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Azerbaijan Tackles Energy Market Reform – Analysis

By Mahmud Rzayev  (Eurasianet) -- Azerbaijan is trying to implement a comprehensive plan to overhaul the domestic heating and electricity market, not only expanding renewables’ share of power generation but also implementing liberalization measures. The reforms stand to generate a fair amount of public discontent. A series of laws adopted by Azerbaijan’s rubber-stamp parliament in the spring is paving the way for tariff reform in the domestic energy market, namely heating and electricity. The changes, especially when it comes to setting usage rates, are occurring with minimal public input. Given that the authoritarian-minded government tightly controls political discourse in Azerbaijan, there are no public hearings scheduled, or media discussion of the issues. The inability to freely air opinions fosters public apathy when it comes to political participation; many citizens feel completely disconnected from government decision-making. This disconnect often results in officials making poor policy choices. The energy-market reform initiative may well end up being another missed opportunity for improving the quality of life for all Azerbaijanis. Azerbaijan’s Tariff Council, a ministerial committee chaired by the economy minister, legally sets all electricity, gas, heat and fuel prices. In practice, this means a small group of insiders (deputy ministers of finance, justice, energy, etc.) decide domestic energy rates behind closed doors. In more politically open societies, public engagement in energy policy can be a powerful force. Citizens in democratic systems, or even semi-democratic ones, are more likely to challenge decisions that impact their daily lives, such as energy price hikes. Such pushback can improve public policy by forcing officials to substantiate the reasoning behind their decisions and holding them accountable. This dynamic is critical when analyzing how energy prices are being set in Azerbaijan. Electricity demand growth in Azerbaijan slowed to 1 percent in 2023, down from over 4 percent the prior year. That is not so surprising given that in October 2021, the Tariff Council announced a significant hike in home energy rates. Thus, residential gas went from 10 to 12 gapiks per cubic meter, and the electricity tariff for 200kWh per month went to 8 gapiks, for 200-300 kWh bracket went up to 9 gapiks, and higher than 300 kWh per month went to 13 gapiks. Officials justified the hike, citing the rising price of global energy supplies. In January 2025, a similar scenario unfolded. The Tariff Council quietly approved another round of increases, which the state press described as “slight,” but which can be perceived by average citizens as significant. The increases range from 5 percent to 15 percent, depending on electricity usage. The average household electricity tariff was expected to increase by about 7.8 percent. The Tariff Council again cited gas costs as the reason, even though Azerbaijan’s own output has been rising. The country is not only self-sufficient in natural gas but also exports significant quantities to the European Union, Georgia, Turkey and elsewhere. Given this fact, the argument that domestic hikes are tied to global price increases becomes problematic. In June, Azerbaijani parliament approved a new regulation introducing a fixed monthly fee for natural gas usage. Under this scheme, consumers are required to pay a base rate even if they consume no gas at all. The change is set to take effect gradually starting in 2026, with full implementation by 2028. Meaning that the owners of empty flats or holiday homes will have to pay the fee without using gas. According to one of the government's most vocal critics, opposition member Tofig Yaqublu, who is currently imprisoned, there is no economic justification for the recent price increases. He claims that the real reason behind the hikes is grand corruption. In countries where there is more active civic participation, public input and protests can prompt authorities to make revisions that make public policy more efficient and effective. For example, in Turkey, when the government raised electricity and natural gas tariffs by as much as 50 percent in 2022, there was an immediate backlash from opposition parties, civil society organizations, and the general public. Widespread criticism prompted the government to rethink its plans resulting in several changes, including subsidies for low-income households and a freeze on some utility tariffs. Similarly, in France, bakers protested in 2023 against soaring electricity prices. In response, President Emmanuel Macron pledged various government support schemes aimed at cutting electricity bills by up to 40 percent for eligible businesses. According to international price surveys (Q1 2025 data), Azerbaijan’s residential electricity price is roughly $0.05 per kWh. This is lower than in many nearby countries, including Georgia ($0.068), Turkey ($0.066) and Russia ($0.062). On the other hand, Iran’s government heavily subsidizes power, so Iranian households pay virtually nothing ($0.003/kWh). This prompts a puzzling question for Azerbaijan: despite being an oil-and-gas exporter, Baku does not provide cheaper electricity and heating usage rates. Even if absolute prices seem moderate, the trend of repeated increases adds up, especially during hard economic times. Setting low heating and electricity rates would seem like a no-brainer for the Azerbaijani government to improve quality of life for citizens and even foster a bit of public goodwill. Instead, officials are pushing new increases that will place additional strain on the budgets of many families. The lack of public input in the process stands to further alienate many Azerbaijanis from the government needlessly.