Interview: Quercus CEO reveals more about 600 MW Iranian solar project

Announced amid great fanfare in late September, the news that British firm Quercus Investment Partners had secured the rights and the backing to build a 600 MW solar farm in Iran made global headlines. The scale and scope of the project alone is noteworthy; the fact that it was a British company doing business in Iran ensured worldwide attention – attention that went beyond the energy industry.

Since then, U.S. President Donald Trump has reignited fears that the current nuclear deal with Iran could be in jeopardy following his UN speech, but Diego Biasi, Quercus CEO, told pv magazine that he is unconcerned about such rhetoric, and sees vast development potential in Iran’s energy sector.

The 600 MW solar plant in Iran is an exciting project. Can you explain how Quercus first identified such an opportunity in Iran?
Diego Biasi: We started back in 2015 looking at Iran, when we were asked by some investors to look at Iranian renewable energy through a contractor who arranged a Memorandum of Understanding (MoU) with an Iranian partner. Today, there is  a joint venture (JV) between the two companies: Sunir, and Bester Generacion (a Spanish EPC contractor), which will build the solar plant. Quercus has studied the country since then, looking at the renewable energy market there to see if there was a real opportunity for investors.

Specifically, we looked at the regulatory framework in Iran, and soon acknowledged that there is opportunity there. For us, we felt that the right strategy initially was to aim big in order to have support from the various institutions. We proposed to the Ministry of Energy to support a big project such as this 600 MW plant – one large enough to be in the national interest.

Why in this particular case do you feel that bigger is better?
Quercus initially had plans to start with a smaller, test project. But we realized that by doing this we would have been exposed to any type of issues that one could face along the way. With a big project of this scale, you have to have the backing of enough investors. And if so, like we do, you can go big and ask for the backing of the Iranian government as well, which is a very valuable additional support.

pv magazine understands that the project will be built in 100 MW phases. Could you reveal more about the site location and how the construction phases will pan out?
I cannot reveal the exact location of the plant at this time, but will just say that it is in the center of Iran. We still need to tick a number of boxes before deciding which exact location to opt for, and Quercus is currently in the process of deciding which site to choose.

Will the project be located in one of Iran’s special economic zones, created by the government to attract foreign investment by offering tax incentives?
I will say that the solar plant will be installed in an underdeveloped area of Iran, because there are benefits for us in doing so, particularly tax-wise.

The installation will be a single project with one connection divided in six phases of 100 MW each. Each phase will have the possibility to be connected to the grid as soon as it is finished. The reason why we are constructing the plant this way is to mitigate the construction risk, and allow investors to bear the construction risk for 100 MW at a time. By doing so, it aids not only risk mitigation but also cash flow.

The Renewable Energy Organization of Iran’s (SATBA) stated intentions are very promising, but actually getting capital and goods into and out of Iran remains tricky for European investors. Can you reveal a little more detail of how Quercus is to make this project a reality?
The Iranian government is making no investment in the project; the whole investment is coming from private investors. The government is backing us in other ways outlined under the signed framework agreement: the Ministry of Energy undertakes to help us along with the support of the project, and to help facilitate us at various stages to ease any restrictions, and things like that.

Being in a new country, it is vital to have support from these institutions, and it helps that they know us, they know the project, and they are interested in developing it. They will be able to help us and make sure that everything will be conducted as smoothly as possible.

What is the FIT rate agreed for the solar plant?
The FIT is what you can see on the SATBA website, it is exactly  the one assigned to projects bigger than 30 MW [for solar projects larger than 30 MW in size, the FIT is Iranian Rial 3,200/kWh ($0.09/kWh)]. It is based on the European model, the one you can find in countries like Italy for example.

Is it your intention to use any domestic content in order to attract the higher FIT offered by SATBA for projects that do so?
Yes. We want to use as much locally produced content as possible to benefit from the FIT increase, which can be up to 30% of the base FIT.

Specifically, this means locally sourcing everything BUT modules. For solar panels you need scale in terms of production, and for them to be reliable. You need a big producer, a big manufacturer that can give you warranties and guarantees that stand for a long time. Modules need technical reliability, and secondly you also need the reliability of the manufacturer in terms of warranty – you want that manufacturer to be there for 20 years. So we will not go for greenfield module manufacturers, especially not for a plant like this.

Module manufacturing in Iran is at an early stage, so unless a big Chinese manufacturer establishes a plant in Iran then for now we will use foreign modules.

Is it not a similar story for inverters?
Actually there are very good inverter producers in Iran, so we have not ruled out the possibility of using an Iranian inverter manufacturer.

Getting capital and goods into Iran remains challenging, even after the lifting of sanctions. How is Quercus going to manage this?
We have made agreements with some of our providers and contractors to have equipment and services ready to go, regardless of the need to make any immediate payment in Iran. That can come later.

For our PPA, we have a revolving letter of credit, but hope to offer our investors additional guarantees on top of that. The challenge will be in aiding the revolving letter of credit with these additional guarantees; we are working on different types of approaches to give additional comfort to investors looking to invest in Iran.

A lot of it concerns bilateral investment treaties, and FIPPA licence, so we are not coming away with just the letter of credit from SATBA, but trying to structure a more comprehensive guarantee set up.

Given President Trump’s comments at the UN regarding the JCPOA nuclear accord, are you at all worried that relations could sour?
We are not nervous about Donald Trump. Whoever knows Iran well, particularly those who have visited the country recently, will realize that Iran will stick to the nuclear deal and will comply with that no matter what. The country wants to get back to growth and development, having been frozen out for more than 20 years.

It’s a country that wants to catch up with the rest of the world, with the more industrialized countries. So not complying with the nuclear deal would mean smashing any opportunity it currently has to offer and reducing  comfort for investors. Iran has no interest in reneging with the nuclear deal.