Iran: Wind growth to stall on sanctions legacy

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Richard Heap
February 5, 2016
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Iran: Wind growth to stall on sanctions legacy

Growth in wind energy in Iran is set to stall before it even starts.

On 17 January, international sanctions against the Middle Eastern nation were lifted after a nuclear watchdog confirmed that the country has scaled back its nuclear programme. The decision has unfrozen $100bn of Iran’s assets and means that it can now export oil. It also means that those living in countries in Europe, Asia and North America are free to invest in Iran and trade with it again.

This has been celebrated in Iran, and the country's president Hassan Rouhani has been in France and Italy trying to drum up business. In the wind sector, the relaxation of sanctions has led to countries including Denmark, Germany and Spain all expressing an interest in supporting the growth of wind energy in Iran, which is looking for 5GW of wind and solar projects by 2018.

Businesses such as Suzlon, among others, have also expressed an interest in the country's promising wind sector.

But here’s the catch. The development of a wind sector in Iran is likely to be slow and may not happen at all. We are already seeing the European Union and US mulling new sanctions.

This means that the current relaxation of sanctions against Iran is not guaranteed to make wind investments in the country safe. Let’s say a wind developer were to start work on a project in the country today. It would still need to gain funding, buy turbines, find external contractors and then sell the completed scheme. At each of these stages it has to complete new deals — but there is no guarantee that sanctions will remain lifted for the next few years.

It would, therefore, take a brave investor to start work on a wind farm in Iran at this time. Will many firms want to take the risk of starting a project in a country only to find that fresh sanctions have made it impossible for them to buy the turbines they want? That affects the viability of the projects, the returns they can get from it, and ultimately how much they can sell it on for.

In short, disruptions like that can turn the financial framework of a new wind farm on its head and jeopardise any future development.

And there is a very real prospect of sanctions being reintroduced. France and the US are concerned about recent missile tests, which critics say show that Iran still harbours plans to build nuclear weapons. Iran said the tests were peaceful — but, even if they are, they are already doing damage to a fragile truce.

The other difficulty for wind developers and investors focused on Iran is that their enthusiasm for the country may not be shared by banks and other financial institutions. Western banks quit Iran after sanctions were imposed in 2012 and it will take time to encourage those businesses back. This will make it harder for developers to secure the debt they need to build schemes.

Likewise, many Western export credit agencies have left the country, and these can be a key source of funds as well as peace of mind for suppliers selling products in emerging markets. The guarantees they provide can make the difference between a supplier going ahead with a deal and deciding to back out.

This is, of course, hugely frustrating for Iranians who hoped that the relaxation of sanctions would end years of isolation and kickstart a golden era of growth in Iran. Sadly for them, years of mistrust will take years to heal — if, indeed, they are to heal at all.

For most wind companies in the sector, we think, Iran will remain a case of ‘wait and see’.

Growth in wind energy in Iran is set to stall before it even starts.

On 17 January, international sanctions against the Middle Eastern nation were lifted after a nuclear watchdog confirmed that the country has scaled back its nuclear programme. The decision has unfrozen $100bn of Iran’s assets and means that it can now export oil. It also means that those living in countries in Europe, Asia and North America are free to invest in Iran and trade with it again.

This has been celebrated in Iran, and the country's president Hassan Rouhani has been in France and Italy trying to drum up business. In the wind sector, the relaxation of sanctions has led to countries including Denmark, Germany and Spain all expressing an interest in supporting the growth of wind energy in Iran, which is looking for 5GW of wind and solar projects by 2018.

Businesses such as Suzlon, among others, have also expressed an interest in the country's promising wind sector.

But here’s the catch. The development of a wind sector in Iran is likely to be slow and may not happen at all. We are already seeing the European Union and US mulling new sanctions.

This means that the current relaxation of sanctions against Iran is not guaranteed to make wind investments in the country safe. Let’s say a wind developer were to start work on a project in the country today. It would still need to gain funding, buy turbines, find external contractors and then sell the completed scheme. At each of these stages it has to complete new deals — but there is no guarantee that sanctions will remain lifted for the next few years.

It would, therefore, take a brave investor to start work on a wind farm in Iran at this time. Will many firms want to take the risk of starting a project in a country only to find that fresh sanctions have made it impossible for them to buy the turbines they want? That affects the viability of the projects, the returns they can get from it, and ultimately how much they can sell it on for.

In short, disruptions like that can turn the financial framework of a new wind farm on its head and jeopardise any future development.

And there is a very real prospect of sanctions being reintroduced. France and the US are concerned about recent missile tests, which critics say show that Iran still harbours plans to build nuclear weapons. Iran said the tests were peaceful — but, even if they are, they are already doing damage to a fragile truce.

The other difficulty for wind developers and investors focused on Iran is that their enthusiasm for the country may not be shared by banks and other financial institutions. Western banks quit Iran after sanctions were imposed in 2012 and it will take time to encourage those businesses back. This will make it harder for developers to secure the debt they need to build schemes.

Likewise, many Western export credit agencies have left the country, and these can be a key source of funds as well as peace of mind for suppliers selling products in emerging markets. The guarantees they provide can make the difference between a supplier going ahead with a deal and deciding to back out.

This is, of course, hugely frustrating for Iranians who hoped that the relaxation of sanctions would end years of isolation and kickstart a golden era of growth in Iran. Sadly for them, years of mistrust will take years to heal — if, indeed, they are to heal at all.

For most wind companies in the sector, we think, Iran will remain a case of ‘wait and see’.

Growth in wind energy in Iran is set to stall before it even starts.

On 17 January, international sanctions against the Middle Eastern nation were lifted after a nuclear watchdog confirmed that the country has scaled back its nuclear programme. The decision has unfrozen $100bn of Iran’s assets and means that it can now export oil. It also means that those living in countries in Europe, Asia and North America are free to invest in Iran and trade with it again.

This has been celebrated in Iran, and the country's president Hassan Rouhani has been in France and Italy trying to drum up business. In the wind sector, the relaxation of sanctions has led to countries including Denmark, Germany and Spain all expressing an interest in supporting the growth of wind energy in Iran, which is looking for 5GW of wind and solar projects by 2018.

Businesses such as Suzlon, among others, have also expressed an interest in the country's promising wind sector.

But here’s the catch. The development of a wind sector in Iran is likely to be slow and may not happen at all. We are already seeing the European Union and US mulling new sanctions.

This means that the current relaxation of sanctions against Iran is not guaranteed to make wind investments in the country safe. Let’s say a wind developer were to start work on a project in the country today. It would still need to gain funding, buy turbines, find external contractors and then sell the completed scheme. At each of these stages it has to complete new deals — but there is no guarantee that sanctions will remain lifted for the next few years.

It would, therefore, take a brave investor to start work on a wind farm in Iran at this time. Will many firms want to take the risk of starting a project in a country only to find that fresh sanctions have made it impossible for them to buy the turbines they want? That affects the viability of the projects, the returns they can get from it, and ultimately how much they can sell it on for.

In short, disruptions like that can turn the financial framework of a new wind farm on its head and jeopardise any future development.

And there is a very real prospect of sanctions being reintroduced. France and the US are concerned about recent missile tests, which critics say show that Iran still harbours plans to build nuclear weapons. Iran said the tests were peaceful — but, even if they are, they are already doing damage to a fragile truce.

The other difficulty for wind developers and investors focused on Iran is that their enthusiasm for the country may not be shared by banks and other financial institutions. Western banks quit Iran after sanctions were imposed in 2012 and it will take time to encourage those businesses back. This will make it harder for developers to secure the debt they need to build schemes.

Likewise, many Western export credit agencies have left the country, and these can be a key source of funds as well as peace of mind for suppliers selling products in emerging markets. The guarantees they provide can make the difference between a supplier going ahead with a deal and deciding to back out.

This is, of course, hugely frustrating for Iranians who hoped that the relaxation of sanctions would end years of isolation and kickstart a golden era of growth in Iran. Sadly for them, years of mistrust will take years to heal — if, indeed, they are to heal at all.

For most wind companies in the sector, we think, Iran will remain a case of ‘wait and see’.

Growth in wind energy in Iran is set to stall before it even starts.

On 17 January, international sanctions against the Middle Eastern nation were lifted after a nuclear watchdog confirmed that the country has scaled back its nuclear programme. The decision has unfrozen $100bn of Iran’s assets and means that it can now export oil. It also means that those living in countries in Europe, Asia and North America are free to invest in Iran and trade with it again.

This has been celebrated in Iran, and the country's president Hassan Rouhani has been in France and Italy trying to drum up business. In the wind sector, the relaxation of sanctions has led to countries including Denmark, Germany and Spain all expressing an interest in supporting the growth of wind energy in Iran, which is looking for 5GW of wind and solar projects by 2018.

Businesses such as Suzlon, among others, have also expressed an interest in the country's promising wind sector.

But here’s the catch. The development of a wind sector in Iran is likely to be slow and may not happen at all. We are already seeing the European Union and US mulling new sanctions.

This means that the current relaxation of sanctions against Iran is not guaranteed to make wind investments in the country safe. Let’s say a wind developer were to start work on a project in the country today. It would still need to gain funding, buy turbines, find external contractors and then sell the completed scheme. At each of these stages it has to complete new deals — but there is no guarantee that sanctions will remain lifted for the next few years.

It would, therefore, take a brave investor to start work on a wind farm in Iran at this time. Will many firms want to take the risk of starting a project in a country only to find that fresh sanctions have made it impossible for them to buy the turbines they want? That affects the viability of the projects, the returns they can get from it, and ultimately how much they can sell it on for.

In short, disruptions like that can turn the financial framework of a new wind farm on its head and jeopardise any future development.

And there is a very real prospect of sanctions being reintroduced. France and the US are concerned about recent missile tests, which critics say show that Iran still harbours plans to build nuclear weapons. Iran said the tests were peaceful — but, even if they are, they are already doing damage to a fragile truce.

The other difficulty for wind developers and investors focused on Iran is that their enthusiasm for the country may not be shared by banks and other financial institutions. Western banks quit Iran after sanctions were imposed in 2012 and it will take time to encourage those businesses back. This will make it harder for developers to secure the debt they need to build schemes.

Likewise, many Western export credit agencies have left the country, and these can be a key source of funds as well as peace of mind for suppliers selling products in emerging markets. The guarantees they provide can make the difference between a supplier going ahead with a deal and deciding to back out.

This is, of course, hugely frustrating for Iranians who hoped that the relaxation of sanctions would end years of isolation and kickstart a golden era of growth in Iran. Sadly for them, years of mistrust will take years to heal — if, indeed, they are to heal at all.

For most wind companies in the sector, we think, Iran will remain a case of ‘wait and see’.

Growth in wind energy in Iran is set to stall before it even starts.

On 17 January, international sanctions against the Middle Eastern nation were lifted after a nuclear watchdog confirmed that the country has scaled back its nuclear programme. The decision has unfrozen $100bn of Iran’s assets and means that it can now export oil. It also means that those living in countries in Europe, Asia and North America are free to invest in Iran and trade with it again.

This has been celebrated in Iran, and the country's president Hassan Rouhani has been in France and Italy trying to drum up business. In the wind sector, the relaxation of sanctions has led to countries including Denmark, Germany and Spain all expressing an interest in supporting the growth of wind energy in Iran, which is looking for 5GW of wind and solar projects by 2018.

Businesses such as Suzlon, among others, have also expressed an interest in the country's promising wind sector.

But here’s the catch. The development of a wind sector in Iran is likely to be slow and may not happen at all. We are already seeing the European Union and US mulling new sanctions.

This means that the current relaxation of sanctions against Iran is not guaranteed to make wind investments in the country safe. Let’s say a wind developer were to start work on a project in the country today. It would still need to gain funding, buy turbines, find external contractors and then sell the completed scheme. At each of these stages it has to complete new deals — but there is no guarantee that sanctions will remain lifted for the next few years.

It would, therefore, take a brave investor to start work on a wind farm in Iran at this time. Will many firms want to take the risk of starting a project in a country only to find that fresh sanctions have made it impossible for them to buy the turbines they want? That affects the viability of the projects, the returns they can get from it, and ultimately how much they can sell it on for.

In short, disruptions like that can turn the financial framework of a new wind farm on its head and jeopardise any future development.

And there is a very real prospect of sanctions being reintroduced. France and the US are concerned about recent missile tests, which critics say show that Iran still harbours plans to build nuclear weapons. Iran said the tests were peaceful — but, even if they are, they are already doing damage to a fragile truce.

The other difficulty for wind developers and investors focused on Iran is that their enthusiasm for the country may not be shared by banks and other financial institutions. Western banks quit Iran after sanctions were imposed in 2012 and it will take time to encourage those businesses back. This will make it harder for developers to secure the debt they need to build schemes.

Likewise, many Western export credit agencies have left the country, and these can be a key source of funds as well as peace of mind for suppliers selling products in emerging markets. The guarantees they provide can make the difference between a supplier going ahead with a deal and deciding to back out.

This is, of course, hugely frustrating for Iranians who hoped that the relaxation of sanctions would end years of isolation and kickstart a golden era of growth in Iran. Sadly for them, years of mistrust will take years to heal — if, indeed, they are to heal at all.

For most wind companies in the sector, we think, Iran will remain a case of ‘wait and see’.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.