Iran Power Generation, Distribution and Transmission Company (Tavanir) and the Renewable Energy and Energy Efficiency Organization (Satba) are no longer allowed to sign agreements to buy green power from private electricity producers based on previous models that guaranteed electricity purchase for 20 years, the energy minister said.
“A new model of contracts will be made in the near future and until further notice, neither the state-run Satba nor Tavanir is permitted to conclude deals with the private sector,” Ali Akbar Mehrabian was also quoted as saying by Barq News.
The installed capacity of renewable energy in Iran has reached 900 megawatts and plans are underway to raise the capacity to 10 gigawatts over the next four years, he added, without providing details.
According to the minister, the new model (yet to be announced) will encourage private producers to play a more active role in the renewable sector.
“Private companies have invested $1 billion in the expanding renewable sector, mainly solar and wind, but they should be encouraged to hold a bigger share,” he added.
Changing Rules
Independent energy experts, including Ahmad Firouzi, believe that changing rules overnight and not offering replacement models is a serious setback for the private sector as volatility in the forex market and the Energy Ministry's refusal to allow reasonable tariffs for electricity produced by private companies have already made private producers reluctance to invest in this loss-making industry.
“Changes can work, provided that they are based on logic and reason and there is a substitute, otherwise new regulations will be a recipe for disaster,” he said, noting that both Tavanir and Satba were shocked as the new announcement was issued unexpectedly.
Nobody is informed about the details of the new model, but whatever the case, the green sector will not thrive unless the private sector is convinced that investing in renewables is not a waste of money.
Reza Ardakanian, the former energy minister, increased the guaranteed purchase prices paid by the government for renewable power generated by private companies by 40% in May.
The new prices for generating electricity from biomass (compared to 2019) rose by 50% per kilowatt, reaching 3.6 cents/kilowatt hour.
Tariffs for different types of power stations, including wind, solar and hydroelectric power plants shot up by 60%, 60% and 100% to reach 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,” the former minister said.
Dominance of Hydrocarbons
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% come 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 significant 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, which underscores the fact 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.
