Azerbaijan plans to develop large-scale production of blue and
green hydrogen as part of its efforts to decarbonise
energy-intensive industries and economic sectors where direct
electrification remains technically challenging.
The initiative is outlined in the country’s Long-term Low-Carbon
Development Strategy, which identifies hydrogen as a key component
of the transition towards a low-carbon economy.
According to the strategy, hydrogen production will play a
central role in reducing emissions from heavy industry and the
energy sector, while creating opportunities for the export of
low-carbon fuels.
Blue hydrogen emerges as the most cost-effective option
The strategy identifies blue hydrogen, produced from natural gas
through steam methane reforming (SMR) combined with carbon capture,
utilisation and storage (CCUS), as the most economically viable
option during the initial stages of development.
Azerbaijan’s existing natural gas transmission infrastructure is
expected to provide an advantage in establishing production
capacity.
The proposed technology could initially capture up to 85% of the
carbon dioxide emissions generated during hydrogen production.
According to the National Hydrogen Strategy developed jointly by
Azerbaijan’s Ministry of Energy and the European Bank for
Reconstruction and Development (EBRD), blue hydrogen production
could cost approximately €2.87 per kilogram, provided carbon
capture and storage technology proves commercially and technically
viable.
The estimated cost includes €1.98 per kilogram for energy, €0.31
for capital expenditure and €0.59 for operating expenditure.
Meanwhile, green hydrogen production through electrolysis
powered by renewable energy is expected to become another important
component of Azerbaijan’s hydrogen industry.
Surplus electricity generated from renewable sources would be
used to produce hydrogen for domestic energy-intensive industries
and potential export markets.
The estimated production cost of green hydrogen at a
medium-sized facility stands at €4.02 per kilogram, comprising
€2.52 in energy costs, €1.20 in capital expenditure and €0.30 in
operating expenditure.
However, improvements in production efficiency could reduce the
cost to approximately €3.60 per kilogram, with energy costs
accounting for €2.55, capital expenditure €0.84 and operating costs
€0.21.
For comparison, the average estimated cost of green hydrogen
production in the European Union is €5.05 per kilogram, including
€2.74 in energy expenditure, €1.85 in capital costs and €0.46 in
operating expenditure.
These projections suggest that Azerbaijan could develop a
competitive position in hydrogen production, particularly if
renewable electricity costs decline and carbon capture technologies
become commercially viable.
Renewable energy potential exceeds 290 GW
The strategy also highlights Azerbaijan’s substantial renewable
energy resources as a foundation for expanding hydrogen production
and electrifying the wider economy.
The country’s technical renewable energy potential exceeds 135
gigawatts (GW) onshore and 157 GW offshore, representing a combined
potential of more than 292 GW.
However, the economically viable renewable energy potential is
estimated at approximately 27 GW, including 23 GW of solar power, 3
GW of wind energy, 520 megawatts (MW) of hydropower from mountain
rivers and 380 MW of bioenergy.
In 2022, the energy sector accounted for approximately 21% of
Azerbaijan’s total greenhouse gas emissions, equivalent to 14.4
million tonnes of CO₂.
The sector is expected to play a central role in the country’s
broader electrification strategy, with renewable electricity
increasingly replacing fossil fuel consumption across different
areas of the economy.
Grid modernisation and energy storage to support transition
Alongside hydrogen development, Azerbaijan plans to strengthen
its electricity infrastructure to accommodate increasing renewable
generation.
The strategy envisages the expansion of high-voltage
transmission lines, construction of new substations and
introduction of advanced digital management systems, including
Supervisory Control and Data Acquisition (SCADA), Advanced
Distribution Management Systems (ADMS) and Geographic Information
Systems (GIS).
These measures are expected to reduce technical electricity
losses in distribution networks by approximately 1–2%.
The development of long-duration energy storage systems (LDES)
is also identified as an important measure for addressing
fluctuations in solar and wind generation.
According to the information outlined in the strategy,
AzerEnerji has already commissioned an energy storage system with a
capacity of 250 MW.
Such infrastructure is intended to improve grid flexibility,
maintain electricity supply stability and support the integration
of additional renewable energy capacity.
