Azerbaijan is strengthening its contribution to the global sustainable development agenda, focusing on the development of "green energy," infrastructure modernization, and expanding international cooperation in the field of clean technologies. One of the country's key partners in these areas is the European Bank for Reconstruction and Development (EBRD), which supports both public and private initiatives aimed at sustainable growth.
In an interview with Report, Harry Boyd-Carpenter, Managing Director of the EBRD Sustainable Infrastructure Group, discussed the priorities for cooperation with Azerbaijan, the prospects for issuing "green bonds," the role of the private sector in the transition to a low-carbon economy, and new opportunities for small and medium-sized businesses in the implementation of eco-friendly technologies.
We present the interview to our readers:
- What sustainable financing mechanisms does the EBRD offer to Azerbaijan to help achieve its climate goals? Are green bonds, climate investment mechanisms, or other instruments being considered to attract capital for environmentally friendly projects?
- We offer the full range of financing mechanisms. One of the virtues of EBRD is that we're very flexible in our financing. We have the capacity to lend to the government, to public companies, we lend to private companies, we also lend through local banks. Occasionally we make equity investments, and yes, you mentioned green bonds, we're very keen on using the capital markets, so where we can, we use them.
What have we done specifically in Azerbaijan? We've recently provided the loan to the water agency to support the development of water facilities in Ganja. Last year, we lent to private companies to support the development of very large solar plants. We also signed agreements with two Azerbaijani banks for them to make loans to customers, the sorts of customers that we can't reach because we're not in a position to lend directly to smaller businesses, but we lend to local banks that then onlend that money to local customers.
But we haven't yet done a green bond in Azerbaijan, so you're giving me a good challenge. We've done one in Georgia, and I know that there's a lot of friendly rivalry, so it's good that we make sure we do one in Azerbaijan now.
- But do you have a plan to establish a green bond?
- Absolutely, yes. We're looking for opportunities.
- How does the EBRD assess Azerbaijan’s climate commitments under the Paris Agreement? What steps are necessary to meet the stated emission reduction targets and enhance the economy’s climate resilience?
- Firstly, we think Azerbaijan did a really good job as a COP29 host. Hosting a COP is a difficult job at the best of times. Last year was obviously a very complex environment. And I thought, to be fair, Azerbaijan did a really good job, especially given that they only had nine months to get ready, when normally you get about two years.
I think that was a very impressive achievement. That was really Azerbaijan stepping up as a climate leader. What about progress? We've been really excited about the development of renewable energy in particular, and that's core to what you have to do. So, what do you have to do to address climate change? You have to change your whole economy. So that means there's a very long list of things that needs to be done.
But if you had to reduce it to just one or two things, I’d say you have to electrify your economy, and you have to get electricity from wind and solar. And Azerbaijan is making good progress. We've been very proud to finance 1.2 gigawatts, so that's 1,200 megawatts of renewable energy, wind and solar capacity. And that's good progress, but it's a good start. We think there's more potential to be used.
We know the government is committed to that, and we're looking forward to working with them. So I think that's probably the first and most important thing to do, to get your electricity from wind and solar. And by the way, that's cheap as well. It’s good for the consumer, both because it's good for the environment, but also because it brings down electricity costs.
I'm excited by the number of electric vehicles I see on the road in Baku, but I hope there will be more in time. And then you have to start thinking about industry. And I think it's interesting to look at how Azerbaijan is positioning itself with green hydrogen and green ammonia, because that's how you start to decarbonize the industry. So I think those are the directions. We think Azerbaijan is doing really well, but there's more to come. It's a big job for all of us.
- Azerbaijan is actively investing in transport corridors between Europe and Asia. How is the EBRD supporting the development of this infrastructure from a sustainability perspective? Are there plans to finance railway electrification, energy-efficient logistics hubs, or other green transport solutions?
- We're always looking, you mentioned a couple of different things. One is conventional logistics, transfer of goods.
We don't have active projects yet, but we are always looking at opportunities to improve the energy efficiency, to improve the green credentials, especially of the middle corridor. So we're investing not just in Azerbaijan, but also in Central Asia. And of course, that logistics route has to be efficient, it has to be quick, but it also has to be green. So we are looking at such projects.
Secondly, you know that Azerbaijan is currently a key exporter of traditional energy, of hydrocarbons. It's clearly looking, and this was also a theme of COP29, to position itself as an exporter of green energy: both its own renewable energy and potentially also Central Asia's renewable energy.
So we are looking at those projects. There's nothing yet ready for finance because these are big, complex projects. But we are certainly looking at the projects and talking about financing options. And what we're also trying to do is to bring our experience in other jurisdictions, in other countries to advise how to best structure it, how to think about the benefits for all parties, the producer and the consumer.
- The Southern Gas Corridor remains a strategic energy project for Europe. What is the EBRD’s role in supporting the sustainability of this corridor, including the potential reduction of its carbon footprint? Is there consideration of financing carbon capture and storage projects or the modernization of gas transmission infrastructure?
- We have some discussions around that. The precondition for us to start engaging with financing is that there has to be final consensus and agreement amongst all of the stakeholders around the next stage of the Southern Gas Corridor. Financing, at the end, follows the underlying economic decision, and that underlying economic consensus is not yet there.
That's what the purpose of this whole ministerial meeting is, to try to move that forward. So it would be premature for me to talk about financing before there's a clear agreement amongst the principles of this agreement, i.e. European countries and Azerbaijan and the transit countries, as to what they want to do.
- What opportunities does the EBRD see for involving Azerbaijan’s private sector in sustainable infrastructure projects? What barriers exist for businesses, and what measures could stimulate greater investor participation in green initiatives?
- The first big opportunity is private investment in renewable energy and we think that makes sense. It makes sense because what the private sector has shown in country after country is that they can do this quicker and cheaper. I keep coming up to cost, because if energy is expensive, then it eventually becomes a problem.
And that's the beauty of wind and solar. They're green and clean, but they're also cheap. We think the private sector is really good at doing this. That's a model that Azerbaijan has followed. So you see all of the renewable energy projects here are private. We'd like to see more of those. And we think there will be more. We were very pleased to support the government in structuring an auction program for renewables last year.
We think that that's a program that can grow and grow. That's the first opportunity. Then you're looking at things that are a little bit harder to do because the economics are not so obvious, but that's coming. And that's probably around e-mobility. I mentioned earlier how many electric cars you see here. So I think there should be more opportunities for e-mobility. And then perhaps also private provision of water infrastructure.
That needs a PPP framework. For those sorts of projects to make sense, first of all, you need the right regulatory framework, and then secondly, you need cost-reflective pricing. And I think that's a big challenge, making sure that the prices you charge consumers reflect the true costs, because then the green can compete. And I know Azerbaijan has made good progress in that direction. How to ensure that you have cost-reflective pricing in the economy is a key area, I think.
Because we believe that being green makes economic sense. If you have an efficient market, green investment will flow.
- Does EBRD have plans to support small and medium-sized enterprises in the field of green technologies in Azerbaijan? In which sectors can SMEs benefit most from such programs, and what financing mechanisms are being considered?
- Yes, I mentioned earlier that at COP29 we signed two loan agreements with Azerbaijani banks. One of them was a green loan targeted at small businesses with a green element. And if you ask, what are these technologies? I keep coming back to this, but number one is renewable energy. Small businesses can always use solar panels. You have a beautifully sunny country. Because I'm British, I know how valuable that is. It's always going to make sense if you're a warehouse owner or a factory owner to put solar panels on your roof.
And the banks that we lend to will be happy to support you with that. But then probably the next big thing for small businesses to focus on is energy efficiency. Have you insulated your building? Do you have double glazing? If you have pumps, are you using variable speed pumps? If you have waste heat from your industrial process, are you capturing that heat? Those are what we call low-hanging fruit, things that are easy to do.
And as I said, we are putting in place loan facilities which equip banks well to respond to businesses that need to make those investments.
- Following the meetings in Azerbaijan, which areas of cooperation does the EBRD consider a priority? Are new projects or agreements expected in the fields of sustainable development, renewable energy, and energy efficiency?
- Our main priorities at the moment are more investment in the energy sector, especially renewables, more investment in the water sector and connectivity. As I mentioned earlier, we signed a loan with the water agency for supporting the infrastructure in the city of Ganja. We're working with the water agency on more such projects. There is a lot of talk about climate change, but you have to remember that climate change is a lot about water, clean water and proper wastewater treatment. These are fundamental things that are also about quality of life for local people, local citizens. That's really important to us. In case of transport and connectivity, including the Middle Corridor, the government has asked us to pay a bit more attention to these projects, and we'll start thinking about where best to direct our efforts there.