September 5, 2016
Despite the recent decrease in Iran’s Feed-in Tariffs (FiT) for renewable
energy, the new payments, announced in May 2016, are still considered to be
attractive. Solar power plants with a capacity between 10 MW and 30 MW, and
wind farms below 50 MW will now receive EUR 0.12 per kWh.
“Iran could be one of the largest markets for renewables in the next 5
years,” says Rik Teeuwen, project manager at Solarplaza. “the government
targets 5 GW of RE capacity to be added; the question is not when, but by
The level of FiT is determined by the Ministry of Energy (MOE) depending on
the current oil price, environmental cost, and conversion of oil to
electricity. While the ministry’s intention is to set a fixed FiT once a year,
if there are substantial changes to any of these three elements, it reserves
the right to modify the FiT. Last year for instance, there was a substantial
change to the FiT due to the dramatic shift in oil prices.
“Changing the tariffs by 18-43% from the initial rates, which were introduced
in 2015 for the first time, signalled an institutional issue and a lack of
stability in policies”, says Hedieh Kianyfard, senior financial analyst with
Themis Energy, an Abraaj Group company that develops energy projects in growth
markets through early-stage capital investment.
tariffs will not affect the already-signed PPAs, but since there are no
penalties or regulations in case of law violation by government agencies, the
effectiveness of the current tariff throughout the duration of the PPA is
uncertain and at risk, says Kianyfard.
According to Clint Dempsey, principal associate at global law firm Eversheds
and head of the UAE’s banking and finance team, Iran’s PPA is not bankable in
its current form.
“On the whole, there remains a reluctance for international lenders to enter
the Iranian market. In relation to the PPA for renewable projects, in its
present form it is not bankable by international standards,” says Dempsey.
“Part of the final FiT to be paid is determined by the oil price on the day you
sign the PPA, so you have no certainty on what you’re going to get.”
For the time being, the Renewable Energy Organization of Iran (SUNA) – an
affiliate of the MOE – is the counterparty under the PPA, which is guaranteed
by a six-month revolving letter issued by an Iranian bank.
the first six months are at the cost of SUNA, any extension thereafter for the
term of the PPA is at the cost of developer. “That’s quite an unusual
provision,” notes Jean-Pascal Boutin, partner at Eversheds and head of the
energy regulatory team.
“Not only is the cost of that letter an issue, but also the fact that if the
letter of credit is not renewed, then the developer is completely exposed
because all it can do is bring a claim under the PPA. But there’s nothing
backing up that claim in terms of security at this point of time,”
This was one of the issues raised by Eversheds during a recent conference in
Tehran, and the country’s deputy minister of finance had suggested that a
government guarantee or a guarantee from the Central Bank of Iran might be
banks funding renewable energy projects in Iran will be expecting a guarantee
from the MOE, as we have seen in other emerging markets around the globe,”
highlights Dempsey. “But in Iran, you’ve got a six-month letter of credit
issued by an Iranian bank which, at present, does not have a credit rating from
international rating agencies,” he says.
Doing business in Iran
To secure a renewable energy PPA in Iran today, developers need to apply for
a construction license from SUNA, after which they would need to obtain permits
from various entities. These include the land acquisition or lease contract,
environmental permit and grid connection permit. Once these are obtained, the
PPA should be ready for signing with SUNA.
typically grants six months for the development of the project – extendable by
up to three months. This is followed by 12 months for construction, again
extendable by up to six months. Commercial operation covers 20 years including
the construction period.
“Due to the number of projects that have already been issued with a license
and the lack of progress to date, SUNA informed us that moving forward,
construction permits will be limited to one developer and to smaller projects
of 20 MW,” highlights Boutin. Once developers start proving themselves, SUNA
would be able to issue multiple licenses and permits for larger projects, he
the UN and EU sanctions on Iran have been effectively lifted, US sanctions
remain in place. This means US companies cannot clear payments out of Iran and
cannot enter the market or do business there because they’ll be breaching their
“There are also risks associated with the secondary sanctions that the US
has in place, which affect companies with US shareholders,” says Dempsey.
Additionally, foreign investors looking at the Iranian market have questioned
the transferability of funds out of Iran. According to Kianyfard, guarantors
cannot include in their Political Risk Insurance the free transferability of
“This may pose an issue not only to investors but to our potential lenders
in hard currency, which may be needed for large power projects,” she says. “The
main issue in the current PPA is not the bankability and rates, but the
regulatory environment and law enforcement, and a reliable source for securing
the payment of renewable projects for the coming 20 years.”
When it comes to structuring a special purpose vehicle, Boutin recommends that
companies look closely at the available bilateral investment treaty, which will
be linked to the where the shareholders are based. Such a treaty would offer
protection in terms of expropriation of assets or non-payment by SUNA or the
Partnering with local developers
it should take about one month to prepare all documents required for
registering a local company, and from the time of submitting the paperwork, it
should take 3-4 weeks to finalize registration, according to Iranian law firm Atieh
Kianyfard highlights that about a year ago, several renewable energy
developers in Iran secured licenses along with some of the best lands, but
their main issue was financing. This was the result of a streamlined licensing
process implemented by SUNA.
“What came out of this policy was awarding licenses to unknown developers to
the extent that today, it is not known how many licenses have been awarded,”
she says. As these licenses are not transferable, Kianyfard recommends that
foreign investors partner with experienced local developers who have purchased
“Many developers are looking how to secure projects in anticipation of the
funding market opening up,” confirms Teeuwen of Solarplaza, “This is probably
the last opportunity to connect with all the key stakeholders, including SUNA
and local developers, before the market under the current FIT scheme is
“That is why attending an event like the
upcoming Renewable Energy Trade Mission Iran organized by Solarplaza is a great
opportunity for foreign investors to get to know the main players in the
Iranian renewable market,” confirms Kianyfard.
If you wish to receive more
information about the conference or register do contact Rik Teeuwen, Project
Manager at Solarplaza, tel. +31 10 280 9198 or email firstname.lastname@example.org