Friday, 24 November, 2017

European firms pour money into Iranian renewable energy projects

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By Dominic Dudley, Forbes.com

When it comes to energy sources the Middle East may be synonymous with oil, but these days governments across the region are trying to develop other, greener sources of energy. That ought to have some environmental benefits for the countries concerned, but their main motivation is economic. Not only is the cost of providing subsidised oil and gas for rapidly growing populations becoming prohibitively expensive, governments also know that the less oil consumed at home the more they will be able to sell overseas at full price.

Given its climate, the region has plenty of potential when it comes to renewable energy. Huge solar power plants are sprouting up in the desert, such as the Mohammed Bin Rashid Al-Maktoum Solar Park in Dubai which, once completed in 2030, will cover 214 square kilometres. The likes of Morocco and Egypt have also been exploring the potential for wind power.

Iran is the most advanced in its development of renewable energy, mostly due to its past investments in hydropower schemes. Lately, however, it has been taking big strides in terms of wind and solar power, with a slew of new projects announced over the past few months.

The largest to date was unveiled on October 17 when Norway’s Saga Energy signed a €2.5bn ($2.9bn) deal with the state-owned Amin Energy Developers to build a solar power plant with generating capacity of up to 2GW over the next five years.

The deal is typical of many of the renewable energy deals in Iran in that it is a European company making the investment. Among other recent examples, Norway’s Scatec Solar has said it is in talks to build a 110MW solar power plant, worth around $132m; it could expand it to 500MW at a later date. In addition, Hashem Oraee, president of the Iran Wind Energy Association (IRWEA), recently told local media that Danish companies are ready to invest as much as $1bn in renewable energy projects in Iran.

It is not just Nordic countries which are getting involved. On September 20, the UK’s Quercus said it planned to deliver 600MW of solar power in Iran at a total cost of some €500m. Local media have linked Germany’s Solarwatt and Italy’s Finergy Company to other schemes. In June, a delegation of seven German renewable energy companies toured North Khorasan province to examine potential sites for solar and wind power projects.

Some smaller projects are already at or near completion. In late July, work was completed on the 20MW Mokran solar power plant in Kerman province, backed by a joint venture of Germany’s Adore and Switzerland’s Durion. The companies are planning a 100MW solar plant for an adjoining site. In April, Iran’s Ghadir Electricity and Energy Company and Greece’s Metka announced they had completed a 10MW plant close to Isfahan. In February another 14MW solar plant was unveiled in Hamedan, in the west of the country.

In total, these deals are adding up to many billions of dollars of investment into the Iranian economy. In April, Iran’s deputy economy minister Mohammad Khazaei said EU countries had invested $3.6bn in Iran’s energy sector since January 2016, when the Joint Comprehensive Plan of Action (JCPOA) came into force – the deal which cut sanctions on Tehran in exchange for it cutting its nuclear activities. Khazaei told the 1st Iran-European Union Business Forum on Sustainable Energy in Tehran that the government had “so far approved of 48 projects for electricity generation through renewable energies”.

There are a few reasons behind the rush of investment, including favourable investment terms on offer from the Iranian government. The country’s Energy Ministry typically signs deals guaranteeing to purchase the output of renewable energy plants for 20 years, via the Renewable Energy Organization of Iran (SUNA). The plants are also tax exempt for between five and 13 years.

There is also, from a European perspective, the welcome fact that the level of international competition in Iran is muted because American firms are absent from the country. There is a risk that the US government of President Donald Trump will make life harder for these investors in the future – Washington has threatened to walk away from the nuclear deal and impose more sanctions. For now though, that is a risk that companies seem happy to take.

“We are a little bit worried about what Trump is doing, we are very much in favour of the atomic deal, but we will of course continue with our plans whatever Trump does, no doubt about that, nothing can change that,” said Saga Energy spokesman Rune Haaland, in quotes carried by Reuters.

Iran already has the largest green energy footprint in the Middle East, according to the International Renewable Energy Agency, an intergovernmental body based in nearby Abu Dhabi. It estimates Iran had 10,606MW of renewable energy generating capacity in place in 2016. The next nearest country is Iraq with 2,311MW, followed by Syria with 1,572MW and Israel with 852MW.

Most of Iran’s existing renewable capacity as of 2016 came from hydropower plants. It had relatively little wind or solar power, with capacity of just 117MW and 32MW respectively last year, with bioenergy plants contributing a further 11MW. The investment rush on at the moment means those statistics will change markedly over the next few years.

Dominic Dudley is a freelance journalist with almost two decades’ experience in reporting on business, economic and political stories in the Middle East, Africa, Asia and Europe.

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