Azerbaijan's energy management reforms hold keys to tackle losses in utilities sector Analysis by Caliber.Az

The expansion of energy-saving technologies has become the main direction of civil development in the XXI century. Over the last ten years, Azerbaijan carried out several pilot projects for the introduction of energy-efficient systems in the industrial and civilian spheres. At present, this work is being carried out under the direct control of the head of state. It is based on the development of the legislative base and regulations. In July 2021, for example, the country passed the act "On Rational Use of Energy Resources and Energy Efficiency". On January 22, 2024, the Ministry of Energy stepped up the appointment of energy managers responsible for the efficient use of energy in large economic units, with financial penalties for those who fail to comply.

The UN estimates that the urban share of the world population will grow to 6.419 billion (66 per cent) by 2050. Today, many of the world's megacities are overpopulated, and city authorities and municipalities operating in the paradigm of the analogue era can no longer cope with ensuring safety and solving environmental problems, quality management of public transport, public utilities and, most importantly, energy and energy efficiency. IHS Markit predicts that by 2025, only 88 cities in the world, mostly in highly developed countries, will be "smart". This means that integrated information, communication and technology solutions, including energy efficiency, have been implemented or are being tested.

Speaking at the 28th Conference of the Parties to the UN Framework Convention on Climate Change (COP28) in Dubai last December, UN Secretary-General António Guterres called for the need to accelerate the process of assisting developing countries to implement energy efficiency mechanisms in urban utilities and the transition to renewable energy sources (RES).

The US and Europe have been trying to address the problem of low energy efficiency in megacities since the global energy crisis of 1974. But in recent years, as global demand and energy prices have risen, the need to change the energy paradigm and move towards a more economical and efficient use of energy resources has become a pressing issue for all countries without exception. The untapped energy efficiency potential in the CIS countries, including Azerbaijan, is estimated at around 450 million tonnes of fuel equivalent, according to studies conducted a decade ago. Our country accounts for 10 million tonnes of this amount, and this figure is likely to have increased with population growth and urban expansion. The housing and utilities sector, power generation, and industrial plants are the main sources of potential energy efficiency improvements.

In Azerbaijan, which has abandoned the use of fuel oil and other liquid and solid fuels in favour of low-carbon natural gas for more than a decade, the vast majority of thermal power plants are equipped with combined cycle and other energy-efficient generation systems. Reforms in the renewable energy sector in recent years have been equally powerful, with some 1.5 GW of green generation capacity coming online in the country over the next three years, and foreign investment expected to bring total green generation capacity to over 8 GW in the long run. The process of industrial development in Azerbaijan, in turn, is aimed at the introduction of energy-efficient technologies: the leading enterprises of the State Oil Company (SOCAR) are urea, polymer, methanol plants, the recently modernised Heydar Aliyev Baku Refinery, as well as other chemical and industrial enterprises of Sumgayit Chemical Industrial Park.

The recent decision of the Ministry of Energy of Azerbaijan to accelerate the appointment of energy managers responsible for the efficient use of energy in economic entities with an annual energy consumption of more than 1,000 tonnes of oil equivalent, as well as in non-residential buildings with an area of at least 10,000 square metres or an annual energy consumption of more than 250 tonnes of oil equivalent will be a significant help in stimulating the above trends. The appointment of an energy manager is made by an Attestation Commission, including representatives of the Ministry of Energy, following Article 8.2 of the Law on the Efficient Use of Energy Resources and Energy Efficiency, adopted two and a half years ago. The law defines the legal, organisational and economic basis of the state energy efficiency policy.

It is noteworthy that in case of the absence of an energy administrator in economic entities and large non-residential buildings, according to the Administrative Code, individuals will be fined from $117 to $234, officials from $588 to $882, and legal entities from $1470 to $1764. The next steps of the Ministry of Energy will be aimed at stimulating business entities to improve the energy efficiency of buildings, introduce economical systems of lighting, heating, and air conditioning, improve thermal insulation, etc. In the future, it will also be necessary to develop mechanisms for energy audits and energy efficiency certification of buildings, ensure digitalisation of the republic's energy sector, and establish an Energy Efficiency Fund.

Unfortunately, Baku and other major cities in the country have not yet achieved comparable levels of energy efficiency in the residential and municipal sectors. In previous years, electricity, gas and central heating costs in Azerbaijan, with its more temperate climate, were comparatively lower than in Europe or Russia and many other post-Soviet countries. However, as energy tariffs have risen, these costs have increased significantly, and in our country, the deterioration of heating networks and the lack of thermal insulation in Soviet-built houses result in losses of up to a third of the total heat/cold produced. However, even in the construction of modern multi-storey buildings, the standards for thermal insulation, proper lighting and natural ventilation of flats are violated. In the housing and communal sector, there is an urgent need for the widespread introduction of modern technologies in the field of energy-saving lighting and motion detectors (to save light), as well as the improvement of thermal insulation through the use of composite materials, the replacement of block glazing systems with airtight double-glazed windows, etc.

Over the past decade and a half, reforms in this area have been limited to pilot projects. For example, with the support of the European Union's Energy Saving in Buildings Programme (ESIB), several projects were carried out in Baku, Ganja and Sumgayit in a number of residential buildings, schools and kindergartens. These included the introduction of modern technologies, improved thermal insulation and the use of composite materials to achieve significant energy efficiency. The application of modern thermal insulation technologies and the rehabilitation of these buildings has resulted in energy savings of up to 70 per cent. As a result, the annual energy consumption for heating one square metre was reduced to the level of 102-105 kWh, i.e. several times lower energy losses.

A new stage in this area started in 2019, when, on the initiative of President Ilham Aliyev, it was decided to implement a full-fledged Smart City system in Baku and subsequently in other cities of the country. In particular, the Smart City project aims to replace inefficient equipment with energy-saving technologies to reduce energy costs, reduce heat and cold losses in public utilities, and save up to a third of all energy resources consumed today. This includes the mass use of energy-saving light bulbs and the computerisation of street lighting control systems in cities. It also includes the introduction of automation systems for heating and air conditioning, the use of new insulation materials and reflective films on windows in homes and offices, the introduction of temperature sensors and "smart" electricity meters, etc. A good example of the introduction of energy-efficient systems in the country was the work of the Signify company, which introduced economical LED lamps for street lighting in Baku, Sumgayit and Shamakhi. The new system achieved energy savings of 50 per cent, and today projects are being developed to introduce similar lighting systems in Ganja, Mingachevir, Sheki, Gabala, Shirvan and Lankaran, as well as in processing plants and other SOCAR enterprises. In the future, "smart" devices will also be introduced in the capital's public utilities, heat supply and central air-conditioning of buildings.

However, all the above-mentioned efforts need to be accelerated and expanded, especially in the Greater Baku region. According to the General Development Plan of Baku until 2040, heat consumption in the capital will increase to 6,466,913 MW, which, according to the document, is 4.4 times higher than the 2020 figures. It is obvious that without serious reforms in this area, the load on Baku's energy and heat capacities will increase manifold in 16 years, creating inevitable systemic risks.

Therefore, the government today intends to improve energy efficiency in the construction and municipal sectors by expanding cooperation with global donors and innovative companies. As part of an international partnership, renewable energy elements and energy-saving technologies are being actively used in the construction of housing in the Karabakh region, with the "smart" village of Agali in the Zangilan district being a good example.

As part of its new country strategy, the European Bank for Reconstruction and Development (EBRD) has granted Azerbaijan a €10 million loan for a project to improve street lighting in Ganja, the country's second most populous city. The project will introduce energy-efficient lighting sources, automated control and monitoring systems, and replace poles and power cables, resulting in significant energy savings, reduced network maintenance costs and improved safety for road users. These initiatives are being implemented under the European Union's Green Cities Programme (GCAP), and it is expected that over time GCAP components will be implemented in other cities in the country, including in the Karabakh region. In the future, Azerbaijan plans to implement similar energy efficiency projects with the support of the Asian Development Bank and the Central Asia Regional Economic Cooperation (CAREC) programme.