Lali Khurtsia
Dr. of economics
Assistant professor
Tbilisi State University named after Ivane Javakhishvili,
Tbilisi, Georgia

Abstract: Diversification of energy resources is one of the most important challenges of the current century. Given that the world community has almost completely drained exhaustible energy resources, the search for and distribution of renewable and cheap energies plays a vital role in the countries’ policies. The article reviews the policy of diversification of the energy market, the need for which was especially evident in the ongoing war in Ukraine. In this paper, we also discuss the major focus of the current energy policy of the European Union and the role of the Caucasus countries in a diversified energy market.

Keywords: renewable energy, pipeline, cooperation, diplomacy, energy hub, diversification

Globalization has strengthened competition and put the issue of ensuring energy security on the agenda, which largely depends on the diversification of markets and the creation of an energy hub. The success of this process depends on the flexibility of energy diplomacy, which is a new tool of modern economic policy (EC, 2020).
The European Union is the largest importer of energy in the world. In 2016, the level of dependence in the European Union was 54%, which means that more than half of the energy needs of the member states were provided at the expense of imports. This figure ranges from 90% in Malta, Luxembourg and Cyprus to 20% in Estonia and Denmark. The level of dependence on imports of energy carriers has increased significantly since 2000, when it was only 47% (Abdelilah and Lerouge 2023) (EC, 2022). The European Union, before the Russia-Ukraine conflict, was mainly dependent on Russian crude oil and natural gas, followed by Norway and its energy capabilities (Carlson and Coq, 2022).
The current crises put on the agenda the issue of European energy security, the search for new alternative ways, the need to develop a unified approach to solving energy problems and energy security, as well as the creation of such a mechanism in which the global aspect of the energy dimension would be taken into account. The latter is a long-term objective of the EU, which takes EU energy policy to a supranational level and contributes to increasing the importance of energy cooperation for future security.
To date, the European Union has focused on the creation of energy security and national hubs in many directions, including Georgia as a gathering hub for the South Caucasus and Caspian regions, where oil/gas pipelines and electricity networks from these regions can converge.
In response to the difficulties caused by the current crises and the disruption of the global energy market, the European Commission presented the REPowerEU plan (EC, 2022), fully supported by financial and legal leverage, and aims to build the new energy infrastructure and system needed by Europe, which will increase the transfer of green energy through regional energy hubs across In Europe, massive investments in the production of renewable energies, such as hydrogen and bio-methane, encourage industry to save energy and diversify energy sources around the world (Fonte and Landini. 2023).
REPowerEU’s grant budget is massive and exceeds €500 billion for 2022-2027. The action plan is two-phased and divided into short-term and long-term goals. The first phase aims to reduce Europe’s dependence on Russian energy by 2/3 in the first year of implementation, and to reduce this dependence to zero by 2027 (Eurostat, 2023). This means common purchases of natural and liquefied gas, hydrogen through the EU energy platform for all member states, as well as for Ukraine, Moldova, Georgia and the Western Balkans; New energy partnerships with trusted suppliers, renewable and low-carbon gas, acceleration of solar and wind energy projects with renewable hydrogen reservoirs, approval of the first hydrogen projects across the EU, biomethane production and more (Nouicer and Rossetto, 2020).
Within this context the region of South Caucasus goes in the focus of EU energy security and diversification policy. The South Caucasus region, particularly Azerbaijan, Georgia, and potentially Armenia, possesses diverse energy resources including natural gas, oil, and renewable energy sources like hydropower and solar energy. Leveraging these resources can provide a stable and diversified energy supply for the EU. Situated between Europe, Asia, and the Middle East, the South Caucasus serves as a natural bridge for energy transit. Its geographical proximity to major energy producers in the Caspian Sea region, including Azerbaijan, Kazakhstan, and Turkmenistan, allows for cost-effective transportation of oil and gas to European markets (Жанбулатова, 2018).
The EU has a comprehensive strategy to diversify its energy sources and supply routes, aiming to reduce reliance on imports from a single country or region (IAEA, 2021). The South Caucasus region, with its abundant energy resources and proximity to European markets, plays a key role in this diversification strategy. In this context Southern Gas Corridor (SGC) has is a crucial component of EU energy diversification efforts. The SGC involves the construction of pipelines, including the Trans Anatolian Pipeline (TANAP) and the Trans Adriatic Pipeline (TAP), to transport natural gas from Azerbaijan’s Shah Deniz field to European consumers. By tapping into Caspian Sea gas reserves, the EU aims to reduce its dependence on Russian gas imports. Expanding and modernizing the existing Infrastructure – including the Baku-Tbilisi-Ceyhan (BTC) oil pipeline and the Baku-Tbilisi-Erzurum (BTE) gas pipeline, this region can enhance its capacity to serve as an energy corridor to the EU.
Realizing this potential of becoming energy hub will be beneficial both for the Caucasus region and EU. Building energy infrastructure and fostering energy cooperation can stimulate economic development in the South Caucasus region, creating jobs and attracting investment. Enhanced energy cooperation can also contribute to broader regional stability and cooperation. On the other hand diversifying energy sources and supply routes as mentioned is a key priority for the EU to enhance its energy security.
In addition to traditional fossil fuels, the South Caucasus region has significant potential for renewable energy development (Keohg, Bayramov, & German, 2021-03), particularly in hydropower and solar energy, as well as emerging opportunities in wind energy. The EU supports initiatives to harness these renewable energy sources and integrate them into the European energy market (Opitz, Kharazyan, Pasoyan, Gurbanov, & Margvelashvili, 2015). Armenia and Georgia have considerable hydropower potential. Georgia is endowed with abundant water resources, making hydropower the most significant renewable energy source in the country. Rivers such as the Mtkvari, Rioni, and Alazani offer excellent hydropower potential. On the other hand, Azerbaijan and Armenia (and at less extent Georgia) receive abundant sunlight throughout the year, making solar energy an attractive renewable energy source. Azerbaijan has already implemented solar energy projects, including utility-scale solar PV installations and rooftop solar systems. Armenia has favourable conditions for solar photovoltaic (PV) installations, particularly in the Ararat Valley and other low-lying areas. Investing in renewable energy projects and the chance becoming part of REpowerUE project can promote sustainability and reduce carbon emissions in both the region and the EU.
With this regard It is necessary to create a long-term safe and reliable political balance in the South Caucasus region, the prerequisites for which already exist. Despite geopolitical tensions in the region (Erkomaishvili and Khurtsia, 2023), Azerbaijan and Georgia have maintained relative political stability compared to other parts of the former Soviet Union. This stability provides a conducive environment for energy investment and cooperation, reducing political risks for international energy companies. Georgia is striving for EU membership, which opens the way for Azerbaijan and Armenia to receive all the benefits that will follow as a result of cooperation with the EU. In this regard, the role of Azerbaijan as the largest supplier of energy resources will be decisive. Effective cooperation among South Caucasus countries and with the EU is essential for realizing the vision of the region as an energy hub. Diplomatic efforts to resolve conflicts and build trust, along with supportive policies and agreements, can facilitate energy cooperation and infrastructure development.
In summary, the EU views the South Caucasus region as a valuable source of alternative energy supply, offering opportunities for diversification, infrastructure investment, and political cooperation. By strengthening energy ties with South Caucasus countries and tapping into their energy resources, the EU aims to enhance its energy security and promote sustainable energy development in the region.
Overall, the combination of strategic location, abundant energy resources, favourable investment climate, and growing infrastructure make the South Caucasus well-positioned to emerge as a competitive energy hub, offering significant benefits for both the region and its European partners.

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