Renewable Energy Law Advisory

 

Renewable Energy Law in Azerbaijan

Renewable / Alternative Energy Law and Tax Advisory

 

As a long-standing exporter of traditional energy resources, namely oil and gas, Azerbaijan is now setting its sight on greener and sustainable future. Just within a decade of green energy transformation, solid results are being achieved.

 

Presently, Azerbaijan accounts for just 0.13% of the Earth’s overall carbon emission[1], ranking 61^st in global fuel combustion[2]. Energy sector constitutes the significant part (79%) of this carbon emission, compared with agriculture giving rise around 14% of the emission.

 

By joining Paris Climate Agreement in 2016, Azerbaijan committed to 35% GHG emissions’ reduction by 2030 in its first Nationally Determined Contribution (NDT). AT COP26 (2021), Azerbaijan renewed its GHG obligations and set a target of 40% by 2050 and declared the newly liberated territories (which constitutes about 20% of the state territory) a “Net Zero Emission Zone”.

 

Below we will provide brief information about Renewable energy Law of Azerbaijan, focusing on main principles of electricity production by alternative and renewable energy sources, present renewable energy projects, our legal and tax advisory services in renewable energy industry.

 

Renewable energy projects in Azerbaijan

 

Azerbaijan’s renewable energy potential covers the following alternative energy sources:

• Wind;
• Solar;
• Hydropower;
• Biomass;
• Geothermal

According to official data[3], technical potential of onshore and offshore renewable energy resources is estimated to be 135 GW and 157 GW respectively. In 2023, country-wide total electricity production amounted to 29.3 billion kWh, 7% of which is already supplied by the renewable energy resources. Within just a few years of development, on the 26th of October 2023, 230 MW Garadagh Solar Power Plant- the largest solar power plant in the Caspian and CIS region, has commenced its production.

 

Technical potential of wind power at Caspian Sea region of Azerbaijan is estimated as 157 GW. This great renewable energy potential is yet to be utilized and developed as a modern wind energy plants.

 

Azerbaijan has concluded several project development and cooperation agreements on renewable energy with BP, Masdar, ACWA Power, China Gezhouba Group Overseas Investment, Fortescue Future Industries, Total Energies, A-Z Czech Engineering, Baltech and Nobel Energy in recent years.

 

Garadagh Solar Plant developed by Masdar is the largest solar power plant in the Caspian and CIS region This 240 MW power plant is in operating since October 2023.

 

Presently, additional three major alternative energy projects are also being developed:  the 445 Megawatt (MW) Bilasuvar solar facility, the 315 MW Neftchala solar plant and the 240 MW Absheron-Garadagh wind farm. These projects are owned by a consortium of Masdar and SOCAR. Neftchala solar plan and Asberon-Garadagh wind farm are expected to produce energy by the end of 2025, the Bilasuvar solar plant is planned to be ready for the production by 2026.

 

ACWA Power of Saudi Arabia is developing Khizi-Absheron Wind Power Plant with a capacity of 240 MW since 2022.

Australia's Fortescue Future Industries (FFI) is working on green hydrogen project with a capacity of 12 WG since 2022.

Bp is developing a 240 MW Solar Power Plant in Bilasuvar since 2021 (Sunrise Project).

Nobel Energy and A-Z Czech Engineering are cooperating in renewable energy projects in Nakhchivan region of Azerbaijan.

 

Renewable Energy Law of Azerbaijan

 

Azerbaijan is a signatory of  European Energy Charter since 1991, Energy Charter Treaty (ECT) and Protocol on Energy Efficiency and Related Environmental Aspects (PEEREA) since 1998 and International Energy Charter since 2018.

 

Occupying central role in renewable energy deployment, electricity production is specifically regulated and incentivized via the newly adopted Law on the Use of Renewable Energy Sources for the Electricity Generation, dated 31 May 2021. On 24 October 2023, a modernized Law on Energy was adopted.

 

The Law on the Use of Renewable Energy Sources for the Electricity Generation encompasses the use of renewable energy sourced energy within the state-wide energy infrastructure, particularly regulates the determination of atlas of renewable energy potential and areas of renewable energy potential, investments, auctions and direction selection of renewable energy producers, agreement on tariffs between the Government and the producers where guaranteed purchase of energy is applied, promotion of active consumers and allowing the set off excess energy produced by consumers, priority for the use electricity energy produced by renewable energy resources, certification, distribution and transmission of such energy.

 

Other laws regulating the renewable energy industry and energy in general with certain application to renewable energy are as follows:

• Law on Energetics (2023);
• Law on Public-Private Partnership (2022)
• Law on the Efficient Use of Energy Resources and Effectiveness of Energy (2021)
• Law on Environmental Impact Assessment (2018);
• Law on the Safety of Hydro-technical Structures (2002)
• Law and Electric and Thermal Power Stations (1999);
• Law on Water Supply and Waste-water (1999)
• Law on Gas Supply (1998);
• Law on Subsoil (1998);

 

The Law on the Efficient Use of Energy Resources and Effectiveness of Energy (2021) covers renewable energy sources and provides for certain incentives, such as allocation of grants and subsidies, implementation of pilot projects and the provision of concessional loans. Such incentives are directed to the following areas:

• Support for the implementation of energy efficiency measures and state programs;
• Financing of certain scientific and technical activities (implementation of high technology, research and development in energy efficiency areas);
• Implementation of energy management systems;
• Deployment of smart meters and systems;
• Application of cogeneration and high-efficiency cogeneration facilities;
• Utilization of renewable energy sources.

 

Tax incentives in renewable energy

 

Several tax and customs incentives are provided by the Tax Code and Customs Code of Azerbaijan. These incentives cover:

• exemption for income of private electricity production by residential consumers (from renewable energy sources with a capacity limit of up to 150 kW);
• profit of renewable energy producers based on Public Private Partnership or Power Purchase Agreements up to 30 years is exempted from income tax (personal income tax and corporate income taxes);
• VAT and customs duties for the import of machinery, technological equipment, and devices by renewable energy producers based on Public Private Partnership or Power Purchase Agreements up to 30 years, for the production of renewable energy not less than the capacity requirement set by the Cabinet of Ministers;
• Property tax for the property used for the purposes of renewable energy production based on Public Private Partnership or Power Purchase Agreements up to 30 years is exempted from income tax (personal income tax and corporate income taxes);
• Land tax for the lands used by the renewable energy production projects based on Public Private Partnership or Power Purchase Agreements up to 30 years is exempted from income tax (personal income tax and corporate income taxes);

 

Established practice of alternative and renewable energy projects in Azerbaijan are based on foreign investment, mutual development and production agreements involving government and government investments. This is overseen and administered by the Ministry of Energy and Azerbaijan Renewable Energy Agency under the said Ministry.

 

Renewable energy law services and tax advisory

 

Our legal and tax advisory regarding the project preparation, development, financing and implementation stages provides enhanced professional support for legal compliance, risk mitigation and tax planning purposes. With a team of experienced lawyers and tax consultants, and having practice in renewable energy and energy development projects in Azerbaijan, we offer the following services:

• Advisory for land use and compliance with zoning regulations;
• Site due diligence and acquisition, land lease or easement agreements;
• Environmental impact assessment and permits;
• Structuring Power Purchase Agreement for planning purposes;
• Representing and accompanying renewable energy company during auction, competition and direct contracting stages;
• Negotiation and representation while Project Development Agreement/ Investment Agreement,  Guaranteed Power Purchase Agreement, Public Private Partnership Agreement, Construction and Operation Agreements, Loan and Financing Agreement, Connection agreement between transmission or distribution system operators, Joint Venture or Joint Consortium Agreement, and other contracts and deals;
• Obtaining construction and operation permits and licenses;
• Legal and tax advisory during project development and financing;
• Tax advisory and tax planning, utilization of tax incentives and representing client for obtaining necessary approvals for such purposes;
• Planning and Negotiation joint ventures and joint consortiums;
• Intellectual property registration and protection agreements;
• ESG (Environmental, Social and Governance) advisory in renewable energy projects.

For inquiries and questions, contact: [email protected] or +994 50 289 89 73