This study examines the evolution of renewable energy policy and the institutional framework in Azerbaijan, focusing on key development stages, policy priorities, and governance mechanisms shaping the country’s energy transition. In the context of global climate change and the shift toward low-carbon energy systems, renewable energy has become a strategic priority for many countries. For Azerbaijan, which has historically depended on oil and gas exports, the development of renewable energy represents an important step toward economic diversification and sustainable development. The research is based on a qualitative and analytical approach, using a comprehensive review of academic literature, national policy documents, and international reports from organizations such as the International Energy Agency (IEA), the International Renewable Energy Agency (IRENA), and the World Bank. This approach allows for a structured analysis of policy evolution, institutional reforms, and current developments in the renewable energy sector. The findings show that Azerbaijan’s renewable energy sector has developed through three main phases. The first phase was characterized by strong dependence on fossil fuels, with policy focused mainly on the development of the oil and gas sector. During this period, renewable energy was not a priority and institutional structures were limited. Overall, the study concludes that Azerbaijan is in a transitional phase toward a more sustainable energy system, where continued institutional reforms and consistent policy implementation are essential for long-term success.