The Agency’s Activities in Supporting the Investment Environment

One of the main activities of the Azerbaijan Energy Regulatory Agency (AERA) is to enhance the investment environment in the electricity, heat and gas supply sectors and to ensure the development of incentive mechanisms for attracting investments in these sectors considering international experience.

Investment Potential in the Energy Sector of the Country

The energy sector plays an important role in Azerbaijan’s economy and the development of this sector relates to the country’s rich energy resources. The transition to green energy as one of the key strategic priorities, along with the country’s significant renewable energy potential, has further enhanced the sector’s appeal to investors.

Azerbaijan’s technical potential for renewable energy sources is 135 GW onshore and 157 GW offshore. To realize this potential, a target has been set to increase the share of renewable energy in installed capacity to 30% by 2030, and several projects are being successfully implemented to achieve this goal.

In this context, it is important to highlight the commissioning of the first and largest foreign-invested solar power plant in the Caspian region and the CIS — the Garadagh Solar Power Plant (SPP), launched in 2023 with a capacity of 230 MW, implemented by Masdar company of the United Arab Emirates. At the same time, work is ongoing on the construction of the 240 MW Khizi-Absheron Wind Power Plant (WPP) by ACWA Power company of the Kingdom of Saudi Arabia.

In 2024, the foundations were laid for three power plants with a total capacity of 1,000 MW in partnership with Masdar. These include 315 MW Neftchala SPP, 445 MW Bilasuvar SPP, and 240 MW Absheron-Garadagh WPP.

Work is also progressing actively on numerous other projects aimed at increasing the share of renewable energy in electricity generation.

Incentive Mechanisms to Support Investment in the Energy Sector

To expand investment activities, improve the business environment, and increase industrial production, "Rules for Issuing an Investment Promotion Document" was approved by Decree No. 745 of the President of the Republic of Azerbaijan, dated January 18, 2016, "On Additional Measures Related to Investment Promotion".

An Investment Promotion Document provides legal entities and individual entrepreneurs with the following incentives, stipulated in the Tax Code of the Republic of Azerbaijan and the Law of the Republic of Azerbaijan “On Customs Tariff”:

• 50% exemption from profit or income tax for a period of 7 years;
• Exemption from property tax and land tax for a period of 7 years;
• Exemption from VAT and customs duties on the import of machinery, technological equipment, and facilities for a period of 7 years, based on the relevant supporting documentation.

By the Decree No. 2462 of the President of the Republic of Azerbaijan, dated February 1, 2024, the areas of the strategic investment projects eligible for Investment Promotion Documents were approved. One of these project areas is energy production from renewable energy sources.

The Law “On the Use of Renewable Energy Sources in Electricity Production" of the Republic of Azerbaijan, adopted in 2021, defines the legal, economic, and organizational framework for the use of renewable energy sources in electricity generation. It also establishes support mechanisms to promote electricity generation from renewable energy sources and regulates the relations arising in this field.

The mentioned Law envisages the following support mechanisms for the use of renewable energy sources in electricity generation:

At the same time, the Law of the Republic of Azerbaijan “On Public-Private Partnership”, adopted in 2022, defines the organizational, legal and economic framework for implementing public-private partnership activities, and outlines state support and guarantees provided for private partners and creditors. Public-private partnership related to the use of renewable energy sources in electricity production are carried out in accordance with the Law “On the Use of Renewable Energy Sources in Electricity Production".

Producers who are private partners in public-private partnership projects, as well as those using renewable energy sources with a public procurement obligation and whose electricity production projects meet or exceed the minimum amount determined by the body (institution) designated by the relevant executive authority, are granted benefits on value-added tax (VAT) on profits (income), property tax, land tax, and imports, including exemptions from customs duties, for the period specified in the relevant contracts, but not exceeding 30 years.

Privatization of Power Plants

To ensure the implementation of the Law of the Republic of Azerbaijan "On the Privatization of State Property," accelerate structural reforms in the economy, promote entrepreneurship, foster a healthy competitive environment, and increase economic efficiency by attracting investments, the "II State Program on the Privatization of State Property in the Republic of Azerbaijan" was approved. As a result, four small hydroelectric power plants were privatized.