Iran gauges appetite for renewables

 By Criselda Diala-McBride

With most international economic sanctions lifted, Iran is starting to attract interests from foreign investors keen to explore the potential of its under-developed renewables energy sector. A recent paper published in the Middle East Institute highlights the country’s renewables energy potential, while a German company has reportedly signed a deal to build a 1.25GW solar plant in Iran. Criselda Diala-McBride explains how tapping into renewables will help the country satisfy domestic energy demand and free up fossil fuel for export, especially as oil trades at its lowest level in over a decade…

After years of isolation and belt-tightening, Iran is ready to lay the groundwork for its economic revival. However, with oil — its main source of income — trading at its lowest level in over a decade, the Islamic Republic is prompted to put greater focus on developing the renewable energy sector as a means to attract foreign investment, diversify energy sources and free up fossil fuel for export.

Indeed, Iran is starting to wake up to its renewable energy prospects. With 300 days of sunshine per year, 100 gigawatts (GW) of potential wind-power capacity, and potent geothermal fields, it should come as no surprise that the country has caught the attention of investors from Germany, Denmark, Italy and Spain.

Currently, the country has around 200 megawatts (MW) of installed renewable energy capacity, but the government has significant ambitions to boost alternative sources’ contribution to the nation’s overall energy mix. By 2020, renewable energy sources are expected to stand at more than 4.2 GW, rising to 7 GW by 2024 and eventually 12 GW by the end of 2030, according to Ali Mirmohammad, senior consultant and business development manager, Iran, Frost & Sullivan.

“Iran has the potential to supply about 50 percent of [its] required electricity through wind, biomass, and solar energies,” says Mirmohammad. “But in reality, [renewables] cannot account for more than 10 percent of the country’s required electricity over the next 10 years, unless the sector is well developed.”

Iran's energy comeback

Years of economic sanctions have forced Iran to fend for itself using antiquated power plants and obsolete technologies that increased inefficiencies and encouraged energy waste. These old facilities also burned massive volumes of fossil fuel in pursuit of electricity generation, costing $30 billion per year – funds that could have gone towards propping up the country’s economy.

Iran’s energy minister, Hamid Chitchian recognizes that the country cannot achieve economic growth without sufficient electricity production, especially as it aims to become a manufacturing hub in the Middle East.

As a result, the government has streamlined policies to encourage private sector involvement in the energy sector, especially on the renewable energy front. These reforms include providing long-term leases on land at low fees for a period of 20 years, long-term guaranteed contracts for the purchase of electricity generated through renewable sources, and prioritizing energy purchases from private and cooperative sectors.

“The government will also guarantee that the purchase price [of electricity] from renewable energy sources is nearly 10 times more than power from fossil fuels at $0.2/KW versus $0.02/KW,” adds Mirmohammad.

At the moment, the government has signed more than $2.8 billion in contracts with the private sector, based on the build-operate-transfer scheme, to develop wind farms nationwide. It is also planning to cover 50 percent of the investment needed to supply solar energy for households, schools and public areas.

In an article published on the Middle East Institute website, Eric Wheeler and Michael Desai point out that the government’s willingness to partner with foreign investors is a testament to its commitment to modernize infrastructure and diversify its energy mix — a move that is bringing billions of dollars of investment into the Iranian renewable energy sector.


about the author
Criselda Diala-McBride
Dubai-based journalist with 20 years of experience writing and editing finance, aviation, tourism, retail, technology, property and oil and gas articles for a range of print and online publications.