Iran: Renewable Electricity Purchase Prices Will Rise to Attract Investment

EghtesadOnline: The Energy Ministry is rewriting policy to increase the guaranteed purchase price of renewable power by 30% by next month, spokesman of Iran’s Renewable Energy and Energy Efficiency Organization (Satba) said.

News ID: ۷۴۸۴۲۲

14 September 2019

Satba has proposed the higher price to the government to encourage investment, mostly the private sector, Jafar Mohammadnejad Sigaroudi told the Energy Ministry news portal Paven.

The ministry in 2015 delegated Satba with the task of building and developing renewable power plants.

Iran is largely dependent on thermal power but is gradually moving towards renewables to help protect the environment and help fight global warming, Financial Tribune reported.

“A major incentive in this regard was a government scheme that guaranteed the purchase of green power for 20 years,” Mohammadnejad Sigaroudi said.

However, re-imposition of US sanctions last year created problems for the renewable power industry just like other sectors and investment in the field declined substantially, he added.

The US re-imposed tough new economic restrictions on Tehran after Donald Trump unilaterally withdrew from the intentional 2015 nuclear deal last May. The first round of sanctions came into effect in August 2018 before tougher restrictions on the oil and banking sectors were imposed in the November of last year.

Private Sector Role

With the plan to offer higher purchase prices, the government is trying to encourage private companies to invest more in renewables because such firms played an important role in the expansion of green energy in the recent past, the official noted.

Private companies have more than $1 billion in the gradually expanding renewable sector, mainly solar and wind energy. Due to government funding constraints, private firms are playing a bigger role in promoting clean energy.

The policy to raise the purchase prices comes at a time when some 200 companies active in the renewable sector are facing insolvency.

Volatility and instability in the currency market and the Energy Ministry's reluctance to allow fair and reasonable tariffs for electricity produced by the private companies are among root causes of the problem.

In 2015 the ministry set reasonable tariffs to purchase clean energy produced by private firms (6 to 9 cents per kilowatt hour). That move worked well and was a major incentive to attract local and foreign investment in renewable energy ventures.

However, rampant inflation at times leaning on hyperinflation, and the new US economic sanctions imposed in 2018 tripled import costs of most equipment including photovoltaic inverters, panels and cables.

The major problem was that while the production costs increased, the purchase prices did not. Now the producers have to sell what they produce for 20 cents for at the most 9 cents per kWh.

This is why so many companies are unable and unwilling to continue work in the sector.

Iran has a diverse climate of vast windy lands and more than 300 sunny days a year, which makes it ideal to tap into wind and solar power.

More than 80% of electricity demand is met by thermal power plants that run on fossil fuels. Of the total 82,000 megawatt capacity, 760 comes from renewables.

Iran is aiming for 5,000 MW increase in renewable capacity over the next five years to meet growing domestic demand and also expand its footprint in the regional electricity market.

The largest exporter and importer of electricity in the Middle East, Iran plays a key role in power supply in the region, exporting and exchanging electricity with several neighbors.

According to Energy Minister data, green energy figures show 44% is from solar, 40% wind power, 13% small hydroelectric plants, 2% geothermal and 1% biomass.

Global Status

Thanks to the nearly $280 billion invested globally in electricity generation from renewable sources last year — three times the amount invested in coal and gas-fired generation capacity combined — a record 167 gigawatts of new renewable energy capacity was installed, beating the previous record of 160 GW in 2017.

Last year was the ninth year in a row in which renewable energy investments exceeded $200 billion and the fifth year in a row in which the amount exceeded $250 billion, according to a report released by the UN ahead of the Climate Action Summit to be held in New York City later this month.

That means that, by the time it is over, the current decade — 2010 to 2019 — will have seen a total of $2.6 trillion in renewable energy investment and a four-fold increase in global renewable energy capacity.

Of all the major generating technologies, including those that burn fossil fuels, solar accounts for 638 GW of new power capacity installed since 2010, the largest single share claimed by any technology.

Coal-fired power is second at 529 GW, wind in third place at 487 GW, and gas is fourth at 438 GW.

In total, renewables supplied 12.9% of global electricity output last year, up from 11.6% in 2017. The UN report estimates that about 2 billion tons of carbon dioxide emissions were avoided in 2018 alone due to renewable energy usage. The energy sector globally was responsible for about 13.7 billion tons of CO2 emissions in 2018.