The government has increased the guaranteed purchase prices for solar and wind power generated by private companies by 20-60% compared to 2021.
A new directive to raise tariffs (for private sector producers) was announced by Energy Minister Ali Akbar Mehrabian on Nov. 9 to encourage investment, the Energy Ministry’s new portal 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 small-scale solar power stations (with less than 20 kilowatt capacity) have risen by 20% per kilowatt, reaching 6 cents/kWh.
Referring to tariffs for bigger photovoltaic power plants (with a capacity of 20-200 kW), he said prices have risen by 30% and now stand at 5.5 cents/kWh.
The new prices for small-scale wind farms (with less than 250 kilowatt capacity) have experienced the biggest rise (60%) and approached 5.5 cents/kWh.
According to the official, each kilowatt of power generated in wind farms, with a capacity of between 250 kW and 1 megawatt, will be purchased at 4 cents, up 20% compared to that of 2021.
He noted that the price for generating electricity from biomass has not changed and is still 3.6 cents/kWh.
“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.”
Mehrabian said private sector investment in renewable projects now exceeds $2 billion and Satba has been tasked with devising regulations and establishing infrastructure for investors to generate and sell electricity to foreign buyers.
Funding Constraints
Due to government funding constraints, private firms are expected to play a bigger role in promoting clean energy if the purchasing prices are reasonable.
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 (2 cents/ kWh), 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. The country has more than 115 large solar farms and around 3,500 small-scale solar installations in cities and villages. Over 2,500 rooftop photovoltaic units will be set up by next year, mainly in deprived and rural areas.
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.
Subsidized Fuels
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.
“The Energy Ministry is preparing a plan of action based on which solar and wind power generated by private companies can be sold without state interference,” he added.
According to the minister, the production and export of green energy should be as competitive as possible, such that private investors are able to handle all operations without government intervention.
“Providing thermal power stations with subsidized natural gas as feedstock is the main obstacle to the green sector expansion.”
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 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. Second, lower domestic fuel use will allow the government to ease its costly subsidies.
