Carlo Maresca, an Italian conglomerate active in real estate, tourism, and renewable energy, signed a power purchase agreement (PPA) last December with the Renewable Energy Organization of Iran (SUNA).
Under the Iran-Italian agreement, a 10 MW PV power plant will be constructed in the free zone island of Qeshm, located in the Strait of Hormuz on the southern coast of Iran. Construction of the mega-project is to start before the next summer, according to Stefano Falconio, head of foreign development at Carlo Maresca.
In addition to the 10 MW project, plans on developing a 100 MW PV power plant 200 km away from Tehran is also being underway. The company has secured the construction permit for the project and is currently applying for the environmental permit, grid-connection permit, and land lease contract. Once all these are obtained, the PPA can be signed.
Whilst initially challenging, Iran’s renewable energy market offers an array of incentives for developers who are willing to take some risk. In March 2016, Iran’s feed-in-tariffs (FiTs) decreased by 30%, making many solar players reluctant to enter the market. However, experts estimate the subsidies will remain attractive despite the reductions, provided effective financial instruments are implemented.
Erika Welch, Business Development Director of Solidiance, an Asia-focused management consulting firm comments, “as this is a new market, the companies going in are likely to be pioneers”. She added, “while there are certain risks involved, many businesses are confident that with the price offered, it is worthwhile building systems in Iran”.
Feed-in-tarrifs for solar power plants with a capacity of up to 10 MW receive 14 euro cents/kWh; those between 10 MW and 30 MW receive 11 euro cents/kWh, and projects 30 MW or higher are eligible for 9 euro cents/kWh.
Falconio notes that in order for the process to run smoothly, talks are being made with SACE and SIMEST about non-payment risks, as SUNA’s PPA is not covered by sovereign warrantees. “We are also talking with Iranian banks to assess the possibility of a local loan,” he disclosed.
SACE is Italy’s export credit agency and supports Italian trade and investments worldwide. The company provides a range of insurance and financial products and services for local and international businesses.
Meanwhile, SIMEST is a financial institution set up by Italy’s investment bank Cassa Depositi e Prestiti to promote Italian enterprises abroad.
Despite the fact that obtaining project permits in Qeshm is difficult because vacant land is limited and very expensive, the area offers financial and logistic advantages being a free trade zone. Falconio admits that after weighing up the pros and cons, the company felt that the advantages outweighed the disadvantages.
“Renewable energy developers plan on entering the Iranian market are advised to find a reliable local consultant who can follow up on the procedures and a Farsi translator to help explain legal documentation”,Falconio points out.
Newcomers should also be present in Iran once or twice a month to monitor the process step by step and show their seriousness in doing business in the country.
