Nr. 69: Energy

This issue of the Caucasus Analytical Digest discusses the topic of energy in the South Caucasus from three different angles: Farid Guliyev argues that Azerbaijan has made slow progress achieving non-oil growth and remains heavily dependent on oil revenues. In his opinion, two factors seem crucial: first, various public investment projects, mostly on infrastructure, implemented under the banner of diversification were actually exploited by the elites to convert growing public funds into elite assets under their private control. Second, the peak in oil production (in 2010) and the expected depletion of oil reserves over the next two decades seem to have shortened elite time horizons, causing the authorities to spend about 65 percent of the overall savings from the state oil fund. In sum, elite financial interests and short time horizons deflected economic diversification and put Azerbaijan’s long-term development at risk. Julia Kusznir reviews the latest developments in the Southern Gas Corridor, which seeks to reduce European dependence on Russian gas by increasing supplies from the Caspian. Turkey and Azerbaijan are the main beneficiaries of recent events, while Russia is losing its influence over European energy markets, as evidenced by its decision to redirect the South Stream Pipeline to Turkey. The situation remains volatile and depends heavily on Russia’s evolving relationship with the West and the ability of Turkey and Azerbaijan to position themselves between the EU and Russia. Last but not least, Maximilian Kühne, Philipp Ahlhaus and Thomas Hamacher argue that renewable energy sources could, given their availability and economic feasibility, contribute toward a reliable electricity supply for the South Caucasus region. Based on annual generation time series derived from weather data for the period 2000-2012, they analyze the availability and economic feasibility of wind power and solar photovoltaics in Armenia, Azerbaijan and Georgia; while their analysis demonstrates that electricity generation from wind and solar power is currently not economically feasible in any of the three countries, they postulate that the attractiveness of renewable energy sources will improve significantly in the future if investment costs and the cost of capital can be reduced. They conclude by discussing possible benefits of an early introduction of renewable energy sources in the electricity supply of the South Caucasus region.