The nuclear agreement concluded between the EU+3 and Iran, if implemented, would buy ten years for the international community to devise a more sustainable solution to the security dilemma Iran’s nuclear program presents, after which the agreement’s safeguards would begin to expire. There is, in principle, no reason why the agreement could not be extended but whether Iran would recognize it as in its best interest to accept this or whether other countries in the region could be dissuaded from acquiring matching capabilities are open questions.
In any case, Western governments should use the next ten years to shape Iran’s calculus in part by pursuing renewable energy partnerships that would counter the narrative of Iranian hardliners who have railed against the West for decades for its supposed determination to hinder Iran’s technological progress. Although this narrative is one-sided and to some degree self-fulfilling in that it neglects to consider how the Islamic Republic’s own behavior has contributed to its international isolation, more should be done to demonstrate that it is a misperception.
One of Iran’s ostensible motives for pursuing a nuclear program is to diversify its electricity generation portfolio and free up domestically consumed oil and gas resources for export. (Iran, from 1997 to 2009, was a net importer of natural gas and has since at least 1980 imported an increasing amount of coal, according to US Energy Information Administration data.) The West can help Iran fulfill this goal by offering renewable energy R&D partnerships, financial support for joint ventures, and even aiding the development of a renewable energy industry in Iran that would have an interest in competing for market share with other power generation industries, including its nuclear industry.
The comparative economics of nuclear versus solar power in particular may already be in favor of solar in much of Iran, based on data from Iran’s Renewable Energy Organization and analysis from Bloomberg New Energy Finance, Fraunhofer ISE, et al.1 Incorporating energy storage technologies—essential to the provision of base load power that otherwise makes nuclear superior to renewables—increases the upfront cost of renewables, but over the long term can result in lower overall costs.
The two most critical variables determining whether renewable power projects are economically rational for governments to pursue are technology costs and financing costs. The latter depend in part on the level of political risk—based on an assessment of a foreign government’s ability and willingness to adhere to or enforce contract terms—which can be mitigated through political risk insurance, government-backed loan guarantees, etc. Costs associated with political risk will be higher in Iran, offsetting or negating cost reductions related to the country’s abundant solar energy potential, for example.
By offering renewable energy companies that are interested in doing business in Iran access to such instruments, Western governments would be able to potentially mobilize tens of billions of dollars of capital directed toward the construction of renewable power projects as well as the diplomatic capital needed to advance toward détente.
US government entities such as the Department of Energy and Overseas Private Investment Corporation (OPIC)—which already has the capacity to mobilize billions of dollars in private capital with a net return to the US economy—would be well placed to facilitate such an initiative at the White House’s direction. If US or Iranian domestic political constraints prevented the US from taking a direct role in this, however—a short-sighted perspective, in this analyst’s view—the current or next administration might find more political space to work through multilateral entities such as the International Energy Agency, the World Bank Group, and the International Renewable Energy Agency (IRENA).
Sections 32 and 33 of the Iran nuclear agreement pledge that “EU and EU+3 countries and international participants will engage in joint projects with Iran… in the field of peaceful nuclear technology, including nuclear power plants…. The E3/EU+3 and Iran will agree on steps to ensure Iran’s access in areas of trade, technology, finance and energy. The EU will… consider the use of available instruments such as export credits to facilitate trade, project financing and investment in Iran.”
These clauses encouragingly indicate that the political will to welcome Iran back into the fold already exists, albeit with greater domestic consensus within EU member states than within the United States. Although Western governments should be willing to offer partnership on singularly peaceful nuclear technology applications, these governments would be wise to maximize economic incentives in favor of renewables in an effort to dissuade Iran from resuming movement toward an effectively imminent nuclear weapons breakout capability at the expiration of critical clauses of the nuclear agreement in ten years. If this does not occur, the international community will likely find itself in a more precarious security position than it was by the end of the Ahmadinejad administration’s provocative tenure.
It should be emphasized that regional security issues—Iraq, Syria, Israel-Palestine, and Yemen—will almost certainly sustain mutual threat perceptions between the United States and Iran in particular and hinder movement toward détente. Renewable energy cooperation could help to improve US-Iran relations, however, and open political space for more candid and honest debates on these sensitive policy issues, in contrast to the current dynamic of self-righteous demonization, misinformed accusation, and/or cynical disinformation. Policy shifts by both sides will be necessary on each of these issues but the first step is for each side to deconstruct perceptions of fundamental and implacable hostility that have kept the United States and Iran locked in a zero-sum paradigm. With some political courage, poise, and tenacity, positive sum solutions can be found.
Thomas Buonomo is a geopolitical risk analyst with Stratas Advisors. He has a specialization in US foreign policy in the Middle East and US-Iran relations. The views expressed in this article are his own and do not represent those of Stratas Advisors.
1 H1 2015 Global LCOE Outlook: “Solar continues its cost decline.” Bloomberg New Energy Finance, March 13, 2015, pages 3-4, 9, 11-13.
How BNEF specifically calculates levelized cost of electricity (LCOE) is proprietary but it is a commonly used framework for comparing costs between different sources of electricity production. According to IEA, “The LCOE represents the present value of the total cost (overnight capital cost, fuel cost, fixed and variable operation and maintenance costs, and financing costs) of building and operating a generating plant over an assumed financial life and duty cycle, converted to equal annual payments, given an assumed utilization, and expressed in terms of real money to remove inflation.”
Technology Roadmap: Solar Thermal Electricity. IEA, 2014. Page 17.
Recent Facts about Photovoltaics in Germany. Fraunhofer ISE, 7 January 2015. Page 32.
Ch. Breyer & Jurgen Schmid. Population Density and Area Weighted Solar Irradiation: Global Overview on Solar Resource Conditions for Fixed Tilted, 1-Axis, and 2-Axes PV Systems. September 2010.
Current and Future Cost of Photovoltaics: Long-term Scenarios for Market Development, System Prices and LCOE of Utility-Scale PV Systems. Fraunhofer ISE, 24 February 2015.Page 55, 62, 65.
Laura El-Katiri. “The GCC and the Nuclear Question.” The Oxford Institute for Energy Studies, December 2012. Page 4.