The long-awaited Law of Azerbaijan “On the Use of Renewable Energy Sources in the Production of Electricity”, No. 339-VIQ, dated 31 May 2021 (the “Renewable Energy Law”) was signed into law by the President and published on July 14, 2021, together with a Presidential Decree on the implementation of the Renewable Energy Law. Below is a general overview of the most salient provisions of the Renewable Energy Law.

General Overview

The newly-adopted Renewable Energy Law addresses guaranteed tariffs, foreign investment and other support mechanisms, such as scientific research and the promotion of active consumers. In addition, certain incentives are being proposed for investors in renewable energy source (RES) projects in Azerbaijan, including guaranteed offtake, guaranteed connection, priority in transmission and distribution and long-term land leases.

Creation of an Atlas for RES territories

In order to make effective use of the country’s RES potential, the Renewable Energy Law envisages the creation of an Atlas for the RES Potential of the Republic of Azerbaijan (the “Atlas”), which will be an integral part of an information system (database) that will be coordinated by the Ministry of Energy of the Republic of Azerbaijan.

The Atlas will be compiled based on proposals from the Ministry of Energy containing information about the landscape, location, size, boundaries, type of ownership, and the population residing in such territories. These proposals will be then evaluated and approved by the Cabinet of Ministries, granting the status of RES territories to such land plots (or bodies of water).

Selection of Investors

The Renewable Energy Law prescribes two methods for selecting investors for the generation of electricity using RES: (i) auctions, and (ii) direct negotiations.

If the selection of an investor is conducted in the form of an auction, the winner of the auction shall be the lowest bidder in relation to the purchase price for electricity subject to guaranteed offtake. The Ministry of Energy is the authorized body to organize RES auctions.

The selection of investors using the direct negotiation method is carried out in the following cases, with the consent of the President of the Republic of

• when pilot projects and other projects of strategic importance are being implemented;
• if the auction is unsuccessful.

The following contracts are to be concluded with the selected investors:

• an Investment Agreement with the Ministry of Energy;
• a Power Purchase Agreement with the guaranteed buyer (to be determined by the President); and
• a Connection Agreement with a state electric power enterprise or energy supply enterprise, depending on the network to which the power plant is to be connected.

Tariffs

The tariffs for electricity to be generated from RES are calculated for each kilowatt-hour of electricity transmitted to the electricity network.

Generally, the Renewable Energy Law provides that the electricity to be generated from RES is to be sold at wholesale tariffs determined by the Tariff Council of the Republic of Azerbaijan, except:

• where the investor was selected through the auction method, in which case the tariffs proposed by the winning (lowest) bid shall apply;
• where the investor was selected through direct negotiations, in which case the tariffs negotiated directly with the Ministry of Energy shall apply.

Licensing

Investors will be required to obtain a permit for the generation of electricity in excess of the limits set by the Cabinet of Ministers of Azerbaijan (i.e., 150 kilowatts in relation to the electricity generated from RES). The design, construction and installation of the RES facility shall be subject to the Town Planning and Construction Code, and other normative legal acts on city building and construction and technical norms.

The law is stated as of July 14, 2021.