As climate change intensifies, fossil fuel reserves diminish, and energy demands surge, the world increasingly turns to renewable energy as a viable solution. Renewable energy reduces greenhouse gas emissions, creates jobs, and stimulates economic growth while enhancing energy security in the face of weaponization of energy exports by different countries. It became evident especially after Russia’s full-scale invasion of Ukraine, as escalating tensions between Russia and the West caused supply disruptions and price shocks. Meanwhile, the Israel-Hamas conflict has shown how easily energy infrastructure can be targeted in war zones, underscoring the need for sustainable energy solutions. Rich with solar and wind potential, the South Caucasus countries stand to benefit from this growing demand for alternative supply chains.
Located at the crossroads of Europe and Asia, Armenia, Azerbaijan, and Georgia have diverse energy profiles shaped by their geographical and political landscape. Despite differences, all three countries recognize the urgent need to integrate renewable energy into their national strategies to ensure sustainable growth, reduce reliance on fossil fuels, and address environmental concerns. In Georgia, hydropower dominates, with a rich network of rivers meeting a substantial portion of the country’s electricity needs. Armenia, too, depends heavily on hydropower but is making significant strides in solar energy, leveraging its sunny climate. Azerbaijan, traditionally an oil and gas powerhouse, is gradually exploring wind and solar options as it seeks to diversify its energy mix. Understanding the renewable energy dynamics in these countries not only sheds light on their individual journeys but also provides broader insights into the global shift toward sustainable energy.
Georgia
Georgia has significant untapped potential in hydropower, solar, wind, and other renewable resources. Due to its lack of fossil fuel reserves, Georgia heavily relies on renewable energy for its energy security. In 2021, the share of renewable energy in electricity production was 81 percent, mainly provided by hydropower and a wind farm in Gori.
According to the International Energy Agency, of Georgia’s 4,533 MW of power generation capacity, 2,381 MW came from reservoir hydropower plants, 942 MW from run-of-river facilities, and 282 MW from small plants, collectively producing 12,645 MWh of electricity in 2021. Seven large hydropower plants, including state-owned Engurhesi and Vardnilhesi 1, generated 42 percent of the country’s electricity. Despite Georgia’s significant hydropower potential, challenges like inadequate environmental assessments, poor public communication, and lack of strategic investors hinder its development.
Georgia’s solar and wind potential requires reliable assessments, with estimates suggesting 1,500 MW of wind capacity and considerable solar potential due to ample sunshine days. By 2022, Georgia had 397 solar PV installations totaling 20.4 MW, with plans for 146 MW of solar capacity and 740 MW of wind capacity signed through MoUs. Notably, the country’s existing wind power plant, Qartli, with a capacity factor of 46 percent in 2021, provides insights into its growing renewable energy capabilities.
Besides its crucial role in Georgia’s nascent energy security policy, the recent greening drive in the country serves Tbilisi’s geopolitical ambitions to leverage its strategic location between the EU and resource-rich countries to enter into profitable green partnerships. If oil and gas pipelines carrying Azerbaijani energy resources to Europe have long defined Georgia’s pivotal transit role in European energy geopolitics, today Tbilisi emerges as a vital link in regional green connectivity. On December 17, 2022, Azerbaijan, Georgia, Hungary, and Romania signed a memorandum of understanding on the construction of the Black Sea electric cable with the attendance of European Commission President Ursula von der Leyen. Bringing electricity from Azerbaijan’s renewable sources to Europe, the project is expected to transform Georgia into an electricity hub and integrate it into the EU’s domestic electricity market. Transit through Georgia is also an essential component of the EU’s plans to import electricity and hydrogen from Central Asia and build sustainable supply chains for its critical raw materials partnerships with Kazakhstan and Uzbekistan. On the one hand, these new partnership frameworks will strengthen the resilience of Georgia’s energy sector to possible supply shocks. On the other hand, it will provide Georgia’s ruling government an opportunity to highlight its strategic importance for the EU with whom relations have been at its nadir since the adoption of the controversial foreign agents law.
Armenia
As of 2020, renewable energy resources, including hydro, comprised 7.1% of Armenia’s energy mix. By 2021, almost one-third of the country’s electricity generation came from renewable sources. Armenia’s renewable energy landscape is characterized by a mix of small hydroelectric plants, wind, and solar power, contributing significantly to the national network.
Armenia’s renewable energy system includes 189 small private HPPs, mostly built since 2007. These plants, each under 30 MW, collectively have an installed capacity of approximately 389 MW, producing about 943 GWh annually, which accounts for 14 percent of the domestic electricity supply. Additional small wind and solar power plants generate 4.23 MW and 56 MW of electricity, respectively.
When it comes to large hydropower plants, Vorotan Cascade operated by Contour Global Hydro Cascade CJSC, has an installed capacity of 404 MW and generates around 1,000 GWh annually, covering 15 percent of domestic supply. Due to aging infrastructure, a 51-million euro short-term rehabilitation plan is under development. The Sevan-Hrazdan Cascade which is managed by International Energy Corporation CJSC has an operating capacity of 552 MW, producing about 450 GWh annually, constituting 6 percent of domestic supply. Continuous upgrades have been made since the early 2000s, with ongoing reconstruction projects like the Yerevan HPP, costing USD 40 million.
Armenia is focusing on strengthening regional energy integration to enhance its energy security and increase electricity trade flows. During periods of high hydropower generation in the spring and summer, it exports excess electricity to Georgia, which can further supply it to the Turkish market. Conversely, Georgia supplies Armenia with low-cost hydropower electricity when markets are favorable. Once Armenia’s new nuclear power plant (NPP) becomes operational, it could open up additional trade opportunities. Currently, Armenia’s electricity network has cross-border connections with Georgia and Iran, although trading is limited due to asynchronous systems and a largely closed market. The barter agreement with Iran involves swapping Armenian electricity for Iranian gas. Although there are existing interconnections with Azerbaijan and Türkiye, they are currently inactive.
Armenia’s solar energy sector continues to flourish with recent milestones, including the activation of its inaugural floating PV project in Yerevan, boasting a capacity of 150 kW. Developed by French company Nepsen in collaboration with the Armenian Renewable Resources and Energy Efficiency Fund, this initiative marks a significant step in the nation’s renewable energy journey. Karen Asatryan, the Fund’s general director, noted its regional pioneering status, signaling a promising trajectory for solar energy in Armenia.
Armenia’s nuclear energy sector is a cornerstone of its energy strategy, ensuring energy security and contributing to its efforts on climate change mitigation. The Metsamor Nuclear Power Plant plays a pivotal role, supplying about 30 percent of the country’s electricity and symbolizing Armenia’s sovereignty. While Yerevan committed to double the share of renewables in energy generation through new wind and solar projects, plans to extend the operationalization of the Metsamor NPP underscore Armenia’s dedication to nuclear energy. According to the contract signed on December 15, 2023, Armenia will pay Russia’s nuclear energy company Rosatom 65 million USD to modernize and extend the lifespan of the NPP until 2036.
As nuclear energy cements its place as a transition fuel amid the slowdown of green transition, Yerevan seeks nuclear diplomacy to enhance its international partnerships. In March 2024, Prime Minister Pashinyan attended the first-ever nuclear energy summit in Brussels, showcasing Yerevan’s commitment to European climate change mitigation efforts, though the continent is divided over the role of nuclear energy in green transition, with Armenia’s closest EU partner, France supporting nuclear expansion. Yet, as Yerevan is dependent on Russia to develop and maintain its nuclear energy sector, it has to steer closer to Moscow against its will even if it seeks to diversify its economic and military dependence away from Russia.
Azerbaijan
Azerbaijan is a traditional oil and natural gas exporter with significant contributions to the global energy market. At the end of 2020, the country held oil reserves of 7 billion barrels (1 Mt), representing 0.4 percent of global reserves according to the June 2021 BP Statistical Review of World Energy. Natural gas reserves are estimated at 2.5 trillion cubic meters, making Azerbaijan a notable player in regional gas geopolitics. In terms of electricity generation, Azerbaijan relies heavily on natural gas, which accounts for 90 percent of production. Large hydropower plants contribute 4 percent to the electricity mix.
Despite the dominance of fossil fuels, Azerbaijan is exploring renewable energy sources to diversify its energy mix and reduce dependence on oil revenues. In line with its commitments under the Paris Agreement, Baku aims to generate 30 percent of its electricity from renewable energy by 2030. In May 2021, Azerbaijan adopted a Law on Using Renewable Energy Sources in Electricity Production, providing a legal framework for the development of renewable energy projects. In 2023, electricity generated from renewable resources accounted for 7 percent of total production. Despite the government’s efforts to increase the share of wind and solar energy in electricity generation, hydropower plants still dominate renewable production.
Russia’s invasion of Ukraine and destabilization of European gas markets increased Azerbaijan’s geostrategic importance not only as an alternative gas supplier to Russia but also as a potential renewable energy exporter. As natural gas came to be increasingly seen as a transition fuel in green transition discussions in Europe, growing gas exports to the EU further boosted Baku’s credentials as a reliable partner. Yet, Baku’s challenge is to find enough gas available for exports to the EU, doubling today’s 11 billion cubic meters of gas to almost 20 billion cubic meters by 2027 per the MoU signed with the EU in July 2022. A part of Azerbaijan’s strategy is to increase the share of renewable energy in domestic electricity generation to free up natural gas for exports. For example, according to Azerbaijan’s Energy Ministry, the 230 MW Garadagh solar power plant, which was built in cooperation with UAE-based Masdar and came into operation in October 2023, will produce 500 kilowatt-hours of electricity annually, saving 110 million cubic meters of natural gas. It will also reduce carbon emissions to the atmosphere by 200 thousand tons, helping Baku serve its commitments under international climate agreements.
As the global energy agenda shifts from oil and gas to renewable resources and technologies, Azerbaijan is adapting by attracting green investments on its large wind and solar potential from a wide array of actors. Meanwhile, Baku’s diminishing oil production necessitates urgent measures to maintain its pivotal role in Eurasian energy geopolitics. In recent years, BP, Masdar, and Saudi Arabia’s ACWA Power have been especially active in investing in wind and solar power projects in Azerbaijan. ACWA Power also eyes investments in green hydrogen production and the construction of battery energy storage systems. Baku wants to ensure that the liberated territories in Karabakh, which have vast solar and wind potential, benefit from this investment spree. New agreements with foreign energy companies will help Azerbaijan build a net zero emissions zone in Karabakh by 2050. Baku sees it as a part of the larger reconstruction process in these territories with contributions from partner countries.
On top of all this, Azerbaijan is preparing to host the COP29 in November, a historic opportunity to show its commitment to the global fight against climate change and present itself as a responsible stakeholder. On the one hand, this proactive green diplomacy creates new responsibilities for Azerbaijan, a traditional crude exporter, to live up to its commitments to a carbon-free future. On the other hand, it affords Baku opportunities to enhance green partnerships with leading powers, thus helping it finetune its balanced regional posturing to geopolitical trends in the upcoming years, mostly characterized by vicious competition on green technologies.
Conclusion
Taken together, it is high time for the South Caucasus countries to develop comprehensive green strategies to better cope with climate change and ensure energy security in an increasingly fractured world order. By leveraging their unique geography and fostering regional collaboration, these nations are poised to drive progress toward a greener and more prosperous future for the South Caucasus and beyond. The Armenia-Azerbaijan peace agreement on the eve of the COP29 event would be a significant step forward, offering a stable South Caucasus for potential green investors.
