Overview of Renewable Energy Legislation in Azerbaijan

I. Introduction

Azerbaijan’s renewable energy sector is entering a materially more active phase. Historically, the country’s electricity system has been dominated by gas-fired generation and large hydroelectric assets, with renewables outside hydropower playing only a limited role. That position is now changing. Since 2021, Azerbaijan has adopted a dedicated legal framework for renewable electricity, introduced a new Electricity Law intended to support gradual market reform, implemented secondary rules on producer selection and active consumers, and moved from negotiated pilot projects to the first competitive auction for a utility-scale solar project.[1]

The policy logic behind Azerbaijan’s renewable energy programme is broader than decarbonization alone. Renewable energy is treated as a tool for reducing domestic gas consumption, increasing the volume of gas available for export, supporting Azerbaijan’s role as a regional energy hub, and creating the basis for future green electricity and hydrogen exports.[2] Azerbaijan’s hosting of COP29 further accelerated the visibility of this agenda, including through official emphasis on green energy corridors, storage, grids, hydrogen and green energy zones.[3]

Azerbaijan has significant renewable energy potential. The Ministry of Energy estimates the country’s technical potential at approximately 135GW for onshore renewable energy sources and 157GW for offshore renewable energy sources.[4] The economic potential of renewable energy sources is estimated at approximately 27GW, including around 3,000MW of wind energy, 23,000MW of solar energy, 380MW of bioenergy and 520MW from mountain rivers. This resource base is particularly relevant for solar projects in the central and southern regions, wind projects on the Absheron peninsula and along the Caspian coast, hydropower in mountainous regions, and longer-term offshore wind development in the Caspian Sea.

As at early 2026, power plants with a total capacity of approximately 2,070MW operate in Azerbaijan on the basis of renewable energy sources, comprising 65 hydroelectric power plants of approximately 1,443.5MW, six wind power plants of approximately 306.5MW, nine solar power plants of approximately 278.2MW, one biomass power plant of approximately 37MW and three hybrid power plants of approximately 7.3MW, so that renewables account for roughly 20.8 per cent of total installed electricity-generation capacity.[5] These operating figures should be read as a snapshot that pre-dates the commissioning of Khizi-Absheron.

The most important recent large-scale project is the 230MW Garadagh solar power plant, developed with Masdar and commissioned in October 2023.[6] It was the first major foreign-invested utility-scale solar project in Azerbaijan and remains a reference point for the country’s renewable energy programme.[7] Further major projects include the 240MW Khizi-Absheron wind plant with ACWA Power, commissioned in January 2026;[8] the 445MW Bilasuvar solar, 315MW Neftchala solar and 240MW Absheron-Garadagh wind projects with Masdar; the 240MW Shafag solar project in Jabrayil with BP; the 100MW Gobustan solar project awarded by auction; and additional solar projects in Jabrayil, Fuzuli, Nakhchivan and other green energy zones.[9]

The market is therefore best understood as being in transition. Azerbaijan is not yet a fully liberalized renewable energy market where developers can rely primarily on open-market sales and standardized merchant structures. Rather, the current model remains strongly state-shaped. Large projects are generally implemented through project-specific arrangements involving the Ministry of Energy, state-owned utilities, land designation, grid connection agreements, investment agreements, power purchase arrangements and, increasingly, auction-based producer selection. This structure can be attractive to investors where state support is clear and project documents are bankable, but it also requires careful legal diligence because several core commercial protections remain project-specific rather than fully standardized in public legislation.

II. Policy and Regulatory Framework

i. The policy background

The principal policy direction for Azerbaijan’s renewable energy sector is the transition to a greener, more competitive and more efficient energy system. Presidential Order No. 1209 dated 29 May 2019 on accelerating reforms in the energy sector formed the basis for reforming the electricity market, liberalizing parts of the sector, increasing competition and supporting the transition to green energy.[10] The Socio-Economic Development Strategy of the Republic of Azerbaijan for 2022–2026 also identifies green energy transition, energy efficiency and the establishment of a low-carbon economy as important national development objectives.[11]

Azerbaijan’s headline climate commitments are twofold. Under its Nationally Determined Contribution to the Paris Agreement, the country targets a 35 per cent reduction in greenhouse gas emissions by 2030 against the 1990 base year;[12] at COP26 in 2021 it additionally adopted a voluntary commitment to reduce emissions by 40 per cent by 2050 (again from the 1990 base year), and has declared the liberated territories a “net zero emission” zone.[13] The renewed NDC frames the 40 per cent / 2050 ambition as conditional on international support through financing, technology transfer and capacity building. In connection with these commitments, Azerbaijan aims to raise the share of renewables in installed electricity-generation capacity to at least 30 per cent by 2030, and the Ministry of Energy has indicated that the first phase of current partnership projects should add more than 2GW of new green energy capacity by 2027.[14]

A distinctive feature of Azerbaijan’s policy is the integration of renewables with export strategy. Azerbaijan is pursuing several green energy corridor concepts, including the Caspian-Black Sea-Europe Green Energy Corridor, the Central Asia-Azerbaijan Green Energy Corridor, the Azerbaijan-Türkiye-Europe Green Energy Corridor and the Azerbaijan-Georgia-Türkiye-Bulgaria Green Energy Corridor.[15] These corridors are intended to link domestic and regional renewable generation with European and Turkish demand centres. In this respect, Azerbaijan’s renewable energy policy is not merely domestic energy policy; it is also infrastructure, trade and foreign policy.

Green energy zones are another key policy instrument. Following the restoration of Azerbaijani control over the liberated territories, the President signed an order on 3 May 2021 on measures to establish a Green Energy Zone in those territories. A concept document was prepared with the involvement of TEPSCO, and official policy now treats Karabakh and East Zangezur as priority areas for solar, hydro, distributed generation and smart energy infrastructure. Nakhchivan is also being considered as a green energy zone, with projects of more than 1GW under discussion or development with international and local partners.[16]

ii. The regulatory and consenting framework

The core statute governing renewable electricity is the Law of the Republic of Azerbaijan No. 339-VIQ dated 31 May 2021 on the Use of Renewable Energy Sources in the Production of Electricity.[17] This law establishes the legal, economic and organizational foundations for using renewable energy sources in electricity production and creates the basis for support mechanisms in the sector, including a guaranteed tariff and secured offtake under regulated agreements for selected producers.

The 2021 law is supplemented by several important secondary acts. These include the rules for selecting an electricity producer in renewable energy source territories, approved by Presidential Decree No. 2285 dated 2 August 2023;[18] the rules on capacity limits and on the application of the active consumer support mechanism, approved by the Cabinet of Ministers under Articles 1.1.12 and 10.4 of the Renewable Energy Law; the rules on certificates of origin for renewable electricity (Ministry of Energy Decree No. 347 of 28 September 2023); and the rules relating to the renewable energy information system (Ministry of Energy Decree No. 348 of 28 September 2023).[19] 

The second major statute is the Law on Electricity (Electric Power), Law No. 858-VIQ dated 11 April 2023, published in the official gazette on 20 May 2023.[20] The new Electricity Law modernizes the sector, introduces market rules, clarifies the roles of market participants, regulates network access and supports gradual movement towards a more competitive electricity market, providing the framework for transmission, distribution, supply, balancing, eligible consumers, bilateral contracts and regulated tariffs. Critically for project timing, the law takes effect on a staggered schedule under implementing Presidential Decree No. 2143: the preparatory and institutional provisions entered into force on 1 January 2024; the unbundling of generation from the rest of the value chain and the establishment of an independent market operator from 1 July 2025; and the main provisions on distribution unbundling and on completing the wholesale and retail markets (including balancing and ancillary-services markets) only from 1 July 2028. Its practical impact therefore depends heavily on continued adoption of secondary legislation and on this phased timetable, with the core liberalization measures not fully effective until 2028.

The Ministry of Energy is the central executive authority responsible for state policy in the energy sector. It plays a lead role in renewable energy strategy, international cooperation, project development, negotiation of strategic project documents and implementation of state policy.[21]

The Azerbaijan Renewable Energy Agency (AREA) under the Ministry of Energy is the specialized body for renewable energy development. It supports project preparation, renewable energy zone work and the implementation of support mechanisms, issues the confirmation documents that underpin customs relief for imported renewable-energy equipment, and in practice serves as an important interface for investors.

The Azerbaijan Energy Regulatory Agency (AERA) is the sector regulator, established as a public legal entity under the Ministry of Energy by Presidential Decree No. 1750 of 22 December 2017. Its functions include supervision of regulated activities, quality-of-service oversight, monitoring compliance with permits, arbitrating disputes between market participants, and developing investment incentives and regulatory reforms. Importantly, AERA does not currently set tariffs: tariff-setting remains with the Tariff (Price) Council.

The Tariff (Price) Council accordingly remains the body responsible for regulated prices and tariffs, including retail and wholesale electricity tariffs and the purchase tariffs for renewable electricity. Although the electricity market is moving towards a more structured and competitive framework, regulated tariffs continue to be significant for transmission, distribution, supply to certain consumers and other regulated services.

Azerenerji OJSC remains the key state-owned power generation and transmission actor and, in recent renewable projects, the central counterparty for power purchase and grid connection arrangements; AERA still describes the market as a vertically integrated monopoly in which Azerenerji is both producer and transmission system operator.[22] Azerishiq OJSC remains the principal distribution utility, power distribution having been separated from Azerenerji in 2015.[23] SOCAR and SOCAR Green are increasingly involved in green energy projects, particularly where renewable electricity, green hydrogen, industrial decarbonisation and export strategy intersect.[24]

From an investor perspective, the main legal issues are not only the primary statutes but also the project-specific implementation documents. A typical large project may require land designation as a renewable energy source territory, a producer selection process or direct state negotiation, an investment agreement, a power purchase agreement, a grid connection agreement, land lease arrangements, environmental approvals, construction permits, technical compliance documentation and commissioning approvals. While the general legal framework is now more developed, the most important bankability protections are still likely to be found in the project documents themselves.

III. Renewable Energy Project Development

i. Project development models

Azerbaijan currently uses several renewable energy project development models.

The first model is the negotiated pilot project model, used for early strategic projects with major international sponsors. The 230MW Garadagh solar power plant with Masdar and the 240MW Khizi-Absheron wind project with ACWA Power fall within this broader category: they were structured as strategic projects through government-supported arrangements, with implementation agreements signed in 2020–2021.

The second model is the renewable energy zone producer selection model. Under the rules approved in 2023, producers may be selected for renewable energy source territories through a structured process. The most important example is the 100MW Gobustan solar power plant auction. The Ministry of Energy announced the auction in April 2024 with support from the European Bank for Reconstruction and Development.[25] It was conducted as a two-stage open auction under the Decree No. 2285 rules, with the qualification phase concluding on 12 July 2024.[26] At COP29 in November 2024, China’s Universal International Holdings Limited was declared the winner, having submitted the lowest tariff of US$0.0354 per kWh; government offtake of the output is guaranteed under the Renewable Energy Law. This was a significant development because it demonstrated Azerbaijan’s ability to move towards competitive price discovery for renewable energy projects.

The third model is the state-negotiated strategic project package. The clearest example is Masdar’s “Mega” project, consisting of the 445MW Bilasuvar solar power plant, the 315MW Neftchala solar power plant and the 240MW Absheron-Garadagh wind power plant. Land areas were designated by Cabinet of Ministers resolutions, land-planning work was carried out, the underlying investment agreements were finalised in October 2023, and on 4 June 2024 (at Baku Energy Week) the Ministry of Energy, Azerenerji and Masdar signed project documents including an addendum to the investment agreement, a power purchase agreement, a transmission grid connection agreement and a land lease agreement; financial close was subsequently announced at COP29. This confirms that Azerbaijan’s current bankable project structure relies heavily on a bundle of state-supported documents rather than on the general market framework alone.

The fourth model is the memorandum or implementation agreement model for future projects. Several projects have been advanced through memoranda of understanding, cooperation agreements or implementation agreements with companies such as Nobel Energy, China Energy Overseas Investment, SOCAR Green and Elecnor.[27]

ii. Power purchase and offtake

The legal and commercial structure of power purchase arrangements is one of the most important issues for investors. In the current Azerbaijani market, large renewable projects rely on project-specific power purchase agreements with state entities, particularly Azerenerji, concluded as part of the standardized contract package contemplated by Decree No. 2285 (investment agreement, PPA, connection agreement and land lease), with tariff-formation criteria set by that framework; full standardized templates and complete commercial terms are not publicly available.

In practice, therefore, the bankability of a renewable energy project in Azerbaijan will depend on the details of the PPA and related direct agreements. Key issues include the term of the PPA, tariff level, currency denomination, indexation, payment security, change-in-law protection, curtailment rules, deemed generation, force majeure, termination payments, step-in rights for lenders, dispute resolution and sovereign support. The existence of an investment agreement and a direct agreement may materially improve bankability (the Garadagh PPA, for example, runs for 23 years and the Khizi-Absheron PPA for 25 years) but investors should not assume that protections applicable to one project will automatically apply to another.[28]

The Gobustan auction suggests that tariff competition may become a more regular feature of the market. However, Azerbaijan has not yet reached the stage where renewable energy auctions are frequent, standardized and fully predictable. The first auction is therefore best understood as an important precedent rather than a complete procurement regime in itself.[29]

The new Electricity Law may eventually create more room for bilateral contracting, eligible consumer supply and corporate power purchase arrangements. Official materials indicate that eligible consumers may purchase electricity from any supplier operating in Azerbaijan, while non-eligible consumers remain supplied by an authorized supplier; the eligibility threshold was raised from 150 kW to 200 kW by amendment in late 2023. However, the corporate PPA market remains at an early stage, and utility-scale renewable projects are still more likely to be developed through state-backed or state-coordinated offtake arrangements than through purely private merchant structures.

iii. Land, grid connection and permitting

Land designation is a central part of project development. Several recent projects have involved Cabinet of Ministers resolutions designating specific land plots as renewable energy source territories, for example for the Shafag solar project in Jabrayil, the Masdar Bilasuvar and Neftchala solar projects, the Absheron-Garadagh wind project, the Nobel Energy Jabrayil solar project and the China Energy Fuzuli solar project. This demonstrates that land acquisition and land-use rights are not merely private real estate matters; they are part of the state-led project structuring process.

Grid connection is equally important. Azerbaijan’s renewable energy expansion depends on the ability of the transmission and distribution networks to absorb intermittent generation. Recent project documentation includes transmission grid connection agreements, and the 2024 adoption of electricity network rules is an important step towards more formal network governance. Nevertheless, investors should conduct detailed technical and legal diligence on connection capacity, grid reinforcement obligations, connection deadlines, curtailment risk, dispatch instructions, metering and balancing responsibilities. A live issue in practice, the operator of the Garadagh plant has publicly noted that grid limitations cap its output below the plant’s potential.[30]

Environmental and construction approvals also remain necessary. Renewable energy projects may require environmental impact assessment, construction permits, land-use approvals, technical designs, safety compliance and commissioning procedures. In the liberated territories and Nakhchivan, additional practical issues may arise in relation to reconstruction, infrastructure sequencing, land records, security, insurance and access.

iv. Current project pipeline

Azerbaijan’s current renewable energy project pipeline is substantial.

The Garadagh solar power plant is a 230MW solar project developed with Masdar and commissioned in October 2023. It was built with foreign investment of approximately US$262 million and is expected to generate around 500 million kWh of electricity annually, saving approximately 110 million cubic meters of natural gas and reducing emissions by around 200,000 tons annually.[31]

The Khizi-Absheron wind power plant is a 240MW project developed by ACWA Power on a build-own-operate basis under a 25-year PPA with Azerenerji, and officially commissioned on 8 January 2026. Comprising 37 turbines across the Absheron and Khizi districts, it is expected to generate around 1 billion kWh annually (the developer cites up to about 907 GWh) and to reduce carbon dioxide emissions by more than 400,000 tonnes a year.

The Shafag solar power plant is a 240MW project in Jabrayil being implemented with BP (alongside SOCAR and the Azerbaijan Investment Company), launched in October 2024. It uses a virtual power-transmission model under which electricity generated in Jabrayil is delivered to Azerenerji, and an equivalent amount of electricity is supplied by Azerenerji to BP’s Sangachal terminal, materially reducing emissions from the terminal’s operations.

Masdar’s “Mega” project includes the 445MW Bilasuvar solar power plant, the 315MW Neftchala solar power plant and the 240MW Absheron-Garadagh wind power plant. These projects are among the most important indicators of Azerbaijan’s utility-scale renewable energy ambitions, with the first solar panel installed at Bilasuvar in October 2025.[32]

The Gobustan solar power plant is a 100MW project awarded to Universal International Holdings Limited following the 2024 auction and targeted for commissioning in 2027. It is expected to generate approximately 260 million kWh of electricity annually, save approximately 57 million cubic metres of natural gas and reduce carbon emissions by approximately 124,000 tonnes.[33]

Nobel Energy is developing the Ufug and Shams solar power plants in Jabrayil, each with a planned capacity of 50MW, with implementation contracts signed at Baku Energy Week in June 2025.[34] China Energy Overseas Investment and SOCAR Green are advancing a 160MW solar project in Fuzuli. Elecnor is among the further international companies that have signed cooperation documents in the sector. Additional projects are under discussion in Nakhchivan and other green energy zones.[35]

IV. Distributed and Residential Renewable Energy

Distributed and residential renewable energy in Azerbaijan is legally recognized but remains at an earlier stage of development than utility-scale renewables. The key concept is the “active consumer”. Under secondary rules adopted in 2023, Azerbaijan established a support mechanism for active consumers producing electricity from renewable energy sources and determined the relevant capacity limit; these rules are made by the Cabinet of Ministers under Articles 1.1.12 and 10.4 of the Renewable Energy Law.

The active consumer regime is important because it creates a legal basis for rooftop solar, self-consumption and surplus electricity arrangements by households, commercial users and other small-scale generators. However, the practical commercial details require careful review in each case. Investors and installers need to confirm the applicable capacity limits together with connection procedures, metering requirements, settlement period, compensation mechanism for surplus electricity and tax treatment.

Azerbaijan has also introduced tax incentives for private residential renewable electricity production up to applicable capacity limits. This may support the growth of rooftop solar and small-scale renewable generation. However, mass adoption remains limited. The market still requires broader installer capacity, consumer financing, standardized connection processes, public awareness and clear billing practice.

The liberated territories are a practical testing ground for distributed renewable energy. Official materials indicate that solar panels with a total capacity of more than 5MW have been installed in more than 1,500 private houses, public buildings and social facilities in those territories.[36] This suggests that distributed renewable deployment is being linked to reconstruction, smart settlements and green energy zone policy.

There is also a pilot floating solar project at Boyukshor Lake. A 100kW photovoltaic system was commissioned there in 2024 with Asian Development Bank support. Although small in capacity, the project is significant as Azerbaijan’s first solar facility over a water body and may support future private-sector business models for floating solar projects.

Overall, distributed and residential renewables are promising but not yet central to the national electricity system. The near-term market remains dominated by utility-scale projects. Distributed generation may become more attractive if the active consumer regime is implemented clearly, if banks and installers develop consumer financing products, and if commercial and industrial consumers begin to view rooftop solar as a hedge against future electricity price changes.

V. Renewable Energy Supply Chain

Azerbaijan’s renewable energy supply chain is developing, but the country does not yet appear to have a deep domestic manufacturing base for solar panels, wind turbines, inverters, batteries or other major renewable energy components. The current project pipeline is therefore relies substantially on imported equipment, international EPC contractors, foreign technology suppliers and local civil works, installation and operations support.

One of the most important support measures is customs relief. In 2024, amendments to the Customs Tariff Law and a corresponding decision of the Prime Minister allowed renewable-energy equipment, parts and accessories to be imported duty-free on the basis of confirmation documents issued by the State Agency for Renewable Energy Sources (AREA); the exemption took effect on 1 June 2024 for an initial three years. This measure is intended to reduce the cost of renewable energy technology, support project economics and encourage foreign and private investment.

Unlike some jurisdictions, the published framework does not impose a broad mandatory local content requirement for renewable energy projects. This is positive for bankability because sponsors can procure proven international technology without being required to satisfy rigid domestic manufacturing quotas. At the same time, the absence of strong local manufacturing requirements also means that industrial development may occur gradually and mainly in services rather than immediate full-scale component manufacturing.

The most realistic near-term local supply chain opportunities are in engineering support, construction, foundations, roads, substations, grid works, operations and maintenance, environmental services, security, logistics and local professional services. As the number of projects increases, Azerbaijan may also develop local capacity in assembly, electrical balance-of-plant work and specialised maintenance. The growth of offshore wind or hydrogen would require more sophisticated port, marine, fabrication and industrial capabilities, but these segments remain longer-term opportunities.

Procurement planning is particularly important. Sponsors should consider customs clearance timing, certification requirements, export-control issues, transportation routes, port and road access, insurance, spare parts, grid equipment availability and the availability of qualified local subcontractors. In the liberated territories, logistics and infrastructure sequencing may be especially important.

VI. Other Key Considerations

i. Green energy corridors

Green energy corridors are central to Azerbaijan’s renewable energy strategy. The Caspian-Black Sea-Europe Green Energy Corridor is based on the strategic partnership agreement signed between Azerbaijan, Georgia, Romania and Hungary in Bucharest on 17 December 2022.[37] The project contemplates the development and transmission of green energy from the Caspian region towards Europe, including through transmission infrastructure and project management arrangements involving transmission system operators.

The Central Asia–Azerbaijan Green Energy Corridor is another important initiative. In November 2024, during COP29, Azerbaijan, Kazakhstan and Uzbekistan signed a strategic partnership agreement on the development and transmission of green energy (13 November 2024); to implement it, on 27 December 2024 Azerenerji, the Kazakhstan Electricity Grid Operating Company and National Power Grid of Uzbekistan established a joint venture, Green Corridor Union.[38] This corridor may allow renewable electricity from Central Asia and Azerbaijan to be aggregated and transmitted westwards.

Azerbaijan is also working on electricity transmission cooperation with Türkiye and Europe. Integration through Nakhchivan is particularly important. The planned export of renewable energy from Nakhchivan and the potential transmission of electricity from the Caspian and Central Asia to Türkiye and Europe are strategic priorities.[39] These projects are complex and will require major grid investment, cross-border agreements, technical studies and commercial structures.

ii. Hydrogen

Hydrogen is an emerging but not yet mature segment. With support from the European Bank for Reconstruction and Development, Azerbaijan has assessed the potential for green and blue hydrogen production, domestic consumption and export. The resulting market research suggests that green hydrogen production and export may be economically efficient in certain scenarios. Azerbaijan’s National Strategic Review for Hydrogen was prepared and presented during COP29, and work is now underway on an implementation plan.[40]

For investors, hydrogen should be treated as medium- to long-term optionality rather than an immediately bankable market. Key unresolved issues include offtake, certification, transport infrastructure, water availability, electricity pricing, export routes, domestic industrial demand, subsidy support and alignment with European import standards. However, Azerbaijan’s existing energy export infrastructure, Caspian position, gas-sector experience and green corridor strategy make hydrogen a potentially important future sector.

iii. Offshore wind

Azerbaijan has very significant offshore wind potential in the Caspian Sea, estimated at around 157 GW.[41] International institutions have supported the preparation of an offshore wind roadmap, and several offshore areas have been identified under the pilot offshore wind project concept.

Despite this, offshore wind remains pre-commercial. Before bankable offshore projects can proceed, Azerbaijan will need a more detailed legal and regulatory framework addressing seabed rights, maritime permitting, environmental regulation, grid connection, port infrastructure, tender rules, construction risk, decommissioning, marine safety and long-term offtake. Offshore wind may become one of Azerbaijan’s most significant renewable opportunities, but it is likely to develop after the onshore solar and wind programme has matured.

iv. Green energy zones and liberated territories

The liberated territories are a major policy priority. The government intends to transform them into green energy zones, combining hydropower restoration, solar generation, smart settlements, distributed solar, energy efficiency and grid reconstruction. Official information indicates that 38 small hydropower plants with a total capacity of approximately 307MW have been restored or installed by Azerenerji in these territories, producing some 550 million kWh of green electricity in 2024.[42] Solar projects such as Shafag, Ufug and Shams are being implemented in Jabrayil, and additional projects are planned in Fuzuli and other areas.

These territories offer strong political support and high visibility. However, investors should carefully assess land status, infrastructure readiness, connection timelines, security, insurance, unexploded ordnance risk where relevant, transport access, local authority coordination and construction logistics. In such areas, project documents should allocate delay and risks with particular care.

v. Grid, storage and balancing

The rapid integration of solar and wind will require grid reinforcement, better forecasting, balancing arrangements and potentially storage. The 2023 Electricity Law and 2024 network rules are important steps, but practical implementation will determine how efficiently renewable energy can be integrated. Sponsors should diligence whether grid connection capacity is firm, whether reinforcement works are required, who pays for those works, whether curtailment is compensated, how outages are treated and how metering and balancing are administered. Azerenerji is itself developing large-scale battery energy storage, reported as among the largest in the CIS, at the 500 kV Absheron and other substations, together with transmission projects, to help integrate intermittent renewables.

Azerbaijan’s COP29 focus on storage and grids is relevant in this context. The global storage and grids pledges presented at COP29 align with Azerbaijan’s own need to strengthen transmission and distribution infrastructure. In the medium term, battery storage, pumped hydro, flexible gas generation and regional interconnection may all become more important to renewable project bankability.

vi. Foreign investment and dispute resolution

Azerbaijan is generally open to foreign investment in renewable energy, as demonstrated by projects involving Masdar, ACWA Power, bp, China Energy, Universal International, Nobel Energy and others. The country has experience with large foreign-invested energy projects, particularly in oil and gas, and this experience is relevant to renewable energy project structuring.

Azerbaijan’s foreign-investment regime provides standard guarantees, including compensation in the event of requisition or nationalization and a period of protection against deteriorating legislation, and the country is party to roughly 50 bilateral investment treaties; nevertheless, renewable energy investors should not rely solely on general investment protections. Project-specific agreements should address governing law, dispute resolution, stabilization, change in law, tax treatment, termination compensation, political force majeure, expropriation, currency convertibility and transferability, and lender rights. International arbitration may be particularly important for large foreign-sponsored projects, but the availability and form of arbitration should be confirmed in each project document.

vii. Taxes, customs and incentives

The incentive framework is becoming more favorable. Previously discussed customs duty exemptions for renewable energy equipment are particularly relevant. Tax incentives may also apply to renewable energy producers operating under public-private partnership or power purchase arrangements: the profit of such producers is exempt from income tax, and project-related assets are exempt from property tax, in each case for the duration of the relevant agreement up to a maximum of 30 years (including the construction period), with VAT relief on imported equipment available on a similar basis.

Investors should verify the precise scope, duration and eligibility criteria for each incentive. Particular attention should be paid to whether incentives apply automatically or require confirmation from a competent authority, whether the project must meet minimum capacity requirements, whether equipment lists are exhaustive, whether incentives apply to subcontractors, and whether changes in project structure affect eligibility.

VII. Conclusion and Recommendations

Azerbaijan has moved beyond general policy declarations and is now developing a genuine renewable energy market. The adoption of the 2021 renewable energy law, the 2023 Electricity Law, implementing rules on producer selection and active consumers, the first competitive solar auction, the commissioning of the Garadagh solar power plant and now the Khizi-Absheron wind plant, and the development of a multi-gigawatt project pipeline all show that the sector is becoming increasingly investable.

The strongest current opportunities are in utility-scale solar and onshore wind, particularly where the project is state-backed, land has been designated, grid connection is being coordinated with Azerenerji and the sponsor can negotiate a bankable PPA and investment agreement. Projects in the liberated territories and Nakhchivan may offer significant strategic value, but they require additional diligence. Offshore wind and hydrogen are highly promising but remain longer-term opportunities requiring further legal and commercial development.

The main risks are not the absence of policy support, but the incomplete maturity of the regulatory and contractual ecosystem. Publicly available legislation does not yet answer all bankability questions, and several core markets reforms are still working through a phased timetable that does not complete until 2028 at minimum. Investors should therefore focus on the project documents and not assume that general statutory support will be sufficient. 

For sponsors, the recommended approach is selective and document-driven. Azerbaijan is not yet a pure merchant renewables market; it is a negotiated infrastructure market with increasing auction elements. Where a project benefits from clear state support, a credible offtaker, firm land rights, a bankable PPA and a clear grid solution, Azerbaijan can offer a strong first-mover opportunity. Where those elements are missing, the legal and implementation risks remain too significant to ignore.

 

Appendix 1

ABOUT THE AUTHORS

Royal Ibrahimli

GRATA International, Azerbaijan

Royal Ibrahimli is Counsel at GRATA International, Azerbaijan. His practice focuses on corporate and M&A, banking and finance, capital markets, energy and renewable energy, telecommunications, tax and customs law.

With more than 12 years of legal experience, Royal advises domestic and international clients on complex transactions, regulatory matters and major investment projects. He has extensive experience in banking and finance, M&A, energy and renewable energy, insurance, telecommunications and real estate, including leading and supervising multidisciplinary legal projects.

Royal has particular experience advising on renewable energy and infrastructure projects, including matters relating to project development, investment structuring, financing, regulatory requirements, land and real estate, corporate arrangements and contractual matters. His broader sector experience covers conventional and renewable energy, aerospace, financial services and investment, telecommunications, transportation and logistics, pharmaceuticals, real estate and FMCG.

GRATA International, Azerbaijan

Mobile: +994 50 451 41 42

Phone: +994 12 594 60 10

E-mail: ribrahimov@gratanet.com

133, Bashir Safaroglu str., SAT Plaza, 13th floor, Baku, Azerbaijan, AZ1009

www.gratanet.com

Mikayil Ismayilzada

GRATA International, Azerbaijan

Mikayil Ismayilzada is an Associate at GRATA International, Azerbaijan, where his practice spans Corporate Law, M&A, finance transactions, complex restructurings and investments. He also brings substantial expertise across Finance and Banking Law, Tax Law, Contract Law, Real Estate and Construction Law, Transport and Infrastructure Law, Energy and Oil & Gas Law, Telecommunications Law, IT Law, and Intellectual Property Law.

He regularly advises on cross-border investments, corporate reorganizations, and regulatory compliance in highly sensitive industries, enabling him to provide integrated solutions that align commercial strategy with legal precision across multiple jurisdictions. His multidisciplinary background allows him to anticipate risks, structure transactions efficiently, and deliver pragmatic outcomes for clients in diverse sectors.

Mikayil has over five years of experience in the Azerbaijani legal services market. Prior to joining GRATA International, he served as a Senior Lawyer in the Baku Department for Work with Legal Entities under the State Social Protection Fund, where he gained valuable expertise in navigating regulatory frameworks and public law matters.

GRATA International, Azerbaijan

Mobile: +994 50 451 41 42

Phone: +994 12 594 60 10

E-mail: ribrahimov@gratanet.com

133, Bashir Safaroglu str., SAT Plaza, 13th floor, Baku, Azerbaijan, AZ1009

www.gratanet.com

 

References
 
[1] EBRD, Azerbaijan’s first renewables auction concludes at COP29: https://www.ebrd.com/home/news-and-events/news/2024/azerbaijans-first-renewables-auction-concludes-at-cop29-with-ebrd-support.html
[2] Ministry of Energy of Azerbaijan, Use of renewable energy sources in Azerbaijan: https://minenergy.gov.az/en/alternativ-ve-berpa-olunan-enerji/azerbaycanda-berpa-olunan-enerji-menbelerinden-istifade
[3] Ibid.
[4] Ibid.
[5] Ibid.
[6] Azerbaijan Renewable Energy Agency (AREA), 230 MW Garadagh Solar Power Plant: https://area.gov.az/en/page/layiheler/cari-layiheler/230-mvt-gunes-elektrik-stansiyasi
[7] Masdar, Garadagh (Area 60) Solar PV Plant (first foreign-investment-based independent utility-scale solar PPP): https://masdar.ae/en/renewables/our-projects/garadagh-area-60-solar-photovoltaic-power-plant
[8] Official web-site of the President of Azerbaijan, opening of the 240 MW Khizi-Absheron WPP (8 January 2026): https://president.az/en/articles/view/71234
[9] Ibid., 3
[10] Presidential Order No. 1209 dated 29 May 2019: https://e-qanun.az/framework/42550
[11] Ibid., 3
[12] IEA, Azerbaijan Energy Profile (35% reduction by 2030 from 1990 base year under the NDC): https://iea.blob.core.windows.net/assets/0528affc-d2ba-49c9-ac25-17fc4e8724f7/AzerbaijanEnergyProfile_2023.pdf; 
[13] IEA, Azerbaijan’s energy context (COP26: 40% by 2050 from 1990 base): https://www.iea.org/reports/implementing-a-long-term-energy-policy-planning-process-for-azerbaijan-a-roadmap/azerbaijan-s-energy-context; Legal500: https://www.legal500.com/guides/chapter/azerbaijan-renewable-energy/
[14] Ibid., 3
[15] Ibid., 3; Official web-site of the President of Azerbaijan (corridor agreements): https://president.az/en/pages/view/azerbaijan/contract
[16] Ibid., 3
[17] Renewable Energy Law No. 339-VIQ of 31 May 2021: https://e-qanun.az/framework/47842
[18] Presidential Decree No. 2285 of 2 August 2023: https://e-qanun.az/framework/54882
[19] Ministerial Decrees No. 347 and No. 348 of 28 September 2023: https://e-qanun.az/framework/55298, https://e-qanun.az/framework/55304
[20] Law On Electricity of 11 April 2023 No. 858-VIQ: https://e-qanun.az/framework/54209
[21] Ministry of Energy of Azerbaijan: https://minenergy.gov.az/en
[22] AERA, Electricity Market Structure (vertically integrated monopoly; Azerenerji as producer and transmission system operator): https://regulator.gov.az/en/elektrik/elektrik-enerjisi-sebekesi-ve-daxili-topdansatis-bazari;
[23] IEA, Azerbaijan energy security (distribution separated from Azerenerji to Azerishiq in 2015): https://www.iea.org/reports/azerbaijan-energy-profile/energy-security
[24] Power Technology (Masdar/SOCAR shareholder arrangements): https://www.power-technology.com/news/masdar-socar-clean-energy-azerbaijan/; Legal500: https://www.legal500.com/guides/chapter/azerbaijan-renewable-energy/
[25] EBRD, Azerbaijan launches first renewables auction: https://www.ebrd.com/news/2024/azerbaijan-launches-first-renewables-auction.html; Ministry of Energy of Azerbaijan, launch of the first solar PV auction: https://minenergy.gov.az/en/elanlar/gunes-elektrik-stansiyasi-uzre-ilk-herrac-kecirilir
[26] Ibid.
[27] Ibid., 15
[28] ADB (Garadagh: 23-year PPA with Azerenerji): https://www.adb.org/news/adb-masdar-sign-21-million-loan-build-landmark-solar-power-project-azerbaijan; IPP Journal / ACWA Power (Khizi-Absheron: 25-year PPA with Azerenerji): https://ippjournal.com/news/envision-brings-240-mw-wind-project-in-azerbaijan-to-commercial-operation
[29] Ibid., 1
[30] Trend (Masdar: grid-infrastructure limits cap output to the grid at Garadagh): https://www.trend.az/business/green-economy/4194175.html
[31] Azerbaijan Renewable Energy Agency (AREA) (US$262 million; 500 million kWh/yr; 110 million m3 gas; 200,000 t CO2): https://area.gov.az/en/page/layiheler/cari-layiheler/230-mvt-gunes-elektrik-stansiyasi
[32] Ibid., 3
[33] Ibid. 
[34] Ibid.
[35] Ibid.
[36] Ibid.
[37] Ibid., 15
[38] Ibid., 3
[39] Ibid.
[40] Ibid.
[41] Official web-site of the President of Azerbaijan (offshore wind potential of the Azerbaijani sector of the Caspian estimated at ~157 GW): https://president.az/en/articles/view/71234
[42] Ibid., 15