Energy systems of Central Asian countries and Azerbaijan unites to export energy to EU.

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On May 1, Labor Day, the governments of Azerbaijan, Uzbekistan, and Kazakhstan marked the occasion by signing a memorandum of cooperation on uniting the energy systems of the three countries. Azerbaijan's Minister of Economy, Mikayil Jabbarov, expressed confidence that the parties would be able to integrate their energy systems and make effective use of renewable energy sources, as well as cooperate in the production of green energy and its export through Azerbaijan to Europe.

The Ministry of Energy of Kazakhstan pointed out the prospects of connecting the energy systems of the post-Soviet republics – for this purpose, a high-voltage cable is planned to be laid along the bottom of the Caspian Sea. The project terms for laying such a cable have already been formulated, assured officials in Astana.

Kazakhstan's Minister of Energy, Almasadam Satkaliyev, noted that the basic approaches for the project implementation have been discussed and agreed upon. He also clarified that within the framework of the above-mentioned project terms, a proposed business model for the development of international transmission corridors (financing, revenue flow, and ownership) and for the sale of green energy to European Union countries will be developed.

Thus, the abstract "Europe" is specified as the European Union, with which none of the three project participants shares a border. However, Azerbaijan is part of the EU's Eastern Partnership project for six post-Soviet republics.

In theory, exporting green energy products to the EU from Azerbaijan is possible. This will require the continued construction of expensive infrastructure. However, the official representatives of the project-participating states are not in a hurry to share details about the continuation of the energy route, its integration with other energy systems, or the sources of financing for the idea encapsulated in the signed memorandum.

Equally speculative is the involvement of new participants in the project. Naturally, energy consumers would be among them. Iran, which has long purchased electricity from Armenia in exchange for gas, is reducing its energy deficit. However, it could invest in power lines on its territory if the cost of electricity is acceptable. This idea could be implemented within the framework of the North-South energy corridor.

In this case, a contradiction arises with the stated goal – exporting specifically to the EU and specifically green electricity, i.e., more expensive than that generated from other types of fuel. The northern export route to the EU through Russia seems no less complicated.

On December 17, 2022, a memorandum on laying a power cable along the bottom of the Black Sea was signed by four participants – Azerbaijan, Georgia, Hungary, and Bulgaria. Among them, the main donor is Azerbaijan, Georgia is more of a transit country, and the consumers are the two EU participants.

The implementation of the project is complicated by Russia's special military operation in Ukraine. In light of recent events, the possibility of repeated terrorist attacks similar to those committed against the Nord Streams cannot be ruled out.

Azerbaijan is involved in both cable-laying projects – the Caspian and the Black Sea. It is seen as the main beneficiary of their implementation. At least, this is how the situation is presented by the entourage of President Ilham Aliyev.

There are grounds for such assertions. More than 90% of Azerbaijan's exports are oil, gas, and their primary processed products. As of the end of 2023, oil exports accounted for about 48%, and 51% in 2022. Mineral fuels, oil and products of its distillation, bituminous substances, and mineral waxes constituted 91% of Azerbaijan's exports last year. Nothing unusual – this has been the case in previous years as well.

Volatility in energy commodity markets creates additional risks that official Baku does not need at all. Therefore, also based on political considerations, analysts have sought and indeed found a new export direction. They are of particular interest to the EU, the more they align with the trendy green agenda. Although behind it is the burning of hydrocarbons at Azerbaijani thermal power plants.

Since the beginning of the year, Georgia has sharply (more than tenfold) increased its electricity export volumes. In just the first quarter, its electricity exports increased 14 times. The main volume was taken by Azerbaijan, and a quarter by Armenia, which is trying to integrate into the common energy market of the EAEU.

Turkey, which purchases small volumes of electricity from Armenia, plans to cover a fifth of its internal needs with its own nuclear energy by 2030. Rosatom will commission all four power units of the Akkuyu Nuclear Power Plant by 2026, each with a capacity of 1200 MW, which will cover about a tenth of Turkey's electricity needs. Ankara is negotiating with the Russian state corporation to build another nuclear power plant in the north of the country near the city of Sinop with a capacity of 4.8 GW.

Sure, here's the translation:

The issue of integrating the energy systems of Azerbaijan, Uzbekistan, and Kazakhstan currently lies more in the realm of pricing policy and maintaining the stability of national energy systems. It is often more feasible to supply border areas with imported electricity rather than generating it using national capacities. Sometimes this is not even a matter of price but of the state of the infrastructure, which requires significant and long-term investments.

Therefore, the stated intention on May 1 to export to the EU seems like a distant prospect, at least at the initial stage of the project to connect the energy systems of the three post-Soviet republics. The positive effect will immediately manifest in meeting the deficit in national markets. The issue is even broader – it concerns increasing energy security. Kazakhstan is currently the most interested in this.

The unification of the energy systems of Azerbaijan, Uzbekistan, and Kazakhstan can also bring a number of other benefits, including improved efficiency in the energy sector. Joint programs for energy conservation and increasing energy efficiency will help to develop this success.

Almost immediately, the idea of unifying the energy systems raised the question of developing the unification infrastructure. The construction and modernization of energy transmission networks and other facilities have become a focus. Adjusting to Baku, Tashkent, and Astana, Tbilisi and Yerevan are also revising their plans.

Therefore, a natural practical outcome would be the activation of multilateral cooperation involving governments, state companies, and large private businesses. Foreign investors can bring new technologies, provide access to the latest equipment, and alleviate several sensitive issues – from generation to distribution.

Overall, the unification of the energy systems of the three post-Soviet states can be a beneficial strategic step even if access to the EU energy market does not materialize. In any case, the positive effect will be significant, contributing to the sustainable economic and social development of the participating countries – Kazakhstan, Uzbekistan, and Azerbaijan.

May 17, 2024