Prioritization of Renewable Energy Resources to Participation of Private Sector Investment (Case study : Iran) Alireza Aslani(*), Marja Naaranoja
Erkki Antila
Feryal Aslani
Department of Production, Faculty of Technology University of Vaasa, Finland, (*)
[email protected]
Department of Electrical Eng. Faculty of Technology, University of Vaasa, Finland
Dept. of Information Tech, Faculty of Management, University of Tehran, Iran
Abstract This article focuses on private sector desires and concerns and tries to answer to one of the main questions of investors related to identifying the most important and investable renewable resource in Iran. The results are expressed by implementation of the Analytic Hierarchy Process model (AHP). Selection of best renewable source with simultaneous consideration of investor's criteria is the main result of the research. Keywords; Renewable Energy, Investment, Private Sector, AHP
1. Introduction Annual statistical reports show Iran has an inefficient structure in energy systems. While Iran was the third largest producer of natural gas in the world after United States and Russia in 2009, it had to even import gas for domestic consumptions in some years [1]. This demonstrates that Iran has faced with many challenges in optimal utilization of hydrocarbon’s energy resources. Due to the rich and diversified resources of renewable energies (RE) in Iran, one of the solutions can be exploitation and development of these potentials. Further, renewable energies (RE) provide a nearly unlimited supply of relatively clean and mostly local energy and considerable opportunities. While most of energy market in Iran is under dominance of government, it doesn’t mean that this market monopolize by public sector [6]. Following the Iranian governmental policy towards privatization of governmental enterprises and replacing RE resources for fossil fuels, private sector supporting has been emphasized in exploration, production, exploitation, and transmission of energy resources [2]. However, based on available statistics, only 38% of the goals of Iran's fourth national development plan in RE have been achieved [3]. Researches have shown reasons such as lack of dynamic strategic management teams, non- optimal utilization of human resources and etc. as some of the main obstacles of this gap [3]. As one of the important influencing factors on market and industrial development is governmental policies, to have the application of RE economically, the government should try to diffuse the exploitation of RE resources by private sector supporting pervasively. For instance, according to official statistics of Global Energy Organization, the share of private sector in generating of electrical energy is about
80% in the US [4]. Furthermore, about 75% of electricity sales to final customers are undertaken by private utilities in the US too [4]. Therefore, the cooperation of private sector in RE is a driver for promoting of this technology. Despite the beneficial future, including relatively short-term profitability in RE industry in Iran, domestics and international investors have still obscurities and concerns about entering and investing in this market. Since investors are committing their assets for sometimes when investing, they need to cover all aspects before making an investment decision. This means that there are important points which an investor wants to consider before investing to make a good and informed decision. This paper with an innovative glance, and focus on private sector desires in Iran, discusses about prioritization of the best RE resources for investment based on the identified prime criteria by using the analytic hierarchy process method (AHP). Due to the proved reliability and validity of this research, the results can be used for other countries with the same conditions in the Middle East, Asia and Africa too.
2.
Literature Review
The common renewable energy resources in Iran which have the commercial potential are: Solar, hydro power, wind energy, geothermal energy, and biomass. Regarding to situation of energy consumption in Iran, Iranian Energy Ministry, as a responsible organization for development and generation of electrical energy in Iran, commenced surveys and investments in the field of renewable energies (No 161299 on April 18, 2000, Ministry of Energy’s). This investment led to the establishment of an independent research organization belongs to the Ministry, named Renewable Energy Organization of Iran (SUNA) with help of World Bank [5]. 2.1 The Prime Criteria for Private Sector Participation in Renewable Energy Investment in Iran According to previous survey of researchers and based on private sector viewpoints seven criteria have been known as prime indexes for participation in RE investments in Iran (Figure1) [6]. These criteria were identified based on an extensive ground research, and classified in three main sections: politics and business, engineering, and
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environment. In following each of these factors are reviewed [6].
EPR is important for investor from customer's demands (market and consumer psychology), sustainability and possible future rules [6].
3. Research Methodology 3.1. Research Type and Strategy The research is sorted as an applied research insight of research result [8]. Identifying the best RE sources for private sector investment from five common RE sources (alternatives) is the cardinal purpose of this research. In this regard, the researchers used the Analytic Hierarchy Process (AHP) as one of the best and valid methods of multi-criteria decision making (MCDM) to evaluate, compare and rank alternatives [9]. 3.2. Empirical survey and implementation of AHP Figure 2 shows the decision problem of this research. This model represents in the form of a hierarchical structure.
Figure1. Identified criteria for investment in RE from private sector point of view [6] 2.1.1 Engineering Efficiency Index The first index is engineering efficiency of RE resources. According to researches, efficiency is one of the two core bases of sustainable energy policies in addition to renewable energy [6]. 2.1.2 Annual Exploitability Index One of the concerns of investors in commerce of a business is the period that a product or service can be efficiently exploited [6]. Hence, the investor’s awareness about the accessibility and annual exploitability of RE resources is an important factor to evaluate the sub-indices, such as investment return index, operation risk and etc. 2.1.3 Regional Distribution)
Energy
Potentials
(Geographical
From competitiveness viewpoint, energy resources are always considered as a constraint that may even endanger a business. Therefore, for renewable energies, larger number of regions in which renewable energy can be used would result in more attraction for investment from investors' point of view. 2.1.4 Finance Index This index is a financial measure that indicates the importance of required investment for each type of RE [6]. 2.1.5 Consumption Market and Market Divisions The possibility of activity in different markets with defined investment is one of the interests of investors. End User markets are desirable because they provide more advantage compare to mediator markets for suppliers [7]. 2.1.6 Conformity Government
with
Supportive
Policies
of
This factor is to identify the supportive governmental policies for investing on RE [6]. 2.1.7 EPR
Figure 2.AHP model for selection of proper RE source 3.3. Data collection Two different questionnaires for two statistical populations were designed. The first one was related to pairwise comparisons of the seven criteria, and the second one was for pairwise comparisons of alternatives (RE sources) among the criteria (seven matrix). The first group of responders were domestic investors, especially who active or intend to invest in energy industry in Iran. 31 samples from 14 companies were selected randomly and through two methods of video conference and phone interview, and email, the questionnaire was distributed. The second group of responders was energy and power experts, researchers and professionals in energy sector. They are working in the ministry of energy and related departments to energy in universities in Iran. The reason for this selection is related to the high level of knowledge in the fields of energy, and renewable sources that a responder needs to compare pairwise resources in each criteria. This professional awareness is important point that an investor doesn't have about RE sources in each criteria. Hence, the reliability of the research would be improved. The number
of selected experts for second questionnaire is 35 with minimum master degree in energy, environment or related majors. In second questionnaire the researchers asked respondents to compare the priority of each couple of RE sources in each seven criteria. So it is included seven pairwise comparisons tables. 3.4. Data analysis Expert Choice11 software has been used to analyze questionnaires based on AHP model. The first result is the weights of criteria (fig.3).
Efficiency
Annual Exploitability
Regional Potentials
0.3 0.25 0.2 0.15 0.1 0.05 0
Finance
EPR
Supportive Policies
Consumption Market
4. Conclusion Constraints, hazards, and environmental adverse impacts of fossil fuels and nuclear energy are the most significant reasons for scientific attention into sustainable energy development. Because of specific geographical location, Iran enjoys a high potential of renewable energies. In spite of abundant competence of alternative resources in Iran, renewable energy development is considered sluggish due to excessive concentration on fossil resources. To economize the renewable energy utilization, it is required to be competitive and subsequently non-governmental. Participation of private sector as a stimulating engine is therefore economically essential. Nevertheless, according to researches, private sector is permanently cautious to invest particularly in new industries. In this article, with focus on private sector investment, and based on previous researches on prime criteria for diffusion of investment in RE amongst private sector, the important resources were ranked. Therefore, the solar energy was known as the best RE source for private investment. Due to geographical situation, solar energy has a good potential for investment in Iran. Also a wide diversity of applications for solar energy in cleaner productions cause this source would be attractive for investment. Therefore, the governmental policies should encourage this energy more for exploitation and lunching. Since there are few investigations and manufacturers who are working in solar energy technology in Iran and Middle East, the results of this paper would be useful for further researches.
Figure3. The prioritization of criteria It is evident that the market division has a contribution of 27.7% to the goal as a most important factor, whereas the EPR contributes the less important with 4.2% to the goal. Final ranking of RE resources are shown in table1. As the table indicates, with consideration to investment criteria, the RE source with the highest level of conformity with investors' expectations in Iran is “Solar Energy”. It contributes with 28, 9% (0.289) to the goal. After solar energy, the "Wind Energy" is in the second rank (0.207). Table1.Final priority results
5. Resources [1] BP Statistical Review of World Energy, June 2010 , http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/ reports_and_publications/statistical_energy_review_2008/STAGING/loca l_assets/2010_downloads/statistical_review_of_world_energy_full_report _2010.pdf; [24, October, 2011]. [2] Parliament of Iran, The Fourth and Fifth National Development Plan (2007 to 2011, 2011 t0 2015), Available in http://parliran.ir/index.aspx?siteid=1&siteid=1&pageid=3362; [1, November, 2011]. [3] Fadai D, Esfandabadi ZSh, Analyzing the Causes of nonDevelopment of Renewable Energy-Related industries in Iran, Renewable and Sustainable Energy Reviews Journal, Vol 15; 2011. [4] Timothy J. Brennan, Karen L. Palmer, Salvador A. Martinez: Alternating Currents. Electricity Markets and Public Policy, Resources for the Future, Washington D.C.; 2002.
Rank
Renewable energy source
1
Solar
[5] Iran Renewable Energy Organization http://www.suna.org.ir/home-en.html; [11, November, 2011].
2
Wind
[6] Aslani A, Naaranoja M, Zakeri B, The Prime Criteria for Private Sector Participation in Renewable Energy Investment in the Middle East , Renewable and Sustainable Energy Reviews Journal, Elsevier, December; 2011.
3
Hydropower
4
Geothermal
5
Biomass
(SUNA),
[7] Atabi F, Renewable energy in Iran: Challenges and opportunities for sustainable development, International Journal of Environmental Science & Technology, Vol. 1, No. 1, pp. 69- 80 ; 2004. [8] Sarmad Z, The Research Method in behavioral Science, Aghah pub, Tehran; 2009. [9] Saaty TLPeniwati K, Group Decision Making: Drawing out and Reconciling Differences. Pittsburgh, Pennsylvania, RWS Publications, USA; 2008.
