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 Despite its focus on the development hydrocarbon sector, Iranian lawmakers have prioritized the reduction of CO2 emissions and the development of renewable energy resources as key goals within the framework of the fifth five-year development plan - with a target of 5000 MW of installed capacity from renewable power plants in the short term. In the long term, the Iranian Government (the "Government") hopes to increase the nominal capacity of all power plants from 74 GW to over 120 GW by the end of 2025, in which a portion is determined to be derived from renewable resources.

In order to drive the country's growth in this sector, the Renewable Energy Organization of Iran (SUNA) was established in 1996 to evaluate the county's renewable energy potential, to implement renewable energy projects, and to guarantee the purchase of any electricity generated in order to attract private sectors' participation in this field. Today, SUNA is a company affiliated to the Ministry of Energy and tasked with all matters related to renewable energy.

The Government is now seeking to capitalize on its vast potential by bringing in further private investment and is therefore offering substantial incentives for such private investors. SUNA provides power purchase agreement (PPA) model to be entered into with the private investor which guarantees electricity purchase for 20 years. The investor has the option to sell the electricity within the country to third parties, on the energy exchange market or any other method acceptable to the Ministry of Energy.

Even though the model PPA needs certain improvements to ensure its bankability and in particular the incorporation of robust change in law provisions, arbitration as the dispute resolution mechanism, and indemnification in case of early termination, it still constitutes an important step towards understanding the international market. SUNA recently adjusted the guaranteed electricity purchase tariffs as follows:

 

Development of the renewable energy project in Iran

Even though SUNA is making impressive efforts to facilitate and standardize the development of renewable energy projects, there are currently limited precedents available. According to the officials and based on the few projects that do exist, the development of a renewable energy project is undertaken as follows:

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Protection of foreign investments:

Subject to the satisfaction of the conditions set therein, the foreign investor developing a renewable energy project may enjoy certain protections provided under the Foreign Investment Promotion and Protection Act ("FIPPA") which is the main legislation for the protection of foreign investments. In accordance with FIPPA, foreign investors are defined as non-Iranian natural and/or legal persons or Iranians using capital with foreign origin, who have obtained the FIPPA investment license.

Issuance of the investment license is subject to fulfillment of the requirement that the foreign investment should contribute to economic growth, upgrade technology, enhance the quality of products, and contribute to an increase in employment, opportunities and exports.

Foreign investments fulfilling the criteria set out in the FIPPA are guaranteed the same rights, protections and facilities as those available to local investments. Protection against expropriation or nationalization is guaranteed, unless in the "public interest", by means of a due legal process, in a non-discriminatory manner and in exchange for payment of appropriate compensation on the basis of real value of the investment immediately before the expropriation decision is taken.

The profit derived from the foreign investment can be transferred abroad after deduction of taxes, dues and statutory reserves and upon the approval of the Foreign Investment Board and confirmation of the Minister of Economic Affairs and Finance. Furthermore, the issue of entry visas, residence and work permits for foreign personnel is facilitated by the FIPPA.

Any disputes arising between the Government and foreign investors in relation to their mutual obligations under FIPPA are subject to the jurisdiction of Iranian courts, unless another dispute resolution mechanism is available through a bilateral investment treaty with the relevant government of the home jurisdiction of the foreign investor.