The Renewable Energy Market of Iran

The Market

Iran’s potential for renewable energy is vast, possessing some of the best combined wind and solar resources in the region and the technical and engineering capabilities to realize it. The country’s reintroduction to the international community following the relieving of sanctions makes this a particularly exciting time for Iran’s renewable energy space.

With domestic power demand sapping the valuable export realization of hydrocarbons, fuel subsidies decreasing and a need for greater energy security, the Iranian government and policy makers are showing a significant interest in the renewables space. To highlight their commitment, they have set an ambitious target of 5GW of installed capacity from renewables by 2020 and SUNA, the country’s renewable energy organization, have established an attractive feed-in tariff which guarantees power purchase payments for 20 years.

The Report

In preparation for the launch of the inaugural Iran Renewable Energy Congress, Green Power Global has put together this snapshot report* to highlight the opportunities and challenges in this exciting new market.

Country overview

Iran is the second largest economy of the MENA region (after Saudi Arabia) with an estimated GDP of US$ 406.3 billion. Iran is also the second most populous country in the region (after Egypt) with a population of 79.8 million. 46% percent of the country’s population fall into the 25-54 age bracket with a median age of just over 30 and an urban population of 74%.

The main language of Iran is Farsi (Persian) and the country as a whole has an excellent literacy and numeracy rate, well above the regional average.

The population of Iran is highly educated and skilled. Universities in Iran collectively produce over 750,000 skilled graduates annually. 31% of these graduates come from fields related to engineering and construction putting them 3rd in the world after USA and Russia.

Iran is a global hydrocarbons giant, possessing the fourth largest oil reserves and second largest natural gas reserves in the world and economic activities in the country are heavily reliant on this. State ownership and involvement has been a key characteristic of the Iranian economy since the revolution in 1979. Although there have been steps to privities since 2004, the state continues to play a significant role in the economy through banks, public companies and part- privatized commercial and manufacturing entities.

The Energy Market

The current total installed power capacity of Iran is 73GW, the government plans to increase this to over 100GW in the next few years. Currently power generated from renewable sources makes up less than 0.2% of this, with gas fired combined cycle and steam plants making up the largest proportion of the energy mix.

Electricity consumption has grown steadily in Iran over the last decade with an average year-on-year percentage increase of over 7%. The industrial sector is the largest electricity consumer with 34.6% share, followed by residential (31.7%), agricultural (16.3%), public services (8.8%) and the commercial sector (6.6%).

Some sources are predicting that, with a return to the international markets and an increase in manufacturing and construction, overall consumption could reach 444000 GWh by 2030.

Prior to a move toward part-privatization in 2004, the electricity market was a complete state monopoly with “The Electric Holding Company of Generation, Transmission & Distribution Company “(TAVANIR) having full responsibility for generation, transmission and distribution.

Since 2004 the government has attempted to introduce steps to increase private participation in the market and in 2013 sold a number of power plants to increase the share of private electricity generation to 41%. All transmission in the country is still fully monopolized under TAVANIR through regional electric companies. Currently 60% of distribution companies are privatized with TAVANIR controlling the remainder.

Iran was the world’s highest provider of fuel subsidies in 2009 and it is estimated that as much as 10% of GDP (equal to over $40bn) was spent on subsidies for oil and gas products and electricity.  The government have been implementing a reform plan for subsidies since 2010 and the second phase of it was initiated by President Rouhani in 2015. Subsidy curtailment is one of the key drivers for renewable energy development in Iran.

The Renewable Energy Market

Renewable energy is still in its infancy in Iran with less than 70MW operational. The current operational levels and pipeline for each resource can be seen below. Further details of the current and completed projects can be found in the appendix.

The Renewable Energy Market

*source - http://www.suna.org.ir/en/opportunitiestoconstruction/tableofcontractsconcluded

In 2006 in order to promote, encourage and facilitate the development of renewable energy in Iran, TAVANIR combined the Bureau of Electricity and the Deputy Office of New Energies to form SUNA (The Renewable Energy Organization of Iran). SUNA is now responsible for all planning, policy, promotion, legislation and financial agreements for renewable energy in Iran. In July 2015 SUNA began to act as an off-taker and purchase all electricity generated from renewable sources in Iran under guaranteed 20year power purchase agreements (PPA) and a new feed-in tariff.

Feed in Tariff

The current feed-in tariff and its USD and Euro equivalents can be seen below. It is a sign of the country’s gathering support for renewable energy that the tariff is significantly longer and at higher prices than previous years.

Feed in Tariff

* Only for consumers and limited to their connection capacity

Iran Renewable Energy Potential

Wind Potential

Iran Renewable Energy Potential | Wind Potential

Iran has over 100,000MW of potential installed capacity of wind power to tap into. With electricity demand rising and Iran possessing excellent topography and geography for wind power the Iranian government have made it their top priority over other renewable energy sources. Roughly 4,500 MW of the proposed 5,000 MW increase in capacity of renewable is expected to come from utility-scale wind farms throughout the country.

Due to its strategic location along several major wind corridors, Iran’s northwest and northeast regions experience high winds all year. The consistency of these wind currents allows for sustainable access to wind energy.

Iran is well-positioned to rapidly scale up its wind power sector. The country already operates 15 wind farms and the vast majority of the components used to develop those farms were produced locally. Iran has made use of its abundant human capital to develop technological capabilities in turbine, generator, and inverter production.

Solar PV Potential

Iran Renewable Energy Potential | Solar PV Potential

Iran has huge solar PV potential with an average solar radiation of 4.5-5.5 kWh/m2 and up to 300 sunny days a year over 2/3 of its total area. The regions of highest concentration of irradiation are the central and southern areas.

Iran’s Sixth Development Plan expects the installation of between 500 and 1,000 MW of new solar capacity by 2020. The Iranian government has prioritized the central region in particular due to its climate and proximity to the national power grid.

While policies for wind power are more aggressive in the short-term, plans for solar capacity are ambitious in the long-term. Foreign partners in solar projects are essential as a lack of access to key solar technologies has presented a challenge to domestic companies.

With the recent removal of sanctions, Iranian companies will have greater access to a wider range of increasingly sophisticated solar technologies and financing to purchase and develop them.

Geothermal Potential

Iran Renewable Energy Potential | Geothermal Potential

Iran has begun development of their first geothermal power plant in Meshkinshahr. This pilot project is expected to have an initial 50MW capacity with a further potential of 250MW. A further 14 sites of potential for geothermal power have been identified and agreements are reportedly being signed with international energy companies to accelerate their development.

Key Drivers
of renewable energy development

  • 5000MW target for renewable energy by 2020
  • Over 100,000MW of potential installed capacity of wind power
  • Up to 300 sunny days a year over 2/3 of its total area
  • Excellent geographical, topographical and meteorological conditions for wind, solar and geothermal electricity production
  • An attractive feed-in tariff with a guaranteed 20 year PPA
  • Subsidy reform plan implemented to reduce fuel subsidies for fossil fuels
  • $60 million budget for SUNA
  • €500 from The National Development Fund allocated for renewable energy
  • Robust grid infrastructure with high electrification rate (98.9%) across the country
  • Highly educated and skilled workforce and an excellent engineering and construction sector
  • Support for renewables through legislation and the establishment of SUNA
  • Commitment to COP 21
  • Opening up to the international market following sanctions relief
  • Protection of foreign direct investments under the Foreign Investment Promotion and Protection Act (FIPPA)

Key Topic and Challenges

Following over 50 interviews with key domestic and international industry players we have identified this initial list of challenges and topics of interest:

  • The main barrier to projects moving forward is financing
  • What are the strategies of banks, development finance institutions, multilateral agencies and export credit agencies for Iran?
  • Huge wind potential, how can Iranian and International developers help reach this?
  • Is the 2020 target for renewable energy attainable?
  • International vs. Local content/manufacturing: Can localisation become a reality?
  • What is the actual treatment of the sanctions, what can and can’t you do?
  • How to attract investors into the Iranian renewable energy market: What is the investment landscape actually like? What are the conditions?
  • The role of SUNA, TAVANIR and the Ministry of Energy
  • Understanding the cultural, business and legal differences in working in Iran
  • How reliable and sustainable are the FiT and PPA? Are they set high just to attract people initially?
  • Reliability of FIPPA and central bank guarantees
  • Who is in a best position to supply and service the Iranian renewable energy market? China? Europe?
  • Can Iran become a hub for renewable energy manufacturing in the MENA region?
  • Identifying the best business model for Iranian renewable energy projects

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Iran’s Sixth Development Plan also provided for the installation of 500 MW of new solar capacity by 2018. Iran’s climate is diverse, and many of its regions are arid. Because the south, northwest and southeast regions receive around 300 days of sun per year, they are uniquely suited for solar energy. The Iranian government has prioritized the central region in particular due to its climate and proximity to the national power grid.

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