Client: Ministry of Energy of the Republic of Azerbaijan
Implementation Period: December 2023 – December 2024
Location: Azerbaijan
In alignment with Azerbaijan’s 2022–2026 Socio-Economic Development Strategy, ACE Group Consultants was engaged by the Ministry of Energy to implement activity 5.2.2.3 of the National Action Plan, which focuses on fostering public-private partnerships (PPPs) in the heat supply sector. The goal of the project was to develop a robust set of proposals to improve the efficiency, stability, and reliability of heat supply services through institutional reform and market-based mechanisms.
Project Objective
The project aimed to design actionable, locally adapted proposals by drawing on international best practices and assessing the feasibility of PPP models in the Azerbaijani context. This included an evaluation of infrastructure readiness, stakeholder engagement, and the drafting of necessary legislative and regulatory frameworks.
Key Activities
• International Best Practice Review: The project began with an in-depth review of successful PPP models in district heating from EU and CIS countries. These practices informed the proposals tailored for Azerbaijan’s legal and institutional context.
• PPP Feasibility Assessment: ACE assessed opportunities for private sector participation in the operation and modernization of heat supply assets, particularly focusing on systems currently under the management of Azeristiliktechizat OJSC.
• Outsourcing Strategy and Market Mapping: A comprehensive analysis was conducted to evaluate the market potential for outsourcing selected operations in the heat supply chain. Potential private contractors were mapped based on technical specialization and financial capacity.
• Pilot Project Design and Pre-Feasibility Studies:
Pilot Project 1: Conversion of Boiler Houses to Cogeneration (CHP) Units
This project proposes the transformation of outdated heat-only boilers into combined heat and power (CHP) plants using gas-fired piston engines. The CHP model is designed to operate under a Build-Own-Operate PPP scheme. A pre-feasibility study estimated an internal rate of return of up to 19.9% under favorable tariff scenarios, showcasing strong investment potential and environmental benefits such as 30% CO₂ reduction.
Pilot Project 2: Establishment of a Special Purpose Energy Service Company (ESCO)
This pilot explores the viability of forming an ESCO to carry out energy efficiency upgrades across district heating infrastructure. The ESCO model is based on Energy Performance Contracting (EPC), where investments are recouped through guaranteed energy savings. The study highlights potential applications including heating substation modernization, automation systems, and building-level efficiency improvements
• Regulatory and Legislative Framework Proposals: Based on the feasibility studies, ACE provided tailored recommendations for updating or drafting legislative acts to facilitate the implementation of PPP mechanisms in the heat sector. This included legal frameworks for tariff adjustments, procurement procedures, and performance-based contracting.
Implementation Timeline
The project was implemented over 12 months and structured into three key stages:
Review of international best practices and local context
Market assessment and outsourcing strategy
Drafting of pilot project proposals and legal/institutional recommendations
This project represents a major step in Azerbaijan’s roadmap toward a resilient and investment-ready heat supply sector. By piloting PPP models and engaging private actors in infrastructure modernization, ACE Group Consultants has supported the government’s vision of long-term sustainability and service quality improvement in district heating.