How Azerbaijan turns energy wealth into long-term growth

Azerbaijan has long been known as a country shaped by mega projects. It is precisely these large-scale initiatives that have enabled the country to achieve rapid economic growth over the past three decades, transforming it from one of the world’s poorest post-Soviet states into an upper?middle?income economy. The numbers speak for themselves. In 1992, just one year after regaining independence, Azerbaijan’s GDP per capita stood at around $60. Thirty years later, it exceeded $7,000. In other words, over three decades Azerbaijan’s GDP per capita increased by more than 100 times — a record achieved by only a handful of nations worldwide. This achievement is even more remarkable given that the country’s population grew by nearly 50 percent during the same period.

Azerbaijan reached this milestone against the backdrop of successive mega projects. The first and most transformative was the decision to bring Azerbaijani oil to global markets. The development of offshore fields and the construction of export pipelines generated billions of dollars in revenue, fundamentally altering the country’s economic trajectory. Oil wealth allowed Azerbaijan to stabilize its economy, invest in infrastructure, and raise living standards. However, this success came with a structural vulnerability: excessive dependence on hydrocarbons. For many years, around 90 percent of Azerbaijan’s exports were linked to oil — hardly a recipe for a resilient or diversified economy.

Recognizing this risk, policymakers adopted a pragmatic approach. Oil revenues were channeled into developing the non?oil sector. Over time, agriculture, manufacturing, transport, and services expanded, and non?oil exports grew several times over. Yet the limits of this strategy were evident. Non?oil sectors are highly competitive, fragmented, and slower to scale. No serious observer expected them to rival the oil sector in the short term — nor was that technically realistic.

This reality made export diversification urgent rather than optional. The second major mega project was therefore natural gas. With the launch of large gas export routes, Azerbaijan succeeded in reshaping its export structure. Oil’s share in total exports fell to roughly 50 percent, while gas rose to around 40 percent, with the remaining 10 percent accounted for by non?oil products. This shift significantly improved economic resilience, but it did not fully solve the diversification challenge.

As President Ilham Aliyev noted while addressing business leaders at an event titled “Azerbaijan Executive Breakfast,” held on the sidelines of the World Economic Forum in Davos, "Diversification of the economy for our country is the number one priority. From a practical point of view, today we see a growing interest in renewable sources.” This statement captures both intent and urgency. Even with non?oil exports surpassing $3 billion, and likely approaching $4–5 billion in the coming years, their growth rate alone cannot deliver the scale of diversification Azerbaijan requires.

That is why the country is already moving toward what may become its next defining mega project: electricity generation and export. The foundations of this strategy were laid years ago, and tangible results are likely to emerge after 2030. A landmark moment came on December 17, 2022, in Bucharest, when Azerbaijan, Georgia, Romania, and Hungary signed an agreement to construct a submarine power cable under the Black Sea. The project aims to transmit green electricity produced in Azerbaijan directly to European markets.

The rationale is compelling. Azerbaijan’s economically viable green energy potential is estimated at 27 gigawatts. The country plans to utilize a significant share of this capacity and export more than 4–5 gigawatts of electricity to Europe via two routes: the primary corridor beneath the Black Sea and a secondary route through Türkiye. In strategic terms, this would position Azerbaijan not only as a supplier of oil and gas, but also as a regional hub for clean electricity.

To make this vision a reality, production capacity must expand rapidly. Azerbaijan’s total electricity generation capacity currently stands at 9,732.5 megawatts. This includes 24 thermal power plants with a combined capacity of 7,903 MW, 65 hydropower plants totaling 1,443.5 MW, nine solar plants (278.2 MW), five wind farms (63.5 MW), one waste?to?energy plant (37 MW), and three hybrid stations (7.3 MW). Renewable sources, including hydropower, account for 1,829.6 MW, or 18.8 percent of total capacity.

President Aliyev has made clear that this balance will change dramatically. “We have already inaugurated two big renewable power stations,” he said. “In the coming six years, we will dramatically increase our capacity to generate energy from solar and wind. In other words, by 2032, we expect to have eight gigawatts of solar and wind energy, because there is a lot of sun and a lot of wind, and we see great potential. We have already contracted several projects, and now we are thinking about storage capacity,” President Ilham Aliyev added.

If realized, this strategy would mark a historic shift. Electricity exports could become Azerbaijan’s third major export pillar after oil and gas, and eventually a cleaner, more future?proof one. Once again, a mega project may redefine the country’s economic model, proving that Azerbaijan’s growth story is far from over.