Iran ranks among the world’s top ten oil and gas producers, with hydrocarbon revenues underpinning its economy. However, domestic energy consumption has surged—driven by population growth and energy‑intensive subsidies—straining export capacity and exacerbating air pollution. In response, successive development plans have mandated renewable deployment and energy efficiency, aiming to diversify the energy mix, bolster energy security, and reduce greenhouse gas emissions.
Current Energy Mix and Renewable Share
As of 2024, Iran’s power generation remains dominated by gas‑fired thermal plants, which account for over 85% of electricity output. Renewables—including hydro, wind, solar, biomass, and waste‑to‑energy—contribute under 1% of the total mix, well below the government’s 2025 interim goal of 5 GW cumulative renewable capacity (jpia.princeton.edu)(IEA).
Capacity Additions and Government Targets
Under its Sixth Five‑Year Development Plan (2016–2021) and extending into the current plan, Iran has committed to installing 5,000 MW of new renewable capacity by 2025. SATBA (the Renewable Energy and Energy Efficiency Organization) reports that national projects under development total approximately 4,500 MW, spanning solar PV, wind farms, and small hydro schemes (Verified Market Research).
- Solar PV: High insolation (2,000–3,000 kWh/m²‑year) has attracted significant solar tendering in central and eastern provinces. By summer 2025, the government expects to commission an additional 500 MW of utility‑scale solar parks to alleviate peak‑load shortages (PVKnowhow).
- Wind Energy: Iran’s extensive wind corridors—particularly in Manjil, Khaf, and Sistan regions—offer over 20,000 MW of feasible capacity. Existing wind farms total around 300 MW, with plans to reach 1,000 MW by 2025 through public–private partnerships (iran.un.org).
- Other Renewables: Biomass, geothermal, and small hydro projects remain nascent, collectively contributing under 100 MW but targeted for expansion under green financing schemes.
Policy, Regulation, and Incentives
To mobilize investment, Iran has implemented:
- Feed‑in Tariffs (FiTs): Generous, long‑term FiTs for wind and solar (ranging from $0.05 to $0.08/kWh) guarantee project revenues.
- Low‑Interest Loans: State banks extend discounted loans (6–9% interest) for renewable projects, often backed by SATBA guarantees.
- Foreign Investment Frameworks: While the 2015 JCPOA briefly unlocked foreign financing, re‑imposed sanctions since 2018 have curtailed international capital inflows, forcing developers to rely on domestic equity and engineering–procurement–construction (EPC) contractors.
Despite policy support, bureaucratic permitting delays and grid‑connection bottlenecks have slowed project commissioning, with only half of awarded tenders reaching financial close within one year.
Resource Potential and Technology Options
Iran’s geography affords diverse clean energy resources:
- Solar: Over 300 sunny days per year, with gross solar potential estimated at 60,000 MW of PV capacity (Verified Market Research). Rooftop solar and distributed generation initiatives are poised to tap residential and commercial rooftops.
- Wind: Measured wind speeds averaging 7–9 m/s in key zones support medium‑to‑large turbine installations. Theoretical wind potential exceeds 20,000 MW, though grid absorption remains a constraint (iran.un.org).
- Biomass & Waste‑to‑Energy: Agricultural residues and municipal waste combine for over 19 million tonnes annually, representing more than 1,500 MW of conversion potential if fully harnessed (Paparazzi Buzz).
- Geothermal & Hydro: Preliminary surveys identify several low‑enthalpy geothermal sites and small rivers suited to micro‑hydropower, but financing and technical expertise gaps have delayed uptake.
Investment Landscape and Market Growth
In 2022, the Iranian renewable energy market generated approximately USD 7.2 billion in revenue. Despite sanctions, the sector has attracted a 15.4% CAGR from 2018–2022 and is projected to reach USD 22.7 billion by 2030 (Grand View Research). Domestic EPC firms and equipment manufacturers have expanded operations, reducing reliance on imported modules and turbines. Nonetheless, foreign direct investment remains suppressed, and payback periods for project developers stretch beyond 10 years, challenging capital‑scarce stakeholders.
Regional Role and Export Potential
While Iran lags regional leaders like Saudi Arabia and the UAE in utility‑scale renewables, it holds strategic advantages:
- Grid Interconnections: Plans to link with neighboring power pools (Turkey, Iraq, Turkmenistan) could enable electricity exports, leveraging seasonal renewable surpluses.
- Hydrogen & Ammonia: Abundant solar/wind could drive green hydrogen production for domestic industrial use and export via ammonia, positioning Iran as a Middle Eastern green‑fuel hub.
- Technology Transfer: Collaboration opportunities with China and Russia—unaffected by U.S. sanctions—offer pathways for joint renewable ventures and expertise sharing.
Challenges and Barriers
Key obstacles to Iran’s clean energy ambitions include:
- International Sanctions: Restrict access to Western financing, high‑efficiency equipment, and global capital markets.
- Subsidized Fossil Fuels: Natural gas and electricity subsidies (estimated at over USD 40 billion/year) undercut the economic competitiveness of renewables.
- Grid Limitations: Aging transmission infrastructure and limited balancing capacity constrain variable renewable integration, leading to curtailment risks.
- Water Scarcity: Competes with thermal plants for scarce water resources, heightening the appeal of dry‑cooling and renewable alternatives but raising project complexity.
Case Studies
- Shahrekord Wind Farm (Chaharmahal‐Bakhtiari): A 50 MW wind project completed in 2023, achieved with 70% local content, demonstrating EPC capacity and local turbine assembly.
- Sirjan Solar Park (Kerman Province): A 100 MW PV plant, financed through a blend of domestic bonds and concessional loans, now supplying over 200 GWh/year to the national grid.
- Tehran Rooftop Programs: Public–private schemes have installed 50 MW of distributed PV on schools and municipal buildings, advancing urban solar adoption.
Outlook and Recommendations
To accelerate its clean energy transition, Iran should:
- Phase Down Fossil Subsidies: Gradual subsidy reform can level the playing field for renewables and improve fiscal sustainability.
- Enable Private Sector Engagement: Streamlining permitting, enhancing grid access, and offering competitive auctions will attract domestic and sanctioned‑friendly foreign investors.
- Invest in Grid Modernization: Upgrading transmission lines, deploying smart‑grid technologies, and expanding storage will reduce curtailments and improve reliability.
- Leverage Regional Partnerships: Joint ventures in hydrogen, green ammonia, and cross‑border electricity markets can unlock new revenue streams.
By addressing policy, infrastructure, and financing barriers, Iran can transform its vast renewable potential into a meaningful share of its energy mix—bolstering energy security, mitigating environmental impacts, and reclaiming a leading regional role in the global clean energy landscape.
