Saudi Arabia’s government-affiliated renewables developer Acwa Power has agreed to collaborate with State Oil Company of Azerbaijan Republic (Socar) on green hydrogen development, less than a month after its UAE counterpart, Masdar, inked a similar pact. The deals are testament to Mideast Gulf state-affiliated firms’ increasing dominance in clean energy development across Central Asia and the South Caucasus, as windfall oil revenues galvanise their overseas investment activity. But they also represent wider interest in harnessing Azerbaijan’s underexploited renewables potential to help meet EU demand for hydrogen imports.

At first glance, Azerbaijan is not an obvious candidate for green hydrogen development. Blessed with bountiful gas reserves and with electricity demand comfortably met by existing oil- and gas-fired capacity, its renewables buildout has been slow, with installed capacity of less than 200MW at end-January. And this meagre development has been driven primarily by the desire to free up fossil fuels for export—an all-the-more financially alluring prospect in the wake of the European gas supply crisis triggered by Russia’s war in Ukraine.

Without ocean access, transportation of green hydrogen or its derivatives would need to be at least partly land-based and potentially require the long-term conversion of existing natural gas pipelines.

157GW – World Bank estimate for Caspian Sea windpower potential

Baku has yet to publish a hydrogen strategy, and production is not even at pilot stage. Nonetheless, the EU’s acceleration of its green hydrogen strategy—envisaging 10mn t/yr of imports by 2030—in response to the recent energy squeeze has spurred states across the bloc’s hinterland to consider entering the embryonic sector, while also piquing the interest of the industry’s aspirant international developers.

A five-year socioeconomic development strategy endorsed by President Ilham Aliyev last July calls for studies to be carried out in 2022–23 on potential hydrogen production and end-use, as well as the formation of pilot projects. The European Bank for Reconstruction and Development is funding a study commissioned last year from Advisian, the consulting arm of Australian-US engineering firm Worley, which will assess potential costs, markets and regulation in Azerbaijan.

Meanwhile, foreign investors are reacting to and affirming the huge offshore wind potential of the country’s Caspian Sea territory, estimated at up to 157GW in a World Bank report published this year. Australia's Fortescue Future Industries pre-empted Acwa and Masdar in December by signing a framework agreement with the Azeri energy ministry to study and develop up to 12GW of renewables and green hydrogen.

All three deals are notably vague, lacking the details on hydrogen or ammonia capacity and timing attached to schemes in countries more advanced in their planning.

Renewables focus

Acwa and Masdar are already on the ground in Azerbaijan, albeit with a focus on large-scale renewables development. The UAE developer is due to bring a 230MW solar plant online this year, while the Saudi firm broke ground on a 240MW windfarm at the beginning of last year.

Alongside the hydrogen cooperation agreement with Socar, Acwa—50pc owned by the Kingdom’s sovereign wealth fund—signed implementation agreements with the Azerbaijan’s energy ministry to develop 2.5GW of wind power, 1.5GW of it offshore for the first time, as well as the country’s first battery storage systems.

Masdar’s mid-January deal, firming up one inked in June last year, was considerably larger. The the firm has agreed to develop 1GW of solar and 3GW of wind, including 2GW of integrated offshore wind and green hydrogen production, with the rights to scale up to 10GW.

While Baku’s long-term interest in hydrogen is growing, the government’s initial focus for clean energy exports—given logistical difficulties and huge uncertainties over the future hydrogen market—is expected to be on delivering renewables-based electricity directly to Europe via a long-mooted interconnection.

Growing influence

Riyadh and Abu Dhabi are both using international clean energy investment enabled by high oil income to entrench new export revenue streams and bolster geopolitical influence with Central Asia and the South Caucasus, where governments generally lack the funds to finance planned renewables development upfront.

Baku’s tense relations with Tehran make it particularly receptive to the advances of Iran’s regional adversaries. President Aliyev received a delegation led by Saudi minister of investment, Khalid al-Falih in December.

Meanwhile, Uzbekistan is Acwa’s largest recipient of investment outside its home market. The developer recently agreed a heads of terms with the country’s energy ministry and state chemicals company Uzkimyosanoat to develop a 3,000t/yr green hydrogen plant for integration with an existing ammonia plant near Tashkent—noted in the joint statement as freeing up 600mn m³ of natural gas—and conduct a feasibility study on a 500,000t/yr green ammonia facility.

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Author: Clare Dunkley