A new research note from Totaro & Associates explores possibilities for further cultivation of markets in Iran and Cuba given the geopolitical changes in our midst.
Although the U.S. congress has yet to ratify the nuclear deal, the rest of the civilized world seems to be largely onboard with it. While it is not strictly illegal for foreign companies to operate in Iran today, threatened sanctions from the U.S. could have put significant capital investments at risk, so investors were largely turned off. Once the nuclear deal is fully ratified and sanctions are lifted over time, expect to see reasonably an attractive market emerge.
From the standpoint of their market attractiveness, Iran currently has a power generation capacity of over 68 GW and a projected electricity growth of approximately 4 – 5 GW per year based on business and consumer demand. Significant investment is ongoing in transmission infrastructure with projected growth of 7 – 8% annually for the next few years.
Iran has a renewables potential estimated at 40 GW, with over 10 GW of solar and 30 GW of wind, surpassing previous estimates of 15 GW of wind only a few years ago. The Managing Director of the Iran Power Generation, Transmission and Distribution Management Company (TAVANIR) has publicly stated that Iran can expect to have 10% renewables penetration on the grid in the next 3 – 5 years.
Additionally, the Iranian Energy Minister in May of 2014 publicly acknowledged a government commitment of 5 GW of renewables with over 1 GW of projects signed. Iran already has over 200 wind turbines installed totaling 2.5 GW as of the end of 2014 based on information published by the government. Compared to about 120 MW total wind capacity in 2012, they have seen a tremendous increase in a very short time.
The mountainous regions along Iran’s northern borders offer the greatest wind resource potential with wind farms already active in Gilan and Khorasan Razavi provinces. Areas of high turbulence intensity along the western and southern coasts will make it challenging for turbine OEMs, but there is still possibility to make significant capacity additions there.
Domestic developers have already cropped up to pursue mostly onshore wind projects, but floating offshore wind turbines have been contemplated for powering Iran’s islands in the Strait of Hormuz according to the Head of National Institute for Oceanography of Iran.
With a feed in tariff (FiT) of about $0.15 per kWhr for projects starting in the next 4 years, it makes for a relatively competitive market. Given the current production levelized cost of energy (LCOE) for wind turbines there are excellent margins available for developers and turbine suppliers alike. There is a possibility of an extension to the FiT or ramp-down after the remaining 4 years of the original 5 year window closes.
The Renewable Energy Organization of Iran (SUNA), is planning to manufacture 2 MW turbines domestically, and they have publicly acknowledged the possibility of pursuing an export market to Azerbaijan and even India. Iranian conglomerate Mapna is also developing turbines based on technical assistance from FWT Trade (formerly Fuhrländer). Vestas has also previously licensed their older turbine designs to the Sadid Industrial Group based in Tehran.
Suzlon has been actively pursuing the market with a recently announced trip by Chairman Tulsi Tanti with several other OEMs already active there. Chinese trade officials have also made trips to Iran to discuss renewable energy development and both Windey and Guodian United Power have signed supply deals for Iran already.
With a significant desire to shed oil imports from Venezuela, Cuba has some domestic renewable resource potential to exploit. Known for solar heaters and very small sub-MW wind turbines, there is an opportunity to modernize their power generation infrastructure along with the rest of the country.
They presently sit at just 12 MW of wind production with only 4 active utility scale projects comprising 15 turbines. However, Cuba boasts over 9,300 small turbines installed in the country demonstrating that a residential market can potentially flourish.
Estimates of their wind potential have suggested upwards of 4 GW, but their current electricity consumption is approximately 6 GW according to reports published last year. The expectation is for electricity consumption to explode when business and tourism return, but estimates vary widely as to how much total electricity demand will be in 5 – 10 years at this point.
The northern coast of the central and eastern regions appear to offer the best onshore wind resource where the provinces of Holguín, Las Tunas and Ciego de Avila already have wind parks active or under development. Matanzas province on the western part of the island also has an active wind park. Offshore wind is certainly in abundance, but the cost competitiveness will need to be improved for this market segment to see any meaningful deployments.
Cuba has recently announced the development of 13 wind farms in support of an initiative to have 24% renewables penetration by 2030. Seven of those newly proposed projects have already received foreign investment commitments from Spain, Italy, France and China. The Cuban Minister of Energy and Mines has publicly stated the government is seeking $600 million to finance the 13 projects, presumably in a public-private partnership scheme.
Goldwind, which has installed turbines in the Gibara I and II wind parks in Holguín, has already signed deals in Cuba for over 50 MW and plans to continue pursuing the market. Given their recent interest in Brazil, one would presume they are targeting more export markets in Latin America.
Alstom and Vergnet round out the OEMs for the other projects previously installed there, but significant interest in importing more modern technology from the US, Brazil, Europe and China has already been expressed.
With export restrictions being relaxed it may be possible to get a license to sell or license technology to Iran and Cuba. While the terms have yet to be finalized on this aspect, there are several companies with orphaned technology and IP assets which would make domestic technology production in Iran or Cuba possible.
Totaro & Associates