- The Law on Utilization of Renewable Sources in the Electricity Production;
- The Law on Efficient Use of Energy Resources and Effectiveness of Energy.
3. What are the legal challenges associated with these policies’ and regulations’ implementation and enforcement in the alternative energy sector?
The insufficient provision of incentives for alternative energy signifies the absence or limited availability of measures, financial support, or policy mechanisms that stimulate the advancement and utilization of alternative energy sources in Azerbaijan.
a. Lessons Learned from Challenging Feed-in Tariff and Net Metering Implementations
Feed-in Tariff (FiT) and Net Metering are both renewable energy policies that facilitate the adoption of alternative energy sources. Feed-in Tariff policies provide crucial support for the advancement of renewable energy sources by ensuring producers receive a guaranteed price that surpasses the market rate. The system was introduced in 2000 with the adoption of the Renewable Energy Act in Germany. The central mechanism of a feed-in tariff is a guaranteed, fixed wholesale price for green electricity for a specific time period. Following the introduction of the Renewable Energy Act, electricity produced by Renewable Energy Sources, as a share of overall electricity consumption, increased from 6.2% in 2000 to 23.7% in 2012. Insufficiently designed FiT systems in Azerbaijan will be able to pose challenges in securing long-term power purchase agreements and attracting investments for renewable energy projects.
Net metering is an efficient reward program for consumers who produce electricity through their limited alternative energy systems. Net metering programs allow the users to store excess energy on the grid instead of storing it in large batteries. During a survey of residents of Sri Lanka, heads using the net metering solar system were studied and results revealed that 77% of the domestic heads surveyed were mindful of energy savings through solar panel installations and the remaining 23% were not aware of the grid power solar net metering. However, the limited or non-existent availability of net metering programs can discourage the adoption of alternative energy technologies. Azerbaijan serves as an example, where there is a growing interest in the development of large-scale solar and wind power projects to diversify the energy mix and decrease reliance on fossil fuels. The resulting lack of regulatory clarity and consistency acts as a deterrent for potential investors and hampers the progress of utility-scale alternative energy projects. Consequently, Azerbaijan falls behind in achieving its renewable energy targets and continues to heavily depend on conventional energy sources.
b. Challenges in Land Rights and Acquisition for Alternative Energy
Land is a critical resource for renewable energy projects, including solar farms, wind turbines, and hydropower plants. Incompatible land uses, such as restrictions on building wind turbines near residential areas, further complicate project sitting. Additionally, concerns about visual impacts and potential alterations to scenic landscapes or cultural heritage sites can result in opposition or legal challenges from local communities and residents. For example, consider Azerbaijan seeking to expand its renewable energy capacity by establishing wind farms along the coastline. However, coastal areas are often utilized for fishing activities, tourism, and environmental conservation, leading to potential conflicts in allocating and using land for wind energy projects. Local communities and stakeholders, such as fishermen and tourism operators, may express concerns about the potential disruptions to their livelihoods and the environment. Such concerns can result in opposition and resistance, causing delays and complexities in acquiring land for wind farm projects.
c. Lack of Intellectual Property Protection
Accessing patented technologies and ensuring their affordability pose challenges for developing nations. Collaboration between developed and developing countries plays a vital role in advancing alternative energy technologies19. Consider a scenario where a research institution or private company in Azerbaijan achieves significant progress in solar panel technology, creating a more efficient and cost-effective solution compared to existing market products. Competitors or manufacturers may replicate and sell identical or similar solar panels without obtaining the necessary licenses or permissions. In this case, foreign companies or investors may hesitate to engage in joint ventures or technology transfer agreements if they perceive weak protection of intellectual property rights in the country. Consequently, this can lead to a loss of market share, decreased profitability, and limited opportunities for further research and development.
4. Overcoming Legal Challenges in Alternative Energy: What are the Solutions?
a. Designing Effective Feed-in Tariff Policies and Net Metering Regulations
Excessive consumption of fossil fuel-based energy in a country presents significant potential for the emergence and integration of alternative energy sources. Through diversifying the energy mix and reducing dependency on fossil fuels, Azerbaijan can effectively mitigate environmental impacts and bolster energy security. The presence of vacant areas in Azerbaijan provides a favorable setting for the implementation of the Public-Private Partnership (PPP) model in the field of alternative energy. The PPP model involves a cooperative arrangement between the government and private entities, where both parties contribute resources, expertise, and financial investments to jointly undertake projects. By utilizing these vacant areas, the government can offer land resources while private companies contribute technical knowledge, innovation, and funding for the development of alternative energy infrastructure. By repurposing these areas for alternative energy initiatives, the country can tap into its renewable energy potential and reduce reliance on traditional energy sources. This will unlock the potential of vacant areas in Azerbaijan, paving the way for a sustainable and prosperous energy future.
To facilitate the implementation of renewable energy projects, it is essential for Azerbaijan's legislation to include provisions for the establishment of feed-in tariffs. The implementation of feed-in tariffs can offer renewable energy producers' long-term contracts with fixed premium rates, providing stability and favorable conditions for project developers. A notable example is Germany's introduction of the Renewable Energy Sources Act in 2000, which incorporated a robust feed-in tariff mechanism. As a direct outcome of this policy, Germany experienced a substantial growth in renewable energy capacity, particularly in wind and solar power. This expansion not only increased the proportion of renewable energy in Germany's electricity generation, but also stimulated the development of a robust renewable energy industry and contributed to the creation of numerous job opportunities.
Net metering enables energy consumers who possess renewable energy systems, such as solar panels, to produce electricity for their own usage while also supplying any surplus electricity back to the power grid. The implementation of net metering programs presents individuals and businesses with financial incentives to invest in renewable energy systems. Participants in these programs can lower their electricity bills by utilizing the electricity they generate themselves. For instance, the Net Metering Program introduced in the Philippines in 2008 has played a crucial role in fostering the adoption of renewable energy. This initiative has empowered residential, commercial, and industrial consumers to generate their own electricity and contribute to the grid, thereby reducing their dependence on conventional fossil fuel-based power sources.
In order to support alternative energy projects, it is crucial for strategic planning to take into account the existing infrastructure and the potential need for additional infrastructure development. To optimize land use and minimize conflicts, it is important to develop a clear land zoning plan that designates specific areas for different types of alternative energy projects, such as solar farms and wind parks. For instance, the government of Gujarat implemented a strategic plan for renewable energy development, which involved identifying suitable areas for solar and wind power projects through extensive mapping and analysis. By identifying regions with high solar radiation and favorable wind conditions, Gujarat has emerged as a leading region in India for renewable energy generation.
b. Addressing Legislative Challenges: Recommendations and Best Practices
A well-defined set of laws can establish a comprehensive regulatory framework encompassing various aspects of Azerbaijan’s alternative energy, including connection procedures, licensing requirements, permitting processes, and environmental impact assessments. Such legislation can streamline administrative procedures and ensure fairness among renewable energy projects. For instance, India's Renewable Energy Act, implemented in 2015, was the introduction of a Renewable Purchase Obligation. The Act established a National Renewable Energy Policy, which involved the creation of regulatory bodies and mechanisms responsible for overseeing the implementation, monitoring, and enforcement of the law in India. Consequently, this specific legislation provided a clear roadmap, financial incentives, and regulatory support, thereby attracting investments and promoting technological advancements in the renewable energy sector.
c. Unlocking the Potential of Land for Alternative Energy Projects: Comprehensive Land Resource Assessment and Planning
Azerbaijan can establish a structured and legally binding framework for land use in alternative energy projects through the implementation of land lease agreements. These agreements enable the country to secure the necessary land for such projects while providing clarity and transparency regarding the rights and responsibilities of all involved parties. Incentives in the form of financial compensation can be included in these agreements to encourage landowners to lease their land for renewable energy initiatives, thereby promoting economic benefits and supporting the development of alternative energy. By establishing long-term commitments, land lease agreements ensure stability and continuity for renewable energy projects. A notable example is the Lake Turkana Wind Power Project, Africa's largest wind farm situated in northern Kenya. To overcome land use challenges, the Kenyan government and project developers engaged in land lease agreements with local communities and landowners, effectively leasing the required land for the wind farm while safeguarding the rights and interests of the local communities. Through these agreements, fair compensation was provided to the landowners, resulting in economic benefits for the communities and addressing any concerns associated with land acquisition.
Enhancing the efficiency of obtaining permits for alternative energy projects by simplifying the application procedures, is an important step to reduce bureaucratic obstacles. Within the context of Azerbaijan, there exists a potential deficiency in transparency and established platforms pertaining to the realm of alternative energy. To address this issue, the country can establish an integrated approval system that involves multiple stakeholders, including environmental agencies, land-use authorities, and local communities. This collaborative approach ensures coordination and cooperation among various entities, resulting in a more efficient permitting process. A similar example can be observed in Rajasthan, where the government successfully introduced a simplified and streamlined application process for setting up solar power projects. By implementing a single-window clearance system, developers could submit their applications and obtain all necessary permits and approvals within specified timeframes.
d. Strengthening Intellectual Property Protection for Alternative Energy Technologies
Azerbaijan can engage in negotiations with technology providers to obtain the necessary intellectual property rights for alternative energy technologies, incorporating provisions for compulsory licensing, technology sharing, or preferential treatment for domestic industries to ensure affordable access to such technologies. A practical example illustrating the significance of strengthening intellectual property protection can be observed in China's solar photovoltaic manufacturing sector. Although China has become a prominent global player in PV manufacturing, it has encountered intellectual property-related obstacles. Concerns have been raised by foreign companies regarding intellectual property infringement and unfair practices in the Chinese market, potentially discouraging innovation and investment. In response, China has implemented measures to enhance intellectual property protection specifically for alternative energy technologies. Notably, the establishment of specialized intellectual property courts has led to a more focused and efficient legal process for resolving intellectual property disputes, thus bolstering the safeguarding of intellectual property rights. The implementation of a subsidy program that rewards companies for their development and commercialization of innovative alternative energy technologies has incentivized research and development while safeguarding intellectual property rights.
e. Certificate Trading and Alternative Energy: Market Transparency and Integrity
The primary support mechanisms widely employed in the promotion of renewable electricity encompass public research and development, tax and investment incentives, feed-in tariffs, net metering, and quota-based mechanisms based on certificate trading. Tradable Green Certificates serve as evidence that the obligated party has generated a specific proportion of their electricity from renewable energy sources. Failure to provide an adequate number of certificates incurs a penalty payment. The Renewable Energy Certificate (REC) program in the United States serves as a practical illustration of certificate trading within the alternative energy sector. Through this program, producers of renewable energy can obtain certificates for each unit of renewable energy they generate.
f. Exploring Privatization and Corporate Governance in the Alternative Energy Sector
By embracing robust corporate governance practices and implementing well-regulated privatization strategies, Azerbaijan can effectively address the challenges arising from the alternative energy sector and pave the way for a sustainable energy future. In the alternative energy sector, corporate governance pertains to a set of regulations, rules, and practices that govern the decision-making processes and overall management of organizations involved in this sector. Corporate governance practices enhance the credibility and trustworthiness of alternative energy organizations, attracting investors, securing financing, and facilitating partnerships for technological advancements and market expansion. On the other hand, privatization involves the transfer of ownership, control, or management of energy assets or services from the public sector to the private sector. However, it is vital to strike a balance between privatization and regulatory oversight to ensure fair competition, consumer protection, and environmental sustainability.
Takeaways:
In conclusion, it is crucial to address the legal obstacles associated with alternative energy in order to foster its growth and maximize its potential. This article has examined the various legal challenges that the alternative energy sector faces in Azerbaijan, including inadequate policies, regulatory frameworks, land rights issues, financing limitations, and intellectual property concerns. By implementing tailored policies and regulations, streamlining permitting processes, promoting land lease agreements, facilitating access to financing and investment, and establishing robust intellectual property frameworks, Azerbaijan can create a conducive environment for the development of alternative energy.
Anar Alizamanli
Head of Innovations and Project Management
Contact: a.anar@turanlegal.az
Subhan Garayev
