Iran – Foreign investments in Renewable Energy Sector

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When one thinks about Iran energy resources, immediately come to mind the fossil fuels resources – such as oil and gas – that characterize Iran’s economy. But Iran has also a great potential in the field of renewable energies – such as wind, solar, biomass and geothermal energy – which makes the Asian country one of the most interesting for the energy sector.

The strategic plan of Iran for the energy sector provides for the optimization of fossil fuels exploitation and the improvement of renewable energy production, in order to satisfy the growing need to energy in the country.

In this short post r we will see how foreign investors can apply to the Organization of Renewable Energy of Iran to obtain the permits needed, build renewable energy plants and obtain the preferential rates promoted by the Iranian Government.

In fact, according to recent laws and regulations, the Organization of Renewable Energy of Iran (SUNA) – under auspices of Energy Ministry of Iran – purchases the electric energy from investors through a Power Purchase Agreement (PPA). PPA establishes new feed-in tariffs for a period that recently has been increased from 5 to 20 years. It also should be noted that feed-in tariffs differ by power plant technology type and will be annually adjusted, without altering the contracts already in force.

The Procedure for Project Registration

As a first step of the procedure, foreign investors need to submit an application for project registration to SUNA. As only Iranian legal entities are allowed to apply, foreign investors need to incorporate a company under Iranian law, the shares of which may also be wholly owned by foreign investors (read here my post on setting up a company in Iran). Alternatively, foreign investors may purchase shares of existing Iranian companies, which would be the applicant of the registration.

After verifying compliance with the necessary requirements, the construction permit will be issued. It is noteworthy that the foreign investor holding the permit is not allowed to transfer more than 25% of its shares.

Afterwards, foreign investors need to acquire three different licenses: the Environmental permit, the Grid Connection permit and the Land permit. These permits shall be obtained within six months from the construction permit. If the applicant has obtained 2 of 3 permits at the expiry of the period, this  might be extended.

Only after obtaining the said three permits, the foreign investors may conclude the Power Purchase Agreement with SUNA and start the construction of the power plant.

Please note also that in order to benefit from the abovementioned tariffs, Bio Mass, Geothermal and Micro Hydro power plants have to reach commercial operation within 30 months. This period is reduced to – respectively – 24 and 15 months for Wind Farms and Solar power plants. If these periods have passed before starting of the commercial operation, the then-current feed-in tariffs would apply.

Notwithstanding these challenges, Iran is one of the most attractive markets of renewable energies, with vast resources of renewable energies and supporting governmental policies.

It is evident that establishing a power plant requires different legal stages aimed, mainly but not only, to obtain the essential licenses/permits by complying with State regulation. Accordingly, it is of utmost importance to get in touch with Iranian lawyers specialized in this field, in order to have a comprehensive consultancy, which leads the investor from the pre-investment analysis to the construction of the energy plant.

Encyeh Sadr
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