EBRD to provide loan for upgrading Azerbaijan's energy system

The Board of Directors of the European Bank for Reconstruction and Development (EBRD) plans on May 1 to consider granting a sovereign loan of up to $30 million to Azerenerji to finance the purchase of autotransformer equipment for reinforcement works at four operating substations in Azerbaijan.

The borrower of the loan will be the Azerbaijani Ministry of Finance, Report informs, citing the EBRD.

The project will be implemented by Azerenerji, a state enterprise responsible for the production and transmission of electricity in the country. The total cost of the project will be $30 million.

"The project will help increase the flexibility of Azerbaijan's power system, which is necessary for the integration of renewable energy capacity. The successful implementation of the project will serve as an example for further grid reinforcement projects, which are important for the integration of renewable energy projects in the country," the report said.

As the EBRD notes, the project contributes to improving the quality of "sustainable" transition by enabling the connection of planned renewable energy installations, which is currently not possible due to grid inadequacies or could lead to a reduction in the curtailment of existing renewable energy installations.

The project will also contribute to improving the quality of the green transition by engaging in policies aimed at institutional reforms and bringing about structural change in all sectors.

"The Bank is actively engaged in promoting policy dialogue in Azerbaijan. This project will be the EBRD's first project to modernise the power system, which is necessary to increase grid flexibility and integrate renewable energy capacity in Azerbaijan. The successful implementation of the project will thus provide an example and replicable standard for further grid strengthening projects, which are important for the integration of future renewable energy projects," says the EBRD.

The environmental and social risks associated with the procurement and replacement of transformers at the four substations are expected to be site-specific. The Environmental and Social Due Diligence (ESDD) will be carried out by an independent consultant and will include an assessment of the client's environmental and social management systems, a site visit and a review of the client's current operations and the proposed project.

The Bank expects the project to generate indirect environmental benefits by upgrading substation capacity to support the transition to renewable energy integration. Key environmental and social impacts associated with the proposed investment include labour conditions, health and safety including electrical and road safety, contractor management during replacement and maintenance, pollution prevention issues such as hazardous waste management, and project stakeholder grievances.

No impacts on biodiversity, cultural heritage or economic displacement are expected as installation works will be carried out at existing substation sites. No associated facilities have been identified at this stage. The due diligence will also consider eco-social risks in the project supply chain and measures to replace old transformers.

Based on the ESDD, an Environmental and Social Action Plan (ESAP) will be developed to structure existing client and project operations in line with the Bank's Performance Requirements and industry best practices.

The bank will monitor compliance with the Performance Requirements by reviewing annual reports prepared by the client on environmental and social issues. The Bank will also monitor sites as necessary.

The project does not rule out the possibility of grant financing, the source of which is being investigated.