Hajizadeh Elshan Mahmud

Azerbaijan Republic

Azerbaijan State Economic University - UNEC

Center of Energy Economics, director

elshan@hajizada.com

ORCID ID 0000-0001-5447-9676

Abstract

In paper investigates issues dealing with some aspects of enhancing energy security and increasing energy efficiency. An extensive research related the role of energy in economic life and people’s business activity, as well as, its modern market system being formed as a global commodity was carried out. After analytic generalization, new interpretation of “Energy security” concept was presented. It was clarified once more that, in contemporary world, energy security is measured not only by the quantity of energy consumption supply, but also by its quality values and standards. Given the fact that in the Azerbaijan Republic, as in a sustainable social country, energy security is not separated from energy efficiency and is considered as an important indicator in the supply of fuel-energy resources for increasing the national development level of the economy, the paper intends to investigate these features. It also studies preparation of national energy security strategy and criteria, activities, and objectives that define its conditions being justified by analysis for providing sustainability of these activities.

Keywords: energy security, energy efficiency, Azerbaijan Republic, fuel-energy resources, energy strategy.

JEL Classification Codes: D61, F63, H156.

Introduction

Energy is not only the source of mechanical power, but also a tool that provides vital services to human’s business activity and household. It is obvious that nowadays energy turned into a global commodity. Respective market system formed by it has already ovecome even the financial market by most of parameters. Energy and issues of its reliable supply is considered as one of the most important problems of contemporary civilization. There is no doubt that our future life will mostly depend on its availability. Therefore, despite of energy resources are limited or non-renewable, energy security takes the forefront, planned activities are conducted to provide its sustainability and respective strategies are prepared and implemented.

In contemporary world energy security is measured not only by the quantity of energy consumption supply but also by its quality values and standards. From this point in social country energy security is not separated from energy efficiency and considered as an impoertant indicator of country’s development level of fuel-energy resources supply to the economy. Azerbaijan Republic is also one of the countries with promising hydrocarbon energy resources in perspective. In addition, it increases its energetic potential by actions performed in wind and solar energy, river, thermal springs sources usage. In spite of this, country’s energetics still mostly depends on oil-gas resources usage which is classified as non-renewable resources. Relying on abundance of such resources at the moment and realizing the fact that they will run out in perspective, income from oil-gas sector export accumulates at national oil fund. Although some of these funds are used for economic diversification and social purposes, as the final result they will be delivered to future generations not in contemporary material form - energy carriers, but as financial capital. This perspective determines the development of appropriate strategies that will provide finding alternatives to replace oil-gas resources in country’s energy balance and sustainable energy independence.

It should be noted that the strategic roadmap for the national economy and key sectors of the economy approved by the Decree of the President of the Republic of Azerbaijan in 2016, aims to continue reforms in the electric power sector, to carry out appropriate restructuring and liberalization activities. In this regard, extensive institutional reforms are being carried out in electric power sector and appropriate Decrees and Orders were signed by the President in respective fields. Within this factors tasks like preparation of long-termed development strategy project of power sector, suggestions on gradual transition to liberal market model, which is based on competitiveness in this sector and also various draft law acts to increase energy system efficiency were set. To fulfil these tasks reforms in this field will deepen, adequate efficient institutional environment will be formed, numerous new institutions such as energy efficiency service, energy audit and energy manager will be established. All factors mentioned above will bring new social values to life quality and provide fortifying of energy security and energy efficiency.

It also promotes the expansion of research in the scientific field in order to achieve these goals, which are relevant and timely. Relying mentioned factors, in this article, in accordance to global challenges providing energy security and energy efficiency in wide range in Azerbaijan and promotion appropriate conseptual ideas based on conducted analysis become a subject of research.

Conducted analysis and researches have theoretic and methodological basis in accordance to consepts presented in research works on strategic role of energy sector of contemporary world and country scientists and materials indicating energy policy in Azerbaijan Republic. Research process was organized by usage of instruments and mechanisms of comparative economic analysis in systematic and logical approach.

1. Theoretical-conseptual basis of Energy Security

Modern economic and political life gives us enough actual material about affection of energy sector on a broad specrum palette of the world. Such phrases as “energy policy”, “energy diplomacy”, “energy efficiency”, “energy economy”, “energy nationalism” and “energy terrorism” take wide dispute in the world press and contemporary scientific and public literature. All of this generally originates from “energy security” phenomenon.

But which problems are covered by “energy security”, what does it justify, measure and finally, which components do its characteristics and strategic structure contain of? Firstly, what do its political and economic importance and strategic power characterized with?

Investigations show that understanding of world’s energy security problem firt time came out amid drastical increase of world oil prices associated with Arab-Israel conflict. Complete suspension of oil supply to Western countries became the reason of conducting some actions in supply of energy security. But about half a century has passed since this severe cataclysmic accident. During this period, development has reached such a level that the energy has taken its dominance among the constituent elements of the structure of the economy and has become an integral part of it. From this point of view, the provision of energy security is at the forefront of the conditions for the normal functioning of all sectors of the economy.

In spite of the fact that in the half a century history of energy security concept it was evaluated by different aspects there is no definite description of it in a single conceptual sense. “Energy security” concept which is formed from “energiya” - activity, operation (from the Ancient Greek: ἐνέργεια) and English “security” word, can carry the technical, technological, socio-economic, political and philosophical gist as multi-level category concept in scientific-encyclopedic literature.

Considering the energy sector as a technological purpose factor, it is assessed as a technogenic security characteristics of this system. With the reliability assignment of society and state protection from energy resources scarce, it gains not only social and economic, but also political and philosophical status. But along with all this, in modern civilization energy security mostly increases its value as an economic category. Increasing of its importance in society’s sustainable energy supply and outstanding role in country’s national security system makes this evaluation even more relevant.

It should be emphasized that the concept of national security, as a political doctrine, is a complex system of measures that protects the identity, public and state security of the state against foreign aggression and terrorism. And economy is its basis. From this point of view energy security performs as a subsystem of economic security and is regarded as a material basis of national security for the country’s economic potential.

Due to its economic gist energy security is measurable. Availability of energy resources of the country is the main indicator of energy security. Availability is calculated by the formula given below:

E_rp   =  E_pg : E_pc

Where:            E_rp                   resource availability coefficient;

                        E_pg                   energy production in country;

                        E_pc                         energy consumption in country.

If the resource availability coefficient is more than 1 country’s energy security is considered as normal. Configurations below 1 indicate crisis situations. But this definition should not be considered as a benchmark. The reason is that energy security is not provided only by adequacy of production and consumption. The availability of relevant resources, their accessibility, as well as the range and quality parameters in the structural composition also play a key role here. As a notable example, there is a number of oil producer countries which are rich of energy resources that do not possess processing enterprises with appropriate power. For this reason, they import most of the fuel types, especially gasoline.

A number of encyclopedic publications characterize energy security as “the state of protection of country and region’s population, citizens, the state and the economy from the scarce of appropriate qualitative energy resources and the danger of its supply stability interruption”.

Energy security is pragmatically determined in many economically developed countries as a part of the national energy strategy. Energy strategy expresses the determining of national energy policy and becoming its operation document. It settles conditions for achieving exact purposed activity goals by movement management in exchange for the necessary resources and potential opportunities. In the structural composition, the energy strategy performs as an activity program of modernization and radical reconstruction that combines planning, management documents, schedules, budget and other necessary elements. Considering this, other definitions of energy security listed below are also considered in the scientific literature and national energy strategies of individual countries:

• § Energy security - confidence of availability of energy with sufficient quantity and quality in disposal in current economic conditions;
• § Energy security - state of protection of citizens, society and country’s essential “energy interests” from internal and external perils;
• § Energy security - a compilation of economic capabilities at the national and international level to adequately and efficiently meet public consumption with energy resources;
• § Energy security - full provision of energy resources for development of living conditions and personality, stability of society, state, social economy and military aspects and also preparedness of economy to resist to internal and external threats in those fields;
• § Energy Security - a compilation of conditions and facts of capability to maintain national economy’s independency, stability and sustainability, continual refreshment and improvement.

World Energy Council, a huge international non-commercial energy organization accredited by UN, comments on energy security as availability of energy in current economic conditions in necessary quantity and quality at its disposal.

Energy security, in addition to its various interpretations, also differs by a number of features and characteristics, including structural complex. From this point it is classified according to locational, social, production etc. features. Locational features cover global, regional and state levels, social features cover country, society, social group, family and individual levels, production features cover national economy, areal complex, enterprises and companies. As the structural components of energy security, the configuration, range and quality of energy carriers are considered as the main factors.

By analyzing and evaluating all aspects mentioned above, it is possible to form a generalized definition of the concept of energy security that is more laconic to the scientific aspect. Thereby, “Energy security, being a functional characteristic of the energy system, reflects the situation of protection of energy interests from internal and external threats”.

2. Current situation related to energy security and efficiency in

Azerbaijan and priorities of areal development

Energy independence and energy security are vital aspects for Azerbaijan Republic which is has abundant energy resources. There are 1-2 billion tons of oil, 2.4 trillion m³ of gas, 25-27 million tons of coal, 400-450 million tons of oil shale as a reservation in Azerbaijan. Country’s overall generation power is more than 8000 MW. 1 billion kWh of annually produced 25 billion kWh energy is exported.

According to energy availability coefficient Azerbaijan Republic is considered to be ensured with energy security. This is also sufficient in the terms of natural resources, production, transportation and logistics infrastructure. The country's economy and population still use half of the existing electricity potential. Immensity of hydrocarbon resources makes it sufficient to meet the needs of Azerbaijan for many years. In addition, these resources will continue to play a role in the export structure of the country for many decades, and will continue to stimulate economic growth. The reality is that Azerbaijan's vast natural oil and gas fields play an important role in ensuring energy security in Europe and some countries around the world. It is provided by sufficient oil and gas export pipelines. Among such projects “Baku-Tbilisi-Ceyhan pipeline” has the biggest role and importance. Realization of one of the largest gas projects in the world, authored by Azerbaijan, “Southern Gas Corridor”, launch of Trans-Anatolian Natural Gas Pipeline - TANAP, alongside with its Trans-Adriatic Pipeline - TAP part will make Azerbaijan a more reliable European supplier of gas.

Apart from oil and gas resources, other natural sources of energy in the Republic of Azerbaijan are promising in terms of sufficiency and prospects. Sunny and windy terrain, numerous rivers, and thermal waters provide a great opportunity to create alternative energy resources in the country as a separate energy source. Preliminary calculations show that Azerbaijan has about 27,000 MW of renewable energy reserve. The qualities embedded in the energy sector originates from the oil strategy founded by national leader Heydar Aliyev and enriched by new values by the President of Azerbaijan Republic Ilham Aliyev.

At the same time, it should be emphasized that, despite the exploitation potential of the country's natural resources for the 21st century is sufficient, they are also depleting. This brings the need activate alternatives in strategic plan to ensure country’s energy security sustainable provision. Problems in the industrial and infrastructure complex must be eliminated and a more modern system should be built to strengthen the reliability of energy security. Thus, the existing oil and gas refineries in the country are not able to meet all of its demand for fuel and energy resources and a number of energy products are still imported. There are also a number of perennial problems in gas processing, purification and supply, that conforms standards. Increase of gas reserves and further expansion of gas storage facilities to provide the population with more reliable gas resources are also included here. There is also a need for large-scale reconstruction and modernization in the electric power system. On the other hand, the share of renewable energy sources in the total energy balance is a bit less than 2%. This means that only 0.5% of the country's renewable energy potential is used. In addition, energy efficiency and energy efficiency issues are also pending for any activity. There is an urgent need for broad institutional reforms in this area, new infrastructure construction, increased use of low-power installations, reduction of losses, establishment of an energy audit institute, and the need for progressive standards in the construction of new buildings.

On this basis we can state that energy security is not a time-framed, cyclic aspect. It is the priority that will stay as a strategic goal for a long time. It is delicate pragmatic strategic responsibility that needs corrections on each new economic cycle. Therefore, efficient consumption, division, usage and primary increasing and transforming to future generations of the energy resources is very important.

All of these are main goals of energy policy in Azerbaijan Republic and energy security is on the forefront among them. To ensure realization of the policy new reformation process was initiated in the country, a number of establishments was targeted and new development points were determined. In this direction was determined to strengthen the normative-law basis, and as the first step preparation of the new law project for the “of the energy power” law of Azerbaijan Republic. Also the Decree for haste of reforms in energy power sector was signed by the President of Azerbaijan Republic at the beginning of 2019. This Decree includes the draft of the long-term energy sector development strategy of Azerbaijan Republic and suggestions on the gradual transition to a competitive market model in the electricity sector, as well as promoting the use of renewable energy sources and support of private business in this sector. To this end, it is instructed to develop new drafts of the Law “On the use of renewable energy sources in the production of electricity”, “Regulation in the sphere of energy and utilities” and the existing laws on “Energy Power” and “Gas Supply”. In addition, the work on drafting the law “On the efficient use of energy resources and energy efficiency” was completed.  With the adoption of these laws, energy sector reforms will be deepened, a more efficient institutional environment will be created, and many new service institutions will be established to improve energy efficiency.

In addition to expanding the use of renewable energy sources, prospects for nuclear energy, in particular the construction of a nuclear power plant (NPP), can also be considered. The idea of NPP is not a new manifestation for Azerbaijan.  Even during the USSR era, the construction of NPP in Azerbaijan was among the central government's master plans. The process has even entered a stage of implementation, in this regard a specific area has been identified, and appropriate buildings and structures have been built to establish the infrastructure. This fact gives the basis to assume that the construction of a NPP has a strategic importance for Azerbaijan, which is also a traditional oil country and is also known for its promising hydrocarbon reserves. This strategy was considered acceptable, despite high seismic factors. Experts of the International Atomic Energy Agency (IAEA) gave a positive review of the nuclear power plant construction in Azerbaijan at the 49th Session of the Organization in Vienna in 2005, without the seismic factor and the basis of hydrocarbon abundance.  In 2014, the President of the country signed the relevant order “On establishment of the “National Nuclear Research Center” Closed Joint-Stock Company” for peaceful use of nuclear technologies in Azerbaijan Republic. The main areas of activity of the company include the implementation of comprehensive measures in the field of nuclear science, nuclear technology and nuclear energy, the peaceful development of relevant technologies in line with modern requirements and national interests, and the development of highly qualified human resources in the field. Work is underway to establish a 20 MW nuclear research reactor to provide comprehensive operation of the facility.  There is no doubt that the continuation of these efforts will also ensure the establishment of nuclear energy sector in the country.

The solution of issues related to economy of energy and energy efficiency in Azerbaijan Republic will be substantiated by the adoption of the law of Azerbaijan Republic “On the efficient use of energy resources and energy efficiency”. This Law will create the rights to ensure efficient and efficient use of energy resources, to determine the rights and obligations of participants, to regulate their relations, and to adapt energy use to modern requirements and standards.  With the adoption of the law, a number of subordinate regulatory and legal acts based on international best practice will also be developed.  It will also set normative and standards for areas such as energy audits, energy efficiency services, and energy management systems that are not included in the current legislation. These innovations will also address issues such as protection of consumers' rights by distributors and suppliers, eliminating unfair competition, enhancing transparency in energy efficiency services and accessing relevant markets, and applying advanced management technologies, standards and certification. The new normative-law regulations will also establish development processes in the institutional sphere.

These studies and analysis show that the reliability of energy supply in Azerbaijan is sufficient.  Statistical comparisons also show that Azerbaijan holds one of the leading positions among the CIS countries in terms of energy security.  The national energy security category should be developed and implemented in order to further strengthen the country's energy independence by making this leadership irrevocable.

Results

The results of the studies show that in the modern world, energy security will remain the leading element of any country's national security system. In Azerbaijan Republic, appropriate strategies must be developed to ensure sustainable and stable energy security, to align and coordinate government programs to be implemented for the development of the economy. In addition, a national energy security sustainability strategy should include the following priorities that strengthen energy security and increase energy efficiency:

On macroeconomic, organizational and management fields:

• · determination of the main criteria and indicators of national energy security and establishment of an appropriate information database;
• · establishment of indicative management system of energy security of the country;
• · preparation of optimal energy balance for long-term period of the country;
• · determination of norms and limits of incentive efficiency in order to realize rational use of energy resources in all sectors of economy;
• · the introduction of new high-performance services that provide citizen satisfaction, the transition to a more sustainable pricing system that stimulates development, the strengthening of financial discipline and accounting;
• · expansion of scientific activity in the study of important problems of the energy complex;
• · Reorientation of the State Oil Fund's assets to renewable and nuclear energy production areas and the development of the post-oil concept.

In the context of institutional and structural modernization:

• · continuation of measures to improve the legal and regulatory framework to ensure favorable market conditions in the energy sector and restriction of monopoly;
• · carrying out continuous structural reconstruction, enhancing the functionality of the fuel and energy complex;
• · Increasing gas reserves to provide more reliable gas resources to the population and economy (accelerating the gradual inclusion of “Umit”, “Babek”, “Absheron”, “Karabakh”, “Shafaq-Asiman”, as well as other new reserves and structures), expand gas storage capacity, improve gas processing, purification and supply, and improve gasification;
• · creation of an effective system of market relations on competitive types of activity in the electric power industry, formation of new generating forces in accordance with the development prospects of the country;
• · development and gradual implementation of the concept of tariff regulation with free pricing mechanisms;
• · stimulating the use of renewable energy sources, bringing the share of alternative energy in the country's electric energy by at least 25% by 2030;
• · increasing energy efficiency and economy of energy in the energy sector, and increasing innovation by expanding the use of high technology in the relevant direction.

In the format of international cooperation:

• · expanding energy integration based on national interests and mutually beneficial cooperation with world countries and leading companies;
• · increasing export diversification of energy resources, especially electric energy;
• · taking permanent measures to promote the country's leadership and prestige in the activities of the “OPEC plus” format;
• · expanding SOCAR's presence as a shareholder in the operation of promising fields abroad.

Studies and analysis give the basis to assume that reform measures in the energy sector should be systematic and that the investment process in this sector must be adequate and uninterrupted in order to ensure national energy security.

The priorities presented in the national energy security Sustainability strategy do not fully cover all relevant strategic measures.  In the practice area, these priorities will be subjected to a more fundamental economic justification, and they will be formed in a different and alternate structure, consistent with the changes in political and economic situation, and with more scientifically logical justification.

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