Iran to pay 35% premium for solar, wind plants with domestic content

International discussions of energy in Iran tend to focus on oil exports and its controversial nuclear program. However, solar PV is increasingly being deployed in every region of the world, and the Islamic Republic of Iran is no exception.
In mid-January Iran’s Ministry of Energy announced that it would finalize 1 GW of contracts for wind and solar under its feed-in tariff program this March. A week ago the ministry further announced that projects which utilize domestic content will receive a 35% bonus under the program, as reported by the Tehran Times.
This appears to be an effort to kick-start both a solar PV manufacturing industry and a market in the nation, at a time when international sanctions are lifting. So far progress has been slow; Iran launched its feed-in tariff in 2012, but at the end of 2015 Bloomberg New Energy Finance (BNEF) estimates that the nation had put only 35 MW of solar PV online.
The nation also saw the installation of a PV module line with 50 megawatts of annual capacity in 2015. However, the supply chain has a long way to go, and BNEF Head of Japan Ali Izadi-Najafabadi says that companies will have a hard time taking advantage of bonuses for local content.
“There is not as much experience,” Izadi-Najafabadi told pv magazine. “Even though solar is a lot less complicated compared to wind, that value chain has not existed.”
Financing for solar projects is another hurdle. Izadi-Najafabadi describes the nation’s feed-in tariff as “generous” but notes that as it is denominated in Iranian Rial, that it leaves developers open to the risk of inflation. “There you are really betting on geopolitics,” he explains.
Izadi-Najafabadi says that the end of international sanctions is also significant for investment, but notes that U.S. sanctions from 2012 will still remain. “(Removal of sanctions) was quite important, but there is not going to be a flood (of investment),” says Izadi-Najafabadi.
He says that there has been a lot of interest in foreign investment, but that he expects only certain types of investors to commit to this market. “You are not going to have any major foreign bank doing project financing in Iran. All of the investment will be domestic entities, or Chinese state-backed entities, or niche investors in Europe.”
It is also important to note that so far wind had dominated new renewable energy investments in Iran. Izadi-Najafabadi estimates that 195 MW of wind had come online by the end of 2015, and the overwhelming majority of contracts approved under the feed-in tariff are going to wind projects.
However, Regardless, BNEF projects that 60 MW of solar PV will be installed in Iran this year, and that by 2020 the nation will build 540 MW. Ali Izadi-Najafabadi says that he expects slow progress towards the nation’s goals.
“The value chain, that will be overcome, and the later issue is the financing challenge. If the geopolitical environment remains stable, that is something that will be solved. But it is not something that is going to happen overnight.”