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Vanand Meliksetian

Vanand Meliksetian

Vanand Meliksetian has extended experience working in the energy sector. His involvement with the fossil fuel industry as well as renewables makes him an allrounder…

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Will Iran Emerge As A Renewable Energy Breakout Story?

Iran is without doubt one of the wealthiest countries in terms of energy production. Not only does the Middle Eastern country possess the world’s 2nd largest natural gas reserves and 4th largest oil reserves, but its renewables potential is also truly remarkable. As Iran is facing an energy shortage of epic proportions, the government is tapping into its solar and wind potential instead of fossil fuels or nuclear energy. Although there is significant potential, most initiatives have yet to materialize.

Iran’s renewables capacity is already 12.92 GW according to IRENA. This is mostly hydropower from the country’s extended network of dams in the mountainous and rainy north. Climate change and an extended period of drought, however, have reduced the flow of water into rivers, which has reduced the country’s power production capacity by 50 percent. Hence, the government has been aiming for an additional source of electricity production.

Although Iran possesses some of the world’s largest fossil fuel reserves, rampant air pollution in primarily urban areas has become a serious problem over the years. As numerous other issues regularly stir up the population, the Islamic regime has wisely decided that it doesn’t, proverbially, want to add oil to the fire. Therefore, expanding power production with fossil fuels is not a preferred option.

Tehran set itself the goal in its latest five-year plan to develop 5 GW of renewables by 2022. The country’s energy sector hasn’t been able to develop most large-scale projects, falling short 80 percent of its goal. There have been successes though. Notably, the installation of small-scale rooftop solar by households and businesses has taken off supported by an established feed-in tariff regime that rewards local production in the sun-scorched country. Politics, however, are the primary culprit for Tehran's failure in its energy goals.

The expansion of the renewables sector is one of the few topics that virtually all Iranian politicians agree on, regardless of religious or political ideology. The recent election of Ebrahim Raisi won't derail the country's ambitions to become a green energy powerhouse. The next government will likely support the renewables sector in its next five-year plan. Especially as the tide could be changing in favor of Iran’s energy sector.

Although some projects have materialized, such as Merat International Groups 416 MW initiative in Fars province, Iran’s potential is much larger. The spoiler that derailed Tehran’s plan was Trump’s unilateral withdrawal of the JCPOA, or Iran nuclear deal, that was followed by reimposition of sanctions. Western companies quickly put their investment plans on hold in fear of being shut out from the U.S. market.

Unexpectedly to the intentions of the previous U.S. administration, Iran’s energy sector has had some successes. Due to the sanctions, Iranian companies were forced to develop their technology. The local industrial conglomerate Mapna, for example, has become a manufacturer of certain components. It remains to be seen what Tehran intends to do when (potentially) the sanctions are lifted: allow competition or protect its market through tariffs and risk increasing economic costs.

Although the waxing and weaning of sanctions have scared western investors, not all international partners are absent from the Iranian market. Chinese companies are notorious for ignoring U.S. sanctions as Beijing is powerful and single-minded enough to thwart Washington. More recently, China and Iran signed an agreement that could change the balance of power in the Middle East.

After five years of negotiations, which started before Trump became president, Iran and China signed an agreement for strategy and economic partnership for the next 25 years and worth an estimated $400 billion. It includes investments in the renewables sector and energy infrastructure which could become a major boon for the Middle Eastern country.

Tehran, however, prefers a balanced economic relationship to prevent becoming over-reliant on China. Iran prefers to balance its relationship with the Chinese by doing business with the Europeans. Therefore, a lot depends on the ongoing negotiations in Vienna and the willingness of the U.S. to lift sanctions in exchange for Iran curbing its nuclear ambitions.

Regardless of the outcome, expect the Iranian government to pursue its ambitions in the renewables sector. The country’s potential concerning both wind and solar is simply overwhelming to ignore.

By Vanand Meliksetian for Oilprice.com

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