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UK firm makes major solar investment in Iran

Mena / 20-09-17 / by
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Solar Power Station

A UK firm is entering the Iranian solar energy market with a commitment to invest more than €600mn into what will be one of the largest solar plants in the world.

Quercus – a UK-based renewable energy investment firm – is today (September 21) announcing the launch of a 600MW solar photovoltaic plant in the central region of Iran. It is one of the largest single investments in the country’s energy sector by a UK firm since the lifting of international sanctions in 2016.

The project is a result of a framework agreement between Quercus and Iran’s ministry of energy, which was signed in late-July and which gives the UK firm the responsibility for the construction, development and operation of the plant.

Speaking to GTR, Reza Shaybani, board director at Quercus, says the company is now in the pre-development phase, which will include the signing of EPC contracts and raising of funds. It will also lead to the decision on a final location for the plant, with potential sites being in the Kerman, Yazd and Fars provinces of Iran. A construction permit and power-purchase agreement is expected to be signed later in the year.

The first phase of the construction is expected to start in January or February next year and will last for three years. In order to mitigate construction and investment risk, the project will be developed in six phases, with the construction of one fully operational 100MW standalone lot every six months.

The project represents Quercus’ first investment outside of Europe, a decision that came as a result of significant interest from its existing investors, who were keen to tap into the huge Middle Eastern economy.

“As subsidies and the number of opportunities in the European markets are decreasing, there are a lot of investors who are looking for new investment opportunities,” Shaybani says. “This made us look at various countries in the Middle East, and we felt Iran is the most stable country with an 80 million-plus population, a growing economy and a committed government. So we decided this is a very unique opportunity to enter the market. Hopefully this will not be the last project in Iran.”

The final level of investment into the project is still to be agreed, but according to Shaybani it will amount to more than €600mn. The financing will be raised in three rounds – the first is expected to reach closure within the next four to six weeks.

“We have very serious commitments already from a number parties,” he says, adding that interested investors range from pension funds to banks to high-net-worth individuals and include both European investors as well as Iranians in and outside of Iran.

 

UKEF support

Shaybani says Quercus is also in talks with various export credit agencies (ECAs), including those in Sweden, Finland, Italy, Korea and China. It has received interest from UK Export Finance (UKEF) too, although the ECA is not currently able to provide support for Iranian projects, Shaybani explains.

“We are hoping and pushing for UKEF to be able to support this project at some point – maybe not during the first phase but in the future. The biggest problem with the UKEF is not that they don’t want to support us but that it has to be done through a UKEF-approved bank, and all the banks that are approved by the UKEF are not doing any business with Iran.”

The project will give a boost to Iranian imports at a tough time for the country’s economy. Trade has been slow to pick up after the partial lifting of international sanctions last January, following the implementation of the Joint Comprehensive Plan of Action (JCPOA), also known as the Iran nuclear deal.

Still today, many foreign investors are cautious about entering the Iranian market, and large European banks have refused to facilitate any Iranian business, for fear of falling foul of the US sanctions that remain in place.

Speaking at the launch of the project, Iran’s ambassador to the UK, Hamid Baeidinejad, said the Quercus agreement represents a significant step forward for Iranian trade relationship with the UK and Europe.

“It represents a good example of international co-operation and provides an important opportunity for Iran and European countries and companies. The fact that European companies are rushing to Iran for agreements in different industries shows that they do not believe at all that failure of the JCPOA is an option,” he said.

When completed, he added, the solar plant will be the sixth-largest in the world.

Quercus will also be launching a new specialist team based in Dubai and Tehran to help deliver the project on the ground.

The solar plant is part of Iran’s Sixth Development Plan, which aims to install 5GW of new renewable energy capacity by 2020 (5% of total generation). The country is an obvious location for solar energy as it enjoys 300 sunny days a year.

According to a statement by Quercus, the Iranian government offers an attractive regulatory and legislative environment for renewable energy investment, including a feed-in tariff that is increased by up to 30% if local equipment and components are used and tax holidays if the plant is located in underdeveloped areas. The government has also introduced guaranteed 20-year power purchase agreements that offer developers an attractive fixed price for electricity produced from renewables.

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