Navigating Iran’s up-and-coming solar market
Italian conglomerate Carlo Maresca SpA has become one of the first international investors to sign a solar offtake agreement with Iranian authorities. Stefano Falconio, head of foreign development, shares key lessons the group has acquired in this market.
Carlo Maresca, an Italian company active in real estate, tourism and renewable energy, signed a power purchase agreement (PPA) last December with the Renewable Energy Organization of Iran (SUNA).
The agreement pertains to a 10 MW PV power plant that will be constructed in the free zone island of Qeshm.
“We have obtained all the permits for the 10 MW project and signed the PPA. We will start construction before the next summer,” said Stefano Falconio.
The company also plans to develop a 100 MW PV power plant 200 km away from Tehran. Having secured the construction permit for the project, it is currently applying for the environmental permit, grid-connection permit, and land lease contract. Once these are obtained, the PPA can be signed.
Carlo Maresca originally planned to develop a 80 MW and a 50 MW PV project in Iran. However, when the government decreased the feed-in-tariffs (FiTs) by 30% in March 2016, the developer opted to start with a small-scale plant followed by a larger one.
“We are talking with SACE and SIMEST in order to find a solution to secure the non-payment risk by the local utility, as SUNA’s PPA is not covered by sovereign warrantees,” said Falconio.
“In presence of this kind of security, Maresca Group will evaluate the potential of investing in full equity in the Qeshm project. In parallel, we are also talking with Iranian banks to assess the possibility of a local loan,” he added.
As Italy's export credit agency, SACE supports Italian trade and investments worldwide, providing a range of insurance and financial products and services for companies at home and internationally.
SIMEST on the other hand is a financial institution set up by Italy’s investment bank Cassa Depositi e Prestiti to promote Italian enterprises abroad.
“Whilst initially challenging, Iran’s renewable energy market offers a host of incentives for developers who are willing to take some risk.”
Whilst initially challenging, Iran’s renewable energy market offers a host of incentives for developers who are willing to take some risk.
One is the feed-in-tariff. 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.
However, obtaining project permits in Qeshm is difficult because vacant land is limited and very expensive. Moreover, despite the abundance of solar radiation, the island’s high temperature could cause some reduction in PV power output.
That said, Qeshm offers financial and logistic advantages being a free trade zone. “We weighed up the pros and cons and felt that the advantages outweighed the disadvantages,” said Falconio.
“Iran could potentially deliver an internal rate of return of 10% to 15% on the project.”
As an independent power producer, Carlo Maresca will be handling the turnkey development of the Qeshm project, from engineering and construction to operation and maintenance as it has already done in Italy.
To date, the group has invested more than 150 million euros in Italy through 23 solar power plants and two wind farms with a total production of 55 million kWh by solar and 42 million KWh by wind.
Falconio advises developers entering Iran to find a reliable local consultant who can follow up on the procedures and a Farsi translator to help explain legal documentation.
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.
Carlo Maresca is currently evaluating the expected return on investment, which is difficult to determine given the lack of clarity in some areas, such as capital duty outside of free zones.
“Iran could potentially deliver an internal rate of return (IRR) of 10% to 15% on the project,” said Falconio. However, this IRR could decrease after calculating the cost of the warranty, which will be issued by a third party to cover the ‘non-energy payment’ by the local utility.
Solarplaza is preparing a second Renewable Energy Trade Mission to Iran, set to take place from 17 to 21 September 2017. Visit our website to learn more about the successful first trade mission in October 2016 and sign up to receive updates on developments in the Iranian market and our activities therein.