The guaranteed purchase price paid by the government for renewable power generated by private companies has, on average, increased by 40%.
A new directive to raise tariffs (for e private sector producers) was announced by Energy Minister Reza Ardakanian on May 20 to encourage investment, Barq news website cited the press release issued by state-run Renewable Energy and Energy Efficiency Organization (Satba).
The minister noted that the new prices for generating electricity from biomass (compared to 2019) have risen by 50% per kilowatt, reaching 3.6 cents/kilowatt hour.
Referring to tariffs for different types of power stations, including wind, solar and hydroelectric power plants, he said prices have risen by 60%, 60% and 100% respectively.
The new tariffs are 4.4 cents, 4 cents and 17 cents per kWh for photovoltaic, wind and hydroelectric power plants respectively.
“By offering higher prices, the government intends to encourage private enterprises to invest in renewables because the firms played an important role in the development of green energy in the recent past,” Ardakanian said.
Private companies have invested $1 billion in the expanding renewable sector, mainly solar and wind. Due to government funding constraints, private firms are expected to play a bigger role in promoting clean energy if the purchasing prices are reasonable.
Private companies have invested $1 billion in the expanding renewable sector, mainly solar and wind
The decision to raise prices comes at a time when some 200 companies active in the renewable sector are facing insolvency.
Volatility in the forex market and the Energy Ministry's refusal to allow reasonable tariffs for electricity produced by private companies are among the root causes of companies’ reluctance to invest in this sector.
In 2015, the ministry set reasonable tariffs to buy clean energy produced by private firms (6 cents/kilowatt hour), which was a major factor in attracting local and foreign investments in renewable energy.
However, rampant inflation at times leaning on hyperinflation and the new US economic sanctions announced in 2018 tripled the cost of importing most equipment, including photovoltaic inverters, panels and cables.
Iran has a diverse climate of vast windy lands and more than 300 sunny days a year, which makes it ideal to tap into wind and solar power.
More than 80% of electricity demand are met by thermal power plants that run on fossil fuels.
Locally-Made Panels
Jafar Mohammadnejad Sigaroudi, a spokesman of Satba, said solar power generated by using locally-made photovoltaic panels is purchased at higher prices, ILNA reported.
“The guaranteed purchase price paid by the government for solar power generated by private companies or households is 30% higher, if domestically-made panels are used,” he added.
The new tariff is 4.4 cents per kilowatt hour for photovoltaic power stations, which will reach 5.7 cents per kWh if the plants are equipped with domestic panels.
Iran has more than 115 large solar farms and around 3,500 small-scale solar installations in cities and villages. Over 2,500 rooftop photovoltaic power stations will be set up by next year, mainly in deprived and rural areas.
“New prices for generating electricity from biomass have risen by 50% to 3.6 cents per kWh. However, if a waste-to-energy plant is set up in the northern regions that have much more tourists, more waste will be produced and the guaranteed electricity purchase rates will be double the new tariffs,” Sigaroudi said.
Energy Mix
Iran’s energy mix is dominated by hydrocarbons. Natural gas and petroleum derivatives such as gasoline fuel traditional thermal power plants that meet around 98% of Iran’s total energy demand. The remaining 2% comes from a combination of hydropower, nuclear, biofuels and other renewable sources.
Overreliance on fossil fuel sources is a problem for a number of reasons. For one, Iran’s wealth of hydrocarbons has led the government to heavily subsidize fuels for energy consumption.
Additionally, Iran spends $30 billion annually to fuel its thermal power plant infrastructure. It loses a meaningful percentage of this $30 billion each year because of antiquated and inefficient transmission and distribution infrastructure.
According to Ali Mirmohammad, a senior consultant at Australian Consultancy Frost & Sullivan, demand for electricity is growing at around 6.5% per year. This rate is currently at least 3.5% faster than the country’s GDP growth; this figure underscores that Iran cannot reasonably sustain the use of hydrocarbons to generate electricity nationwide.
Iran will experience two major benefits by transitioning to a more diverse energy mix.
First, a reduced domestic demand for fossil fuels will yield increased competitiveness in global energy markets. In other words, reduced domestic demand will allow Iran to export more of its immense reserves of oil and natural gas to client states abroad.
Second, reducing domestic fuel use will allow the government to ease its costly subsidies while simultaneously meeting growing electrical demand through more sustainable and cost-effective sources.
