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The Republic of Azerbaijan (Azerbaijan) is in the southern Caucasus region, bordered by the Caspian Sea on the east, Armenia and Georgia on the west, the Russian Federation on the north and Iran on the south. Its population of 9.7 million occupies approximately 86 600 square kilometres (km2); Baku is the capital and the largest city.
Azerbaijan’s economy grew exceptionally strongly in the 2007-17 period. Real gross domestic product (GDP), measured in US dollars (USD) on a purchasing power parity (PPP) basis has increased fourfold since 2000, and in 2005 alone it surged 35%. During the global economic crisis, the economy continued to grow, albeit at a slower rate, and poverty rates fell dramatically from 50% in 2001 to 7.6% in 2011 according to the World Bank.
Azerbaijan invested heavily in most sectors of the economy, including energy infrastructure, during the oil boom years (2006 14), but economic diversification has been slow. Authorities have taken steps to adjust to slumping oil prices and weaker growth in trading partner countries, and in 2015 the Central Bank of Azerbaijan (CBA) undertook two devaluations and switched to a managed float. Inflation rose, its large account surplus evaporated, and the budget moved into deficit.
The renewable energy sector has received little attention in Azerbaijan, so developments have been slow compared with those in oil and gas production. However, the current government is making renewables a priority with an ambitious target of 20% renewables in electricity generation by 2020 (up from 12% in 2012 according to government data). The state agency responsible for renewables is working on a new strategy and drafting a Law on Renewable Energy that is expected to accelerate the deployment of renewables and attract foreign investment. Meanwhile, the government is attempting to increase private investment in the renewables sector through supportive policies and incentives.
Despite widespread privatisation since the country gained its independence, the energy sector in Azerbaijan is predominantly government-owned. Only a handful of small hydropower plants are in private ownership, and they account for less than 1% of electricity generation.
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