The recent presidential election and the negotiations over the Joint Comprehensive Plan of Action in Vienna have again focused attention on Iran’s nuclear program and the impact of any resolution with the United States on its oil exports. There is more to this country of 83 million people than uranium and hydrocarbons, though. The country’s renewable energy potential is sizeable and underdeveloped, and it provides an opportunity for more fruitful international cooperation.

Iran’s energy sector presents some curious paradoxes. Given its vast resource endowment, including the world’s second-largest natural gas reserves of 1,131 trillion cubic feet, it is, not surprisingly, very dependent on oil and gas. Yet, a mostly arid or semiarid country, it also has the region’s largest hydropower generation after Turkey. It has expended enormous efforts and diplomatic capital since the 1970s, under both the shah and the Islamic Republic, to develop nuclear power generation, yet this makes up just 2% of its electricity generation. Some of its neighbors, such as the United Arab Emirates, Saudi Arabia, and Qatar, have achieved the world’s lowest solar power generation costs, but Iran, despite having among the world’s best solar conditions and in places strong winds, has done very little in the “modern” renewables.

This state of affairs is the result of a blend of national strategies, opportunities, and institutional interests. Iran’s large population (which grew rapidly during the 1980s), statist economic orientation driven by hydrocarbon earnings, policies of domestic industrialization, and purported support for lower-income groups via subsidized energy, taken together, have made domestic energy consumption soar. Meeting demand and avoiding severe shortages was a challenging task under the monarchy, when Iran’s gas reserves appeared much lower. Imminent depletion of the country’s oil was a genuine concern, with reserves projected – mistakenly, as it turns out – to have been exhausted within 27 years at the peak production level reached in 1974.

The Atomic Energy Organization of Iran was set up in 1974, with an annual budget of $1.3 billion (more than any public institution outside the oil industry), as an engine of modernization. A large nuclear generating capacity of 23 gigawatts was planned – when the country’s total generation was only 14 GW – via cooperation with West Germany, France, and the United States. Iran acquired a 10% stake in the Eurodif uranium enrichment consortium in France and construction of the Bushehr nuclear plant began under a forerunner of Siemens. However, following the 1979 Iranian Revolution, the nuclear program fell into abeyance, with work halting in 1979 when Iran stopped making payments, and the site was damaged in Iraqi air raids in 1984, as part of the 1980-88 Iran-Iraq War.  In the eventual legal settlement over Eurodif in 1991, Iran lost its rights to enriched uranium from the facility.

As the economy recovered following the war, the discovery in 1990 that Qatar’s North Field gas reserves extended into Iranian waters changed the picture. The development of what became the world’s largest gas field – South Pars on the Iranian side – and Iran’s huge and expanding gas reserves led to a lively debate on how this gas should be used, including to: supply homes for heating and cooking, substitute oil in power generation, build up domestic industry, reinject into aging oil fields to boost recovery, or be exported. But demand rose so quickly that production could hardly keep up, particularly in the 2000s as U.S. and U.N. sanctions tightened, pushing Iran to rely on local companies for field development. The Islamic Revolutionary Guard Corps’ construction arm, Khatam al-Anbia, was one of these, particularly under the presidency of Mahmoud Ahmadinejad and his fourth oil minister, Rostam Qasemi, a member of the IRGC himself. Other than to Turkey, and recently Iraq, most of the ambitious gas export schemes did not materialize. Sales to Turkey were frequently interrupted in winter when Iran retained gas for home heating.

Most recently, after the long-delayed completion of most phases of South Pars, gas production capacity did expand to match demand, oil was displaced in power generation, and phases of subsidy reform did help slow rampant consumption. However, beginning in late 2018, sanctions imposed by the administration of former President Donald J. Trump prevented Iran from selling associated condensate (a light oil byproduct of gas production). With storage space filling up, demand soaring during summer heat waves, and hydroelectric output in 2020 and 2021 hit by drought, Iran again suffered from shortages that led it to cut off electricity and gas exports to Iraq. Power cuts were also blamed on energy-intensive mining of cryptocurrencies, such as Bitcoin, though this is only a partial contributor to the problem.

To supplement gas, Iran has turned to nuclear, hydropower, and, to a much lesser extent, wind, solar, and geothermal projects.

The nuclear power program was revived after the Iran-Iraq War ended and domestic electricity demand grew with reconstruction. In 1990, the decision was made to resume construction on Bushehr, and work on the nuclear reactor picked up again in 1995 with Russian contractors. This, however, faced further U.S. opposition – the administration of former president Bill Clinton in 1998 pressured Ukraine not to sell turbines for use at Bushehr on the grounds that Iran had sufficient oil and gas for domestic power. The reactor finally began commercial operations in September 2013. There has been a string of announcements of further plants to be built by Russian, Chinese, or local firms, but apart from the slow start of work on a second Bushehr reactor, none have made significant progress. Part of Iran’s justification for its uranium enrichment activities is the need to secure fuel supplies, because of the Eurodif experience and mistrust of any international guarantees. But fuel for Bushehr is provided by Russia, and Iran still does not have the ability to manufacture usable fuel rods itself. In March, an Iranian nuclear official raised concerns that plant operations could stop because U.S. sanctions prevented Iran from securing parts from Russia. In June, Bushehr did shut down for an “overhaul” for unknown reasons.

Therefore, some 40 years have elapsed, about 22 of them spent in active work on nuclear efforts, at a direct cost in current prices of about $11 billion, to provide 1 GW of generating capacity in a total fleet of all generating types (gas, oil, hydroelectric, and others) of about 99 GW. Despite Iran’s acknowledged right to civil nuclear power under the Non-Proliferation Treaty, which it ratified in 1970, and the obstacles placed in its way by war and sanctions, it is hard to argue its nuclear power program has been a good use of time and money. Iran’s persistence is explained by a desire for self-sufficiency, a strong domestic nuclear lobby, and the pursuit of nuclear power as a perceived modern technology and symbol of national achievement over foreign opposition.

Hydropower, less internationally controversial, has been more successful. The International Renewable Energy Agency assesses Iran’s installed capacity at over 13 GW. Hydropower generated 9% of the country’s electricity in 2019, a good year for rainfall, but less in 2018 and 2020. Rural communities, usually seen as part of the regime’s core support, and their local members of parliament have lobbied for domestic dam construction to provide power, water, and employment. Khatam al-Anbia has benefited from numerous contracts and has on occasion elbowed aside foreign companies, such as a Chinese firm building the Bakhtiari Dam in Lorestan in 2012. These dams have been criticized for poor siting and construction, corrupt skimming of budgets, and exacerbating Iran’s growing water shortage, interrupting flows to downstream users, including in neighboring Iraq. President Hassan Rouhani’s administration, about to reach its end, quietly brought a near halt to dam construction.

Iran’s Installed Low-Carbon Generation Capacity

Meanwhile, other renewable generation – solar, wind, and geothermal – has languished despite Iran’s excellent resources and domestic engineering prowess and even with the sharp improvements in recent years in renewables’ cost and performance. By 2020, the country had installed capacity of just 303 megawatts of wind and 414 MW of solar and one small geothermal pilot. There has been a definite acceleration since 2015, but this capacity remains tiny compared to demand and the capacity of regional neighbors such as Jordan, a small state that had 1,359 MW of solar capacity as of 2020, or the UAE, with 2,539 MW. As compared to Abu Dhabi’s largest solar plant with 2 GW of capacity, Iran’s are small, averaging 9 MW each.

Solar and Wind Annual Capacity Additions, Iran and Other Middle East Countries

This slow progress in renewables has been due to sanctions (which have deterred European and Asian investors), unattractive investment terms, and a lack of financial capacity of domestic firms, limiting the size of projects they can take on. Chinese firms have continued to work on solar projects near Qom and the central city of Yazd but have also been rather cautious. Subsidized electricity and natural gas make installation of distributed solar unattractive. There is no strong institutional owner, with responsibility and budgets dispersed among several government bodies, as well as turf wars between the Ministry of Energy (which deals with electricity) and Ministry of Environment. And the IRGC has shown little interest in renewables, perhaps seeing less opportunity for large projects and rent seeking.

The implications of the election of Ebrahim Raisi as president and the talks on the JCPOA remain to be seen. But, assuming the current strict sanctions are lifted, the United States and the rest of the international community should encourage renewable energy development outside of hydropower, particularly by local private and foreign players. It would undercut narratives that the West is out to prevent Iran’s advancement and forward the world’s growing low-carbon agenda. This, at least, is one area for Tehran, Washington, Brussels, and Beijing all to find a common interest.