2 THE POLITICS OF LOW-CARBON ENERGY IN IRAN AND IRAQ
33
UK firm Quercus withdrew in August 2018 from plans to build a
600 MW solar plant. 63 The Trump-era sanctions are said to have tripled
the price of imported photovoltaic panels, inverters and cables. 64 The
governance of the PPA under Iranian law is a further deterrent for international companies. Additional problems have been caused by the Covid-19
outbreak, with suggestions that the high concentration of initial cases
around the city of Qom, south of Tehran, was due to the presence of
Chinese engineers who are building a 30 MW solar plant there. 65
All of Iran’s non-hydro renewables have been developed with privatesector investment, 66 during a period that non-state companies have generally been squeezed for finance and/or concentrating on short-term, highreturn projects. Iranian banks do not offer project financing and corporate
finance is at high rates and directed to politically-favoured entities. The
National Development Fund (NDF) has very limited resources and these
are focussed on high-priority projects. The Renewable Energy Organisation of Iran, SUNA (which was merged into SATBA in December
2016) committed to issue letters of credit, but these do not have a credit
rating or sovereign guarantee. The high resulting cost of capital for developers contrasts with the very low cost of capital achieved by developers
in the Gulf Cooperation Council countries, a major contributor to their
extremely low reported levelised cost of electricity (LCOE).
Instead of the increasingly popular tender model, SUNA offered a
range of feed-in tariffs to offset the low electricity sales prices. In 2018,
these ranged from 3200 Iranian rials (IRR) per kWh for large projects
up to 8000 IRR/kWh for very small projects, which were to be adjusted
based on inflation and exchange rates. At the then prevailing exchange
rate, 67 this was equivalent to 7.5–18.8 USc/kWh, which should have
been attractive. However, the requirement for payments under the power
purchase agreement to be made in rials would be unacceptable to most
international investors. The feed-in tariff has fallen because of depreciation of the rial; although payment is meant to be made at the official
rate, rather than the much lower market rate, this raises the uncertainty
of investors about access to hard currency. The Central Bank of Iran had
reportedly offered payment to foreign investors in yuan rather than euros,
again unattractive to most. 68
Bureaucracy and unclear regulations hamper projects, with an indicated
seven months for the initial stages of qualification with SUNA in reality
taking about a year, and the developer has to obtain all licences and pay
the associated costs. The developer is responsible for grid connection, a
33
UK firm Quercus withdrew in August 2018 from plans to build a
600 MW solar plant. 63 The Trump-era sanctions are said to have tripled
the price of imported photovoltaic panels, inverters and cables. 64 The
governance of the PPA under Iranian law is a further deterrent for international companies. Additional problems have been caused by the Covid-19
outbreak, with suggestions that the high concentration of initial cases
around the city of Qom, south of Tehran, was due to the presence of
Chinese engineers who are building a 30 MW solar plant there. 65
All of Iran’s non-hydro renewables have been developed with privatesector investment, 66 during a period that non-state companies have generally been squeezed for finance and/or concentrating on short-term, highreturn projects. Iranian banks do not offer project financing and corporate
finance is at high rates and directed to politically-favoured entities. The
National Development Fund (NDF) has very limited resources and these
are focussed on high-priority projects. The Renewable Energy Organisation of Iran, SUNA (which was merged into SATBA in December
2016) committed to issue letters of credit, but these do not have a credit
rating or sovereign guarantee. The high resulting cost of capital for developers contrasts with the very low cost of capital achieved by developers
in the Gulf Cooperation Council countries, a major contributor to their
extremely low reported levelised cost of electricity (LCOE).
Instead of the increasingly popular tender model, SUNA offered a
range of feed-in tariffs to offset the low electricity sales prices. In 2018,
these ranged from 3200 Iranian rials (IRR) per kWh for large projects
up to 8000 IRR/kWh for very small projects, which were to be adjusted
based on inflation and exchange rates. At the then prevailing exchange
rate, 67 this was equivalent to 7.5–18.8 USc/kWh, which should have
been attractive. However, the requirement for payments under the power
purchase agreement to be made in rials would be unacceptable to most
international investors. The feed-in tariff has fallen because of depreciation of the rial; although payment is meant to be made at the official
rate, rather than the much lower market rate, this raises the uncertainty
of investors about access to hard currency. The Central Bank of Iran had
reportedly offered payment to foreign investors in yuan rather than euros,
again unattractive to most. 68
Bureaucracy and unclear regulations hamper projects, with an indicated
seven months for the initial stages of qualification with SUNA in reality
taking about a year, and the developer has to obtain all licences and pay
the associated costs. The developer is responsible for grid connection, a