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Shabnam Mirsaeedi, MPhil, MPA Berlin Centre for Caspian Region Studies Freie Universität Berlin [email protected] www.fu-berlin.de/bccare

The Diversification of Electricity Generation in a System Dominated by Fossil Fuels

- the Case of Iran-

17th REFORM Group Meeting

Salzburg, August 30th 2012

Developing a Strategy for the Diversification of Electricity Generation through Renewable Energies in a System Dominated by Existing Fossil Fuels

2

Introduction

Problem description

Research question

Methodology

The theoretical approach: history matters

A historical overview of Iran’s energy sector

A historical overview of Iran’s electricity sector

The 5-year development plans: 1990-2010

1990-1995

1995-2000

2000-2005

2005-2010

Gas has dominated the electricity sector in Iran since the 1990s, only hydropower represents renewable energy sources in electricity generation

3

Electricity generation in Iran, by fuel GWh

Source: IEA Statistics

Research question and hypotheses

4

Research question

How has the energy sector dynamic shaped the use of renewable energy in electricity generation in Iran between 1990 and 2010? – How have national decisions on both the domestic market and Iranian decisions

on an international level shaped the policy cycle in promoting renewable energies in electricity generation in the country?

– What policy interdependencies can be identified between the fossil fuel and renewable energy sources for the purpose of electricity generation in Iran?

– How can renewable energy sources be promoted in a fossil fuel dominated society?

Hypotheses

External policy pressures seeking an isolation of Iran by undermining its oil sector have significantly influenced a policy of self-sustainability that in turn has encouraged the expansion of the renewable energy sources in the country.

Geopolitical concerns and limits have pushed Iran to engage in a strategy of regional dominance and influence,

which includes its electricity export in neighboring countries In spite of the Iranian government elite’s long-term interest in renewable energy sources, political power and

short-term interests have been hesitant to renewable energies

The interplay of oil, gas and renewable energy sources in Iran’s policies on both the domestic and international level is an integral part of its foreign policy

1

2

3

4

5

1990 first program

1995 second program

2000 third program

2005 fourth program

2010 fifth program

A policy analysis of each five-year development program, incl. problem definition, agenda setting, policy formulation, decision-making, implementation and evaluation

A development of an advocacy coalition model over this time period

Methodological framework

A policy cycle analysis for each five-year program period will enable an analysis of the evolution of policies, actors and processes


6

Introduction

Problem description

Research question

Methodology





1990-1995

1995-2000

2000-2005

2005-2010

7

Conceptual theoretical framework - components

Neo-classical realism

Handel internal vs external forces Path dependence The international system

The behavior of leaders can be shaped “internationally for domestic reasons or domestically for international purposes” and thus occurs at the intersection of these two spheres

when a state experiences an increase in relative material power, it eventually will lead to “a corresponding expansion in the ambition and scope of a country's foreign policy activity

Different states or even the same state at different times pursue particular strategies in the international arena that are shaped by both internal and external forces

“the scope and ambition of a country’s foreign policy is driven first and foremost by its place in the international system and specifically by its relative material power capabilities”

Consequences of an historic event or development that will affect potential outcomes of a sequences of events occurring after that event

One definition includes: why states at different times in history pursued the same or different strategy

leaves room for changes in political strategies – rather than being limited to one policy path

Source: Pierson (2000), Rose (1998), Lobell (2009)

Neo-classical realism has been chosen as a suitable theoretical perspective to capture both domestic and international influences on Iran’s energy policy

8

Historical evolution of the energy sector in Iran

First concession for natural resources including for coal, iron, copper an oil was given to Baron Julius de Reuter

The price was quite low and few years later Nasir-Din Shah sought to cancel the concession

The concession was replaced by a new concession giving Reuter the right to establish the Bank-e-Shahi

End of 19th century

The division of Iran into spheres of influence between Great Britain and Russia

60 year concession to William d‘Arcy and the creation of the Anglo-Persian Oil Company

Iran received only 16% of net profits

As the geopolitical importance of Iran grew, Britain started to be concerned with internal Iranian affairs

1900-1930s

Iran abrogated the oil concession and sought to negotiate a more beneficial new agreement (1933 agreement)

Limited to a smaller area, higher payments by Great Britain, no right for unilateral pipeline construction

Sought nationalization of the oil sector in 1951 and the Consortium Oil Agreement in 1954

1930s-1979

First efforts to decouple from oil revenues

Cancellation of the Consortium agreement and management of all oil activities by the National Iranian Oil Company

After the revolution

Historically, foreign exploitation and domestic dependence have shaped Iran’s energy policy – first changes have been observed in the mid-20th century

9

Overall research design

Research question

Oil Gas Renewable energies

Share of diesel is decreasing in electricity generation but still remains four times higher than that of wind energy

Cheapest energy source in the country Still an important export resource of

the country (compared to gas and renewable energies)

Strategic priority for domestic electricity generation and regional export

Small-scale approach, mostly in rural areas

Too expensive in comparison to other fossil fuels in electricity production

How has the energy sector dynamic shaped the use of renewable energy in electricity generation in Iran between 1990 and 2010?

Methodology: Policy Analysis

Theoretical perspective

Dynamics of three different energy sources

At the heart of the research design lies the analysis of the dynamics of fossil fuels and renewable energies in the electricity sector

10

Deputy of Legislation Support and

Parlament Affairs Tavanir Holding Company

Organizational chart of the

Ministry of Energy

(electricity affairs only)

Deputy of Energy and Electricity Iran Water Resource Management

Holding Company

Deputy of Water and Sewage Country Water and Sewage Company

Deputy of Research and Human

Resources

Power and Water University of

Technology

Deputy of Planning and Economic

Affairs Niroo Research Institute

Power & Water Industry Practical,

Application and Educational Institute

Power Research Institute

Organizational chart of the Minstry of Energy Structural changes

The Ministry of Energy (MoE) was established in 1974/75 to better coordinate energy activities (with the exception of oil and gas)

By June 2012, Iran had 400 power plants with a total installed electricity generation capacity of 61,000 MW (2010)

Until the mid-1990s, the electricity sector

in Iran was completely centralized and managed by the Ministry of Energy

In accordance with Amendment 12 of the

2002 Budget Act, the government seeks to increase private sector participation in currently centralized sectors, including the electricity sector

Source: Ministry of Energy and Tavanir Holding Company, Statistical report on 44 years of activities of Iran electric power industry (1967-2010), published in October 2011.

Centralized in essence, the electricity sector in Iran has undergone some important structural changes since the mid-1990s

The electricity sector

11

2007

196.078

93%

7%

2006

184.762

94%

6%

2005

170.631

96%

4%

2004

155.757

98%

2%

2003

142.889

98%

2%

2009

212.852

88%

12%

2002

131.447

98%

2%

2001

121.046

98%

2%

2000

112.803

98%

2%

1999

102.248

1998

93.406

1997

87.718

1996 2008 1995

76.134

1994

73.470

1993

67.929

1992

81.257

1991

56.742

1990

51.982

205.922

90%

10%

60.574

MOE non-MOE

Source: Ministry of Energy and Tavanir Holding Company, Statistical report on 44 years of Activities of Iran electric power industry (1967-2010), published in October 2011.

Start of privatization of some power

plants in the country

Net power generation in Iran (1990-2009) In GWh

Although privatization of power plants has been initiated, over 85% of net power generation is still controlled and managed by the Ministry of Energy

Almost 20 power plants have been

privatized

12

52% 52% 51% 51%43%

36%32%

54%

29%

1%

16%

2008

1%

16%

2005

39%

26%

18%

1%

16%

2004

41%

25%

19%

2001

40%

2%

7%

2000

52%

38%

2%

8%

1999

52%

38%

2%

8%

1998

38%

3%

8%

1997

50%

38%

3%

26%

24%

1%

17%

2007

34%

24%

24%

1%

17%

2006

27%

19%

5%

12%

1991

27%

6%

13%

1990

55%

27%

6%

13%

100%

2009

32%

22%

1%

14%

2003

42%

2%

13%

2002

47%

41%

2%

10% 9%

1996

36%

3%

9%

1995

53%

35%

3%

9%

1994

53%

34%

4%

10%

1993

33%

4%

11%

1992

53%

30%

Steam

Gas

Combined Cycle

Diesel

Hydro

Wind

Solar

Biogas

Source: Ministry of Energy and Tavanir Holding Company, Statistical report on 44 years of activities of Iran electric power industry (1967-2010), published in October 2011.

Nominal capacities of power plants of the Ministry of Energy in Iran, by source in percent, 1990-2009 In %

Steam and gas plants still remain the number resources for electricity generation in Iran – wind and solar have only contributed since 2005

Introduction of combined cycle

plants

13

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

6.000

5.000

4.000

3.000

2.000

1.000

0

Import

Export

2.068

6.152

1.684

3.875

1.842

2.520 2.541 2.775

2.084

2.759

2.074

2.761

500

2.500

1.500

6.500

4.500

3.500

5.500

Source: Energy Balance-Sheet Iran, 1990-2010

Electricity import vs. export in Iran, 1997-2009 In GWh

Since 2004, Iran has increasingly become a net electricity exporter with an exporting capacity of 4,084 GWh


14

Introduction

Problem description

Research question

Methodology





1990-1995

1995-2000

2000-2005

2005-2010

15

1990-1995

Source: Nasri, G. (2001). Oil and the National Security of the Islamic Republic of Iran ( ). Tehran: .

Budgeted 147 billion USD for its program, of which 103 billion USD were supposed to be generated through oil exports, 17 billion through non-petroleum exports and about 27 billion USD from foreign investments

Iranian assumptions for this period

Executive Order 12957 and 12959 that sought to ban U.S. trade with and investments in Iran as a response to Iran’s nuclear program and support for terrorist organizations were passed

Iran and Libya Sanctions Act that targeted U.S. and non- U.S. companies that invested over 20 million USD in the petroleum sector in Iran was passed

International developments

The country, however, was limited in its policy due to the fact that it could not surpass the exploration of more than 3.7 million barrels per day with its existing technology. Any increase in exploration would require significant investments – money that was (arguably) at that point not available in Iran

Domestic consequences

Within the first 5-year development plan, oil revenues were still an essential part of the program – international developments changed this reality

16

1995-2000

Recognition of the weakeness of a rentier state

Consequences of the previous period

Environmental movements (Agenda 21)

Kyoto Protocol Consequences of the US

sanction were apparent


In 1995, the Iranian Renewable Energy Agency was established to explore first alternatives to fossil fuel resources in the country

By 1995, substantial new gas explorations in the country were deemed a priority

The development of the first twelve projects at the South Pars site (the second set of projects in 1998)

It was decided in 1997 to replace when possible oil consumption with natural gas and develop gas exports to countries such as Turkey, Pakistan and India.

Domestic policies

Source: Nasri, G. (2001). Oil and the National Security of the Islamic Republic of Iran ( ). Tehran: .

Association for Economic Research ' '. (2007). Overview of the energy sector in the MENA region and the economic security of the Islamic Republic of Iran. Tehran: Association for Economic Research .

Self-sustainability interests and international policy changes endorsing environmental policies shaped much of the second 5-year development plan

17

2000-2005

Seeking to increase electricity independence from imports and increasing electricity export capacity


Environmental movements (Agenda 21)

Negotiations leading to the International Renewable Energy Agency (IRENA)

Consequences of sanctions


further emphasized the role of gas and renewable energies in the energy sector, but also sought to diversify the non-petroleum sectors of the economy

Energy efficiency measures were instituted on a policy level

Iran prepared itself for the numerous international decisions within the environmental sector

Geothermal research projects commenced

Domestic policies

Source: Abdolvand, B., Jalilvand, D., & Eskafi, F. (2012). Iran versus USA: Geburtswehen einer neuen Weltordnung. Welttrends Papiere, 6-45; Nasri, G. (2001). Oil and the National Security of the Islamic Republic of Iran ( ). Tehran: .

Decrease of energy consumption, diversification of energy sources and environmental interests became a priority in the third 5-year plan

18

2005-2010

Seeking to increase electricity independence from imports and increasing electricity export capacity


International Renewable Energy Agency (IRENA) was created

Further international pressures on Iran


Targets were set for wind and solar energy

It was decided to privatize distribution activities within the electricity sector, including customer services, diagnosis operations, designing systems, development and establishment, operation, consumption management, supervision, logistic services and distribution engineering

Development of feed-in-tariffs for renewable energies

By 2010, fossil fuel energy only contributed to 20% of the national

Domestic policies

Source: Abdolvand, B., Jalilvand, D., & Eskafi, F. (2012). Iran versus USA: Geburtswehen einer neuen Weltordnung. Welttrends Papiere, 6-45; Tavanir Holding Companz< Nasri, G. (2001). Oil and the National Security of the Islamic Republic of Iran ( ). Tehran: .

Expansion of renewable energy sources, energy efficiency and price increases were at the heart of the fourth 5-year development plan

19

Concluding remarks

The future of renewable energies in Iran – possibility or dream?

It is naive to consider renewable energy developments in Iran, or in any fossil fuel rich country, without considering fossil fuel interests in the analysis

As long as the energy sector remains significant, it will remain a political and

economic issue that forms the backbone of some of its foreign policy interests Although renewable energies are not likely to gain a significant share in Iran’s

energy sector in the near future, nonetheless, they present a strategic area of development in the country

Renewable energies are not really an environmental priority but currently more a tool to underline self-sufficiency aspirations, regional power aspirations and management of international developments in relevant sectors

Thank you very much for your attention!

Shabnam Mirsaeedi, Mphil, MPA

Research Fellow

Berlin Centre for Caspian Region Studies (BC CARE)

Freie Universität Berlin

Ihnestr. 22

D-14195 Berlin

Office: +49 (0)30 838 553 81

Fax: +49 (0)30 838 566 85

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E-Mail: [email protected]

Internet: www.fu-berlin.de/bccare

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