Renewables Are Booming in Iran
The renewable energy sector is booming in Iran. Despite being an energy superpower, the economy’s high reliance on oil has negatively affected Iran’s economic security and environmental sustainability. Coupled with facing the threat of climate change, Iranian policy-makers have been compelled to prioritize environmental policy and utilize foreign investment and oil revenue to boost the country’s renewable energy sector.
The Oil Problem and Climate Change
Iran has the world’s fourth largest proven oil reserves and the world’s second largest proven reserves of natural gas. However, the country’s dependence on oil exports has threatened its economic security by making the country vulnerable to oil price fluctuations and the United States’ extraterritorial sanctions. In addition, Government enlargement, due to high dependence on oil revenues, has further undermined economic diversification.
Moreover, as one of the largest exporters of oil, Iran has experienced a significant increase in greenhouse gas emissions during recent years. The country’s meteorological organization has reported that “greenhouse gas emissions have increased by 35 in the past decade and the average temperature has risen by 1.8 degrees Celsius since 1750” which is significantly higher than the global average of 1.1°C. Climate change has exasperated the water crisis in Iran, thereby weakening the agricultural sector and contributing to social unrest. In 2015, Masoumeh Ebtekar, Iran’s then head of the Environmental Protection Organization, warned that “the water situation in 14 cities in the country have alarming conditions.” The former minister of agriculture and now head of the EPO has also stated that “Iran could become a ghost town”, forcing millions to migrate.
Government Response
The Iranian climate’s high potential for the production of solar and wind energy provided an opportunity. In order to overcome the challenges posed by the country’s dependency on oil and climate change, policy-makers understood that long-term investment in the renewables sector would allow the economy to become more self-sufficient, less vulnerable to oil price fluctuations and international sanctions, and more adaptable to climate change.
To that end, the Energy Ministry guaranteed to purchase the output of renewable energy plants for 20 years and provided tax exemptions for renewable energy plants for between 5 and 13 years. In addition, the government increased guaranteed purchase price by 30% for companies that use domestic technology and facilitated the permit issuance process. These measures were in line with the country’s commitments under the 2015 Paris Climate Change Agreement. According to the climate accord, Iran pledged to reduce greenhouse emissions by 4% in 2030.
The Iran Deal and Foreign Investment
The 2015 nuclear agreement between Iran and world powers, which came into force on 16 January 2016, opened the country’s untapped market to foreign investment. The deal provided an opportunity for Iran to boost renewable sources of nuclear, solar, geothermal, and wind energy. Subsequently, a number of European renewable energy companies, including Norway’s Saga Energy and UK’s Quercus, heavily invested in Iranian renewable energy projects. Europeans faced limited competition due to absence of American firms in the Iranian market. The deal had only lifted US’ nuclear-related secondary sanctions, and not the primary sanctions that had barred direct American investment in Iran. From January 2016 to April 2017, EU countries invested $3.6bn in the country’s energy sector.
During the first Iran-EU Business forum on sustainable energy, held in April 2017, former Minister of Energy H.E. Chitchain expressed that the number of wind and solar power plants increased about 7 times from 2015 to 2016, with the capacity of wind and solar power plants having increased from 140MW to 350MW from 2014 to 2017.
Return of Sanctions
President Trump’s withdrawal from the nuclear agreement in May 2018 damaged European investment in Iran. UK’s Quercus, for example, halted the construction of a 500 million euro ($570 million) solar power plant.
Nonetheless, some European companies such as Germany’s Durion Energy have decided to stay in Iran. Given that these companies no access to the US market, the recently imposed sanctions will have little impact on their investment.
Progress Continues
According to Mohammad Sadeqzadeh, Iran’s director of Renewable Energy and Electrical Energy Efficiency Organization, despite the return of US sanctions, “one large-scale renewable energy plant and tens of small-scale ones are coming into operation every week.” In August, for example, Iran inaugurated its largest wind farm. The 61.4 MW wind farm, commissioned in the Qazvin province, was established with an investment which reached more than 86 million euros. This wind farm alone will help prevent annual emission of 110,000 metric tons of greenhouse gases. Currently, Iran has approximately 141 megawatts of installed wind power.
Earlier this month, Iran signaled its readiness to transfer and export renewable electricity to Iraq, Oman, Afghanistan, Turkey, Armenia, and Tajikistan. Sadeqzadeh recently announced that “with the new 450 MW of under-construction power plants being added to the current capacity”, the capacity of renewable power plants will reach 1100 MW by March 2019.
Furthermore, the production of one megawatt of solar energy has decreased from $1.5 million in 2016 to $600,000 at present. Given that the cost of renewable power has considerably declined in recent years, the private sector will be inclined to further invest in this sector. Iran is hoping to produce 5,000 megawatts of renewable energy by 2020, expecting 4,000 megawatts to come from wind power.
