PROJECTS

Development of Market Rules for the Liberalization of Azerbaijan’s Electricity Sector

Client: Ministry of Energy of the Republic of Azerbaijan
Implementation Period: December 2023 – December 2024
Location: Azerbaijan

ACE Group Consultants successfully completed a critical advisory project commissioned by the Ministry of Energy of the Republic of Azerbaijan to support the development of power market rules aligned with the Target Market Model under the new Electricity Law. The aim was to foster a competitive environment among electricity producers and suppliers. The project was implemented in partnership with international firms CORREGGIONET, OMNIA, EGF Tervuren Consulting, and the Brussels Energy Club.

The assignment was structured into three main tasks and was executed over a 12-month period.

1. Legislative Analysis and Baseline Assessment
The project commenced with a thorough review of Azerbaijan’s key legislative documents regulating the electricity market, including:

• Law No. 858-VIQ “On Electric Energy”
• The Law “On the Use of Renewable Energy Sources in Electricity Production”
• The Law “On Effective Use of Energy Resources and Energy Efficiency”

Outputs included a Conceptual Report and Legal Framework Review, establishing a foundational understanding of existing laws and identifying areas requiring regulatory enhancement.

2. Development of Electricity Market Rules
ACE Group Consultants developed a comprehensive suite of draft market rules covering both transitional and fully liberalized phases of the electricity market. The rules were prepared in compliance with European best practices and aligned with Azerbaijan’s Constitutional Law on Normative Legal Acts. Deliverables included:

• Temporary Wholesale Market Rules for Phase II
• Wholesale Market Rules for Phase III (bilateral and centralized markets)
• Ancillary Services and Electricity Balancing Market Rules
• Retail Market Rules for Phase III

These rules are designed to be applied incrementally, ensuring smooth implementation and allowing stakeholders to adapt progressively to evolving market mechanisms.

3. Advisory and Capacity-Building Services
Throughout the project, ACE provided strategic and technical consulting to the Ministry of Energy on the application of market rules, the single buyer model, and tariff design. Key contributions included:

• Draft Proposals on Electricity Tariff Regulation for Phases I–III
• Draft Guidelines on assigning Guaranteed Buyer functions
• Workshops and stakeholder meetings to present international experiences and facilitate reform dialogue
• An Interactive Online Workshop held in December 2024 to demonstrate the operational aspects of the proposed market rules

Recommendations and Legal Drafting Highlights
The project provided strategic recommendations to support the implementation of market reforms, including:

• Establishment of a Market Operator
• Revisions to the Electricity Law, Civil Code, and VAT legislation to support liberalized market functionality
• Introduction of cross-border trade mechanisms and transparency platforms
• Acceleration of the creation of an Independent Energy Regulator

Draft legislative outputs prepared under this assignment included both market rules and key legal texts necessary to operationalize them at every reform phase, ensuring consistency with international norms and investor expectations.

This project represents a key milestone in Azerbaijan’s power market transformation and reflects ACE Group Consultants’ continued commitment to supporting regulatory modernization and energy sector reform.