Azerbaijan's power sector has an installed generating capacity of approximately 5.5 gigawatts (GW). Eight state-owned thermal plants account for roughly 80 percent of generating capacity. The country also has six hydroelectric plants, all of which are owned by the state. Both electric generation and consumption have been relatively flat since 1991, with generation totaling 20.4 billion kilowatt hours (Bkwh) in 2004 (85 percent of which is conventional thermal generation), and consumption of 20.6 Bkwh. Due to the recent startup of the BTC and SCP pipelines, power demand in Azerbaijan is expected to grow during 2007. Azerbaijan must import some of its power to make up for transmission losses (7 percent of total generation in 2004).

Without electricity capacity growth to take advantage of the country’s new fuel sources, Azerbaijan will continue to need to import electricity from its neighbors. On average, Azerbaijan imports roughly 2.1 BkWh, slightly under 10 percent of its total consumption. In order to supply electricity to all parts of the country (including the Nakhchivan exclave), Azerbaijan imports power from Russia, Turkey, Iran, and Georgia. Russia currently supplies Azerbaijan with electricity at 3.636 cents per 1 kWh, and Azerbaijan supplies Russia at 1.6 cents per kWh. Azerbaijan’s imports 150,000 kWh from Iran and around 575,000 kWh from Turkey into the Nakhchivan Autonomous Republic (NAR).

Although state electric company Azerenerjy has a monopoly on power generation, the country's national electricity network is divided into five regional grids--Baku; Nakhchivan; North (Sumqayit); South (Ali Bayramli); and West (Ganja)--each of which has been opened to foreign investors via open joint stock companies. Built during the Soviet era, Azerbaijan's power infrastructure is in generally poor condition, with minimal public investment and maintenance since independence. The country's economic contraction during the mid-1990s, along with systemic problems--such as prices capped below market rates and frequent non-payment by customers--have left Azerbaijan's power sector without sufficient capital to upgrade aging power-generation facilities.

A comprehensive report on Azerbaijan’s electricity sector is available from the World Bank (2005).