Iran deal confusion highlights risks for investors

It was never going to be easy for wind companies to enter Iran.

International sanctions against Iran were lifted in January after a nuclear watchdog confirmed the Middle Eastern nation had scaled back its nuclear plans. This prompted wind firms from Europe and beyond to visit Iran and look at ways to help the government hit a target, revealed in 2014, of 5GW wind and solar by 2018.

That target looks too ambitious. Iran has only 200MW of renewable energy capacity, which represents 0.3% of total power generation. But, with potential for 35GW-40GW of wind according to some technical advisors, there still looks to be a great opportunity in the market if investors can find opportunities and are brave enough.

The government is also planning to launch a tender for up to 1GW of wind farms. This follows the launch by the Renewable Energy Organisation of Iran (Suna) in May 2015 of feed-in tariffs to give developers and investors greater certainty. A lot of developers have been buying up potential sites in anticipation of a boom.

But profiting in Iranian renewables will not be as easy for investors.

For example, last month Swiss firm Meci Group International said it had signed a deal with the Iranian government to build a 270MW €750m project in the north of the country, and is set to complete it by mid-2017. The company revealed on 21 September that it had signed a series of power purchase deals with the government.

Not so, says renewable energy body Suna.

This week, Suna’s deputy in charge of planning and development Jafar Mohamadnejad Sigaroudi, said that the organisation had not signed any deal with Meci; and that he was not aware that any deal had been signed with the Ministry of Energy either. The Ministry of Economic Affairs & Finance has remained silent.

Sigaroudi said that Suna had held over 150 formal meetings with foreign companies, mainly from Asia and Europe, that are keen to get into Iranian renewables. He said it was possible that Meci had been in contact with Suna, but no contracts were signed.

So far, investors have focused on the threat that western nations could reintroduce sanctions against Iran, and the impact that would have on the viability of schemes.

But the confusion over Meci’s planned 270MW project shows that companies will face challenges with securing all of the necessary approvals needed for projects, or even knowing if their scheme has been approved.

It makes little sense that responsibility for approving schemes including wind farms should fall between Suna and the Ministry of Energy. Developers will need clarity if they are to do business.

And even if developers get approval for their schemes, financing will be an issue. Law firm Eversheds has warned that international banks will be wary about entering the Iranian market because of uncertainty about the future of sanctions regimes.

Meanwhile, local banks have very limited experience with financing projects like wind farms. This means the first group of projects are likely to be 100% equity financed.

Jean-Pascal Boutin, partner at Eversheds and head of its energy regulatory team, warned there will be “limited financing available” and “limited engagement” from overseas banks. Therefore, even if developers get certainty from the government that their projects have been approved, they will still need to secure financial backing from what looks like being a small pool of investors.

And that will stay the case until Iran looks like a stable investment proposition – or until investors are at least relatively comfortable with the instability that remains. There is still potential for investors in Iran. But it is clear that this will not be an easy ride.

It was never going to be easy for wind companies to enter Iran.

International sanctions against Iran were lifted in January after a nuclear watchdog confirmed the Middle Eastern nation had scaled back its nuclear plans. This prompted wind firms from Europe and beyond to visit Iran and look at ways to help the government hit a target, revealed in 2014, of 5GW wind and solar by 2018.

That target looks too ambitious. Iran has only 200MW of renewable energy capacity, which represents 0.3% of total power generation. But, with potential for 35GW-40GW of wind according to some technical advisors, there still looks to be a great opportunity in the market if investors can find opportunities and are brave enough.

The government is also planning to launch a tender for up to 1GW of wind farms. This follows the launch by the Renewable Energy Organisation of Iran (Suna) in May 2015 of feed-in tariffs to give developers and investors greater certainty. A lot of developers have been buying up potential sites in anticipation of a boom.

But profiting in Iranian renewables will not be as easy for investors.

For example, last month Swiss firm Meci Group International said it had signed a deal with the Iranian government to build a 270MW €750m project in the north of the country, and is set to complete it by mid-2017. The company revealed on 21 September that it had signed a series of power purchase deals with the government.

Not so, says renewable energy body Suna.

This week, Suna’s deputy in charge of planning and development Jafar Mohamadnejad Sigaroudi, said that the organisation had not signed any deal with Meci; and that he was not aware that any deal had been signed with the Ministry of Energy either. The Ministry of Economic Affairs & Finance has remained silent.

Sigaroudi said that Suna had held over 150 formal meetings with foreign companies, mainly from Asia and Europe, that are keen to get into Iranian renewables. He said it was possible that Meci had been in contact with Suna, but no contracts were signed.

So far, investors have focused on the threat that western nations could reintroduce sanctions against Iran, and the impact that would have on the viability of schemes.

But the confusion over Meci’s planned 270MW project shows that companies will face challenges with securing all of the necessary approvals needed for projects, or even knowing if their scheme has been approved.

It makes little sense that responsibility for approving schemes including wind farms should fall between Suna and the Ministry of Energy. Developers will need clarity if they are to do business.

And even if developers get approval for their schemes, financing will be an issue. Law firm Eversheds has warned that international banks will be wary about entering the Iranian market because of uncertainty about the future of sanctions regimes.

Meanwhile, local banks have very limited experience with financing projects like wind farms. This means the first group of projects are likely to be 100% equity financed.

Jean-Pascal Boutin, partner at Eversheds and head of its energy regulatory team, warned there will be “limited financing available” and “limited engagement” from overseas banks. Therefore, even if developers get certainty from the government that their projects have been approved, they will still need to secure financial backing from what looks like being a small pool of investors.

And that will stay the case until Iran looks like a stable investment proposition – or until investors are at least relatively comfortable with the instability that remains. There is still potential for investors in Iran. But it is clear that this will not be an easy ride.

It was never going to be easy for wind companies to enter Iran.

International sanctions against Iran were lifted in January after a nuclear watchdog confirmed the Middle Eastern nation had scaled back its nuclear plans. This prompted wind firms from Europe and beyond to visit Iran and look at ways to help the government hit a target, revealed in 2014, of 5GW wind and solar by 2018.

That target looks too ambitious. Iran has only 200MW of renewable energy capacity, which represents 0.3% of total power generation. But, with potential for 35GW-40GW of wind according to some technical advisors, there still looks to be a great opportunity in the market if investors can find opportunities and are brave enough.

The government is also planning to launch a tender for up to 1GW of wind farms. This follows the launch by the Renewable Energy Organisation of Iran (Suna) in May 2015 of feed-in tariffs to give developers and investors greater certainty. A lot of developers have been buying up potential sites in anticipation of a boom.

But profiting in Iranian renewables will not be as easy for investors.

For example, last month Swiss firm Meci Group International said it had signed a deal with the Iranian government to build a 270MW €750m project in the north of the country, and is set to complete it by mid-2017. The company revealed on 21 September that it had signed a series of power purchase deals with the government.

Not so, says renewable energy body Suna.

This week, Suna’s deputy in charge of planning and development Jafar Mohamadnejad Sigaroudi, said that the organisation had not signed any deal with Meci; and that he was not aware that any deal had been signed with the Ministry of Energy either. The Ministry of Economic Affairs & Finance has remained silent.

Sigaroudi said that Suna had held over 150 formal meetings with foreign companies, mainly from Asia and Europe, that are keen to get into Iranian renewables. He said it was possible that Meci had been in contact with Suna, but no contracts were signed.

So far, investors have focused on the threat that western nations could reintroduce sanctions against Iran, and the impact that would have on the viability of schemes.

But the confusion over Meci’s planned 270MW project shows that companies will face challenges with securing all of the necessary approvals needed for projects, or even knowing if their scheme has been approved.

It makes little sense that responsibility for approving schemes including wind farms should fall between Suna and the Ministry of Energy. Developers will need clarity if they are to do business.

And even if developers get approval for their schemes, financing will be an issue. Law firm Eversheds has warned that international banks will be wary about entering the Iranian market because of uncertainty about the future of sanctions regimes.

Meanwhile, local banks have very limited experience with financing projects like wind farms. This means the first group of projects are likely to be 100% equity financed.

Jean-Pascal Boutin, partner at Eversheds and head of its energy regulatory team, warned there will be “limited financing available” and “limited engagement” from overseas banks. Therefore, even if developers get certainty from the government that their projects have been approved, they will still need to secure financial backing from what looks like being a small pool of investors.

And that will stay the case until Iran looks like a stable investment proposition – or until investors are at least relatively comfortable with the instability that remains. There is still potential for investors in Iran. But it is clear that this will not be an easy ride.