Iran’s Transition to Renewable Energy: Challenges and Opportunities

Today, with the international drive to reduce fossil-fuel consumption and increase the possibilities of sustainable development, the use of new and renewable fuel is being explored with vigor. Considering the potential for renewable energy in Iran, the development of these valuable resources is justified to achieve sustainable development goals: economic growth, social welfare, the improvement of quality of life, and the security of society.

Iran holds the world’s second-largest reserves of natural gas and the fourth-largest of oil, as well as great potential for renewable energy. Before the onset of U.S. and EU sanctions, renewables played a less important role in Iran’s national energy basket, but over the last few decades, the government has planned to decrease its dependency on oil.

Studies show that Iran has some of the highest energy-consumption rates per capita in the world; the last three decades have seen consumption grow at a rate of 5 percent annually. The energy-intensity index has likewise increased annually by 3.4 percent since 1967. Although a similar increase is shown in many states in the Middle Eastern region, this still represents a rate double the global average. Recent studies by scholars at the Germany-based Wuppertal Institute show that if there is no major shift in energy consumption per capita in Iran, domestic energy demand will rise to double the current rate by 2020. Effective steps towards improving this situation include refining energy efficiency, improving technology, restructuring the economy and reducing nonrenewable energy consumption. The use of low-energy bulbs, energy-efficient electrical appliances, and window bolting and insulation in houses are just some of the means by which this can be achieved at a micro level.

Most fossil fuels in Iran are used for generating electricity, a major contributor to air pollution. Further, the efficiency of Iran’s power plants is extremely low, and the use of renewable energies is still at zero. Power plants account for 30 percent of total energy carriers, the largest consumer of fossil fuels in the country. This contribution is greater than the share of energy consumed by household appliances or transportation vehicles. According to the Iranian Ministry of Energy, power plants produce an average return of 36 percent. In other words, 64 percent of the energy entering power plants is lost during the generation process. A large portion of these plants are run by fossil fuels such as diesel, gas and petrol, producing even more pollution. According to the U.S. Energy Information Administration, the share of renewables in Iran’s energy basket was less than 1 percent in 2017, but Iran can increase the renewable share to 16 percent by 2030.

RENEWABLES

Environmental concerns may account for some of the drive to develop renewable energies in the Middle East, but the most important driving concern is economic. Having grown impoverished through subsidizing energy for their domestic populations, governments are seeking to reduce this consumption in order to dedicate their resources to exports. Iran is planning to add at least 1,000 megawatts (MW), or 1 GW, to total power-generating capacity each year through 2022 with the help of the private sector. The government is targeting the installation of more than 5,000 MW of renewable capacity by 2022, to include 4,500 MW of wind and 500 MW of solar power. After major restrictions preventing foreign finance from entering Iran were lifted, the investment goals of $10 billion by 2018 and $60 billion by 2025 now “appear feasible.”

The use of renewable energy and environmentally friendly methods for generating electricity is a priority of developed countries. Solar and wind energy for various reasons — easy access and ease of conversion into electrical energy, eco-compatibility and renewability — are of great utility. Due to its geographic conditions, Iran also has many options when it comes to hydropower, wind, geothermal and biomass energies — so long as investment can be procured. This paper focuses on these major renewable alternatives — particularly wind and solar energy — to find potential challenges and opportunities they may hold for the future of Iran’s policies.

Geothermal

In one of the methods used to generate geothermal energy, a well is drilled at a depth of 2,000-3,000 meters, and another is drilled nearby. As the former is injected with water, steam is removed from the latter, powering turbines installed above ground. Iran has been using geothermal energy since 1995, beginning with a power plant built around Mount Savalan, near Meshgin Shar, Ardebil, in the country’s northwest. Eleven of the 17 planned wells have been drilled, but it was not until June 2014 that construction began on the power station itself. It was last announced that operations would begin in 2017, though this, too, failed to materialize. In Iran, research in this field began in the 1970s, when it was suggested that the Savalan volcanic slope would be ideal for a geothermal system. Generally, Iran’s power generation capacity is between 300 and 400 megawatts.

Hydropower

Hydropower is an affordable, reliable, cost-effective and sustainable natural energy source that only requires the flow of rivers, oceans and other waters. This cleanest of energy resources would require a hydroelectric power plant for each region of Iran in order to have an effect. Hydroelectricity represents 98.8 percent of national electricity generation and 13.8 percent of the total electricity production in Iran. It has been a reliable source of energy in Iran for more than 70 years, benefitting the national electricity grid, supporting other renewable energy resources and saving energy for future use. Iran finalized the 1,040 MW Siah Bishe pumped-storage project in 2015, the first of its kind in the region. Current hydropower capacity totals 11,196 MW with 14 projects totaling over 5,800 MW in the pipeline.

Wind

The advantages of wind energy include cost-effectiveness, employment possibilities and a lack of environmental pollution. In Iran, wind energy is already the second largest source of renewable energy, with a potential for wind-recoverable air of around 100 gigawatts. At the end of 2012, the capacity of existing power plants was 106.1 MW. Based on information received from 60 power stations in various parts of the country, the nominal capacity of the sites is about 60,000 MW. According to forecasts, the country’s economically recoupable energy is estimated at 18,000 MW, which confirms the country’s significant potential for the construction of wind-power plants as well as the economic viability of investments in the industry.

This method of electricity generation has become quite popular. Wind energy is economically competitive, valuable for farmers and ranchers (an excellent source of local jobs, from construction to maintenance and upkeep); and wind turbines do not consume conventional power sources or emit gases into the atmosphere. Wind energy is an indigenous and homegrown resource that contributes to national security. The impact of wind parks on the natural environment and human activities is low, and wind “fuel” is free.

Solar

Solar energy is one of the most important sources of renewable energy for Iran, due to the amount and frequency of sunshine. Over two-thirds of the days are sunny, an average potential yield of 4.5 to 5.5 kilowatt-hours per square meter per day. Several solar-energy experts in the country have made the bold claim that, if Iran were to use its desert area for this purpose, it would be able to supply energy to the wider region. Studies by Germany’s DLR show that an area of more than 2,000 square kilometers, filled with solar panels, could generate over 60,000 MW of thermal power.

Some experts argue against the claim that 80 percent of Iranian territory is suitable for the construction of solar power plants, desert storms being a major inhibitor. In Tehran and other major cities, air pollution limits the gain from solar cells. Only five provinces in northern Iran appear to be suitable for installation; elsewhere, as when photovoltaic panels become heated, the result is a drop in performance.

As one of the goals laid out in the country’s Twentieth Development Plan, set to continue until 2025, Iran must source around 18 percent of its energy (about 20,000 MW) from renewables. At present, they account for an average of 20 percent of the energy basket of most developing countries. By January 2017, the share of renewables was just 0.32 percent, around 240 MW. Iran’s current production capacity is about 74,000 megawatts, of which 200 are currently produced from renewables, the main sources being solar and wind. However, according to the five-year development plan, it seems that the capacity of renewable energy production will increase by 5,000 MW over the next five years. This suggests that there will be a need to build new plants with a final capacity of 26,000 megawatts. The Sixth Development Plan also requires the government to focus on clean energy sources for environmental protection. Since Iran is one of the 200 countries committed to protecting the environment under the Paris Climate Agreement of 2015, it is imperative that renewable energy be used as the main means to reduce the effects of fossil fuels. The Paris Summit has made it mandatory for its member states to try to reduce the amount of carbon dioxide released into the atmosphere.

As part of its Sixth Development Plan, Iran must focus more on renewable energy than fossil fuels, but this will be achieved only with some difficulty. There is instability in the decision-making process, which discourages foreign investors. The Ministry of Energy has made some major leaps towards increasing the country’s share of renewable energy by facilitating changes to investment law, such as introducing guarantees that allow the sale of renewable energy projects for the next 20 years.

The fifth and sixth development plans involve building 26,000 MW from new power plants, of which 16,000 MW will be converted to existing combined gas-combustion plants, 3,000 MW by the construction of dispersed power plants (DG) and CHP (simultaneous generation of electricity and heat), and 5,000 MW by the construction of renewable and photovoltaic (solar) plants.

According to the Ministry of Energy, the current renewable capacity of the country’s power plants amounts to only 1 percent of the country’s energy basket, projected to reach 5,000 MW of renewable energy by 2021. Thanks to the vastness and diversity of its landscape, Iran has a high capacity for renewable-energy development. Most of the country’s windy areas are in places the government can develop as it pleases. These include areas such as Khaf, with high wind speeds; Zabul, with 120 days of wind per year; and the Mandjil wind tunnel extending to the vineyards and Qazvin plain.

One of the country’s major renewable projects, which went online in recent years, has been the Morkan Solar Power Plan’s complex in the eastern province of Kerman. As Iran’s largest solar-power plant, with a 20 MW capacity, it is a testament to the country’s ambitions in renewable energy. The complex consists of a total of 76,912 solar panels, each producing 260 watts in an area of 44 hectares.  A major agreement between Iran and private firms occurred after the lifting of sanctions, when Norway’s Saga Energy Company signed a € 2.5 billion contract with Amin Energy for the construction and installation of solar power plants in the central regions of Iran (capacity, 2 GW). Norway’s Saga Energy and Sully-Teck will provide solar panels for the project, and other equipment will be supplied by Delta Electronics of Taiwan. The plant will produce 120 MW of electricity in the first phase, and production capacity will eventually reach 500 MW.

RENEWABLE PROFILE

Iran is interested in attracting more foreign financial resources and technology with the aim of increasing renewables. This prompted a May 2016 Ministry of Energy announcement that drastically reduced the tariff on electricity from renewable energy sources. Experts have argued that this is one of the most appropriate tariffs in the world for renewables, especially wind and solar, and should attract foreign investors. For several years, Iran has been trying to expand its investment climate in renewable energy, as it is one of the countries most severely damaged by global warming, dehydration and desertification. Furthermore, Iran has realized that its limited fossil-fuel resources should be preserved for export.

The P5+1 nuclear agreement (now defunct) and the lifting of sanctions (now in dispute) on the Iranian energy sector provided a great opportunity for Iran to recover its oil, natural gas, LNG and production capabilities, as well as to provide greater opportunities for foreign companies to invest in Iran’s energy sector. This would be positive for the Iranian economy and its oil and gas industry. Iran hoped that, after the full lifting of sanctions, foreign companies would rush to provide the country with renewable-energy solutions. If financial resources were provided for investment in renewable energy, Iran would develop very quickly. But if not, and if bank transactions are not released, few companies will be willing to invest.

Iran has many reasons to develop renewables, from popular concern about air pollution to fluctuating oil prices since the lifting of sanctions in 2015. Over this period, it has signed various agreements with foreign companies, but there are still major obstacles, mainly the threat of sanctions; and foreign companies are still wary. Other structural issues in Iran’s electricity market are stifling new projects. Iran has begun several reforms to develop its renewable-energy sector. The government, during its fifth five-year development plan (2010-15), laid out so-called “feed-in tariffs”:

Iran’s leading electric utility and subsidiaries of the country’s Energy Ministry to sign long-term contracts with renewable-energy producers at guaranteed prices, helping increase renewables’ competitiveness in the electricity sector. In 2015, Iran extended those contracts from five to 20 years to further spur investment. And in May 2016, the Renewable Energy Organization of Iran (SUNA) said that it would increase guaranteed prices for electricity generated at plants built with local skills and equipment by up to ٣٠ percent — an attempt to boost domestic manufacturing and employment in the sector.

According to officials, the private sector has warmly received the new tariff policy:

A feed-in tariff (FIT, FiT, standard offer contract, advanced renewable tariff, or renewable energy payments) is a policy mechanism designed to accelerate investment in renewable energy technologies. It achieves this by offering long-term contracts to renewable-energy producers, typically based on the cost of generation of each technology.

Iran’s commitment to reducing global greenhouse-gas emissions, made at the International Climate Change Conference in Paris on November 30 to December 11, 2015, has led to the insertion of renewable-energy policies in the Sixth Development Plan. The Ministry of Energy has also formulated a broad plan based on the principle of environmental compatibility and the development of clean and renewable energy.

Iran’s current renewable energy capacity is about 200 MW, and the government has plans to increase it. By 2020, renewable energy is expected to represent around 4.2 GW, increasing to 7 MW by 2024 and finally, 12 MW by 2030. Experts believe that Iran holds the potential to cover 50 percent of its energy demand through solar, wind and biomass energies alone.To achieve such goals, the government has applied policies to encourage private-sector involvement in renewable energy projects. These reform measures provide long-term leases on land at low fees for a period of up to 20 years, with long-term guaranteed contracts for the purchase of electricity generated from renewable resources, prioritizing energy purchases from cooperative and private sectors. According to Mirmohammad, a senior consultant and business-development manager: “The government will also guarantee that the purchase price [of electricity] from renewable energy sources is nearly 10 times more than power from fossil fuels at $.2/KW versus $0.02/KW.”

Pricing mechanisms are also used, with the aim of attracting more private-sector and foreign firms. Seyed Moslem Mousavi, the chief executive officer of the Iranian Renewable Energy Association, argues that the planned FIT levels will encourage investment in solar energy in coming years.

ADVANTAGES OF SOLAR

Several solar-energy experts have stepped up to claim that Iran, by using its offshore space, can provide energy from radiological energy sources to supply vast areas of the region, even for export. If the spending on nuclear start-up contracts were used for solar energy-absorbing systems, several solar plants would already be operational. The high availability of solar sources provides more security in terms of applications. Considering the Bam earthquake, for instance, solar technology could carry on regardless of natural disasters. In areas where there is a risk of flooding, the use of solar energy is effective.In the event of the destruction of power lines, heat and electricity produced by home-roof systems may be utilized instead.

According to a report released by Lappeenranta University of Technology (LUT) in Finland, if Iran transitions from fossil fuels to fully renewable electricity generation, the nation could see financial gains as early as 2030. This report indicated that if Iran’s electricity system ran on 100 percent renewable energy, it would be 50-60 percent cheaper than nuclear or fossil-fuel carbon-capture-storage (CCS) options.According to this report, Iran would need to install 77 GW of wind power, 49 GW of solar, and 21 GW of hydropower to achieve a 100 percent renewable electricity grid. Most of the hydropower already exists, but the solar and wind capacities would require new investments; at present, the country has 129 MW of installed wind power.

FUNDING CHALLENGES

At present, Iran faces several major challenges in the use of renewables, including the inadequacy of organizations to attract foreign investment, and confusion among potential investors. Different organizations with different policies provide the necessary permits for the construction of renewable power plants. Instability exists in renewable-energy purchasing policies in the Ministry of Energy, as does confusion in the private sector among domestic and foreign investors. There is a lack of adequate attention to the development of technology and the location of renewable equipment. Insufficient focus is given to renewable fuel and refueling in macroeconomic programs, and there is a lack of comprehensive renewable-energy legislation to integrate diverse policies. The high cost of maintenance as well as the annual repair of Iranian power plants is another factor indicating that more attention be given to renewable energy. The burnout of these power plants means they must be repaired annually. Iran also spends about $30 billion per year to fuel its thermal power-plant infrastructure.

In recent years, despite progress in word and deed, there has been an insufficient allocation of resources to construct large power plants, despite their potential to cover all of Iran’s needs. It should be noted that Iran spends tens of billions of dollars to build fossil-fuel-based power plants and repair and maintain electricity production from them. Iran uses 65 MCM in fossil fuels to generate electricity, at a cost of $55 billion, but experts argue that it has the potential to generate electricity from renewables at one-fifth of this cost.

Natural gas is a key factor in electricity generation for the majority of power plants, and with its huge reserves, Iran will have no problem supplying gas cheaply to power plants. With competitive electricity prices, Iran could become a regional energy hub. In recent years, however, the Ministry of Petroleum and the National Iranian Gas Company have stated that the electricity industry has to compete with buyers that import natural gas. Given international constraints that have created significant problems for Iranian companies, imposing internal restrictions — eliminating economic benefits and reducing competitiveness, losing important export markets, reducing investment and, ultimately, increasing unemployment — the disproportionate price of gas for prospective investors in power plants is unlikely to change.

Power-plant efficiency is another challenge. “Efficiency” will reduce the price of the finished product, but the country’s electricity sector is not currently well-positioned: in 2013, the average efficiency of the country’s thermal power plants was 37 percent. In practice, due to the inefficiency of power plants, electricity exports have no economic justification. Therefore, in order to ensure that electricity exports to neighboring countries are given the necessary attention, efficiency should be increased, and the gas price determined accordingly. On the other hand, studies show that the role of thermal power plants in providing the electricity needed by the country are outstanding.

According to its latest report, the Ministry of Energy predicts an increase in both power generation and in gas consumption. However, increasing production capacity, especially the production of electricity from renewable sources, has been delayed dramatically. The report indicated that the capacity of Iran’s power plants had to increase by at least 5 percent per year in order to prevent a power failure in the summer. Iran has planned to add 4,500 MW to the country’s power over the past year, but it added less than 2,500 MW, of which 5 percent is renewable energy.

According to the Ministry of Energy’s plans at the beginning of 2018, 690 MW of electricity from renewable sources were to be added to the country’s generating capacity, but by the end of the year, only 100 MW were added, less than half a percent. The efficiency of most Iranian power plants is far less than the required standard, and the Islamic Republic has previously stated that some of the power plants are shut down for very low losses and efficiency. The average thermal-power output in Iran last year rose to only 37.9 percent. The figure is much lower than for Turkey’s power plants, which is above 50 percent.

Iran had planned to increase renewables by 5 GW between 2016 and 2021, but currently the volume stands at 364 MW — most of which was installed before 2016. Around 80 percent of Iran’s installed power plants are thermal, and the average of 37.9 percent efficiency is very low by global standards. Iran had planned to convert half of all thermal power plants to the combined-cycle power plant (CCPP) with above 45 percent efficiency, but after several years, the share of CCPPs in the total power-generation capacity remains unchanged at around 25 percent.

CONCLUSION

Transferring renewable energy technology to developing countries is essential. This transfer can be accomplished through academic programs and short-term courses through collaborations or by hiring external consultants. International R & D agreements on the use of renewable energy between the Renewable Energy Agency in Iran and the universities and scientific research centers of countries leading the field can be an effective way to transfer knowledge to domestic experts and engineers. Iran planned to begin using renewable energy two decades ago, but its progress has been sluggish. Out of the 76,000 MW capacity of its power plants, only 12,000 MW come from renewables, the largest share from hydroelectric energy. In recent years, Iran’s share of hydroelectric has decreased from 14 percent to 5 percent due to falling river levels. The latest statistics released by Tavanir (Management of Generation, Transmission and Distribution of Electric Power) show that about 50 hydroelectric plants have halted electricity generation or have seen their capacity reduced.

According to Gary Lewis, the former UN resident coordinator in Iran, renewable energy holds the potential to help Iran to access its Paris Accord goals. Iran had pledged to reduce its greenhouse-gas output by 4 percent, increasing to 12 percent if all sanctions were removed as part of the nuclear deal. Iran’s existing power-generation capacity stands at 74,000 MW, but only around 200 MW are currently produced through renewable sources. In addition, Iran needs to cut emissions from fossil-fuel extraction and conversion, improve energy transmission and distribution efficiency, and reduce overall energy demand. Most important, the public needs to understand what is at stake. For this, there needs to be greater public awareness.

The real breakthrough will come when discussion of the impact of climate change goes beyond technocrats and policy makers to the community level. A level of 100 percent renewable energy would provide Iran with an opportunity to have net-zero carbon emissions and finally contribute to protecting the environment. Different types of storage technologies could be used during summer (off-peak) periods. According to a research group at Lappeenranta University, the country’s renewable energy potential could provide for all electricity use by 2030, at a cost of €40.3 to 45.3, depending on the extent of sectoral integration.

Active energy diplomacy within the context of an active foreign policy would help Iran to resolve its tensions with neighboring countries. If Iran succeeded in finding a workable solution to its growing differences with the West over its missile program, major energy companies would look at Iran as an exciting prospect for investment. The major impediment, however, is finding the required financial capital. In the absence of private companies and foreign financial institutions, there needs to be a legal framework, cooperation among organizations and more active policies in energy and foreign affairs. There is a direct relationship between diplomacy and foreign investment. A foreign policy anchored in ideological precepts, coupled with the lack of will to resolve tensions with neighbors and the West, poses a major challenge to garnering the required foreign investment for Iran’s energy transition.

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