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Irrefutably, energy transition has recently gathered momentum thanks to the Paris Agreement and renewable energy (RE) falling costs. However, unlocking the full socio-economic potential of energy transition requires encouraging Foreign Direct Investment (FDI) in developing countries where energy demand and the risk of stranded assets are growing. Encouraging FDI in developing countries necessitates addressing two highly controversial issues: measuring political risk and carrying out proper valuation of long-term RE investments. In this regard, current paper investigates the rationale behind classic risk-adjusted discount rate (RADR) approach. It finds that since RADR requires heuristics, it may lead to misrepresentation of real worth of RE projects in developing countries. Addressing this issue, the paper offers a hybrid method based on risk pricing which can incorporate political risk into valuation straightforwardly. The hybrid method is applied to a photovoltaic case in Iran. Surprisingly, while the analysis based on classic RADR approach indicates that the investment is not financially viable, the hybrid analysis demonstrates attractive return on the investment. This can contribute to unlocking a considerable annual amount of 270 TWh solar power in Iran. The empirical study also shows that the suitable rate to discount RE investments in Iran is 10.22%. • Foreign Direct Investment can create a game-changing shift in energy market. • Risks should be reflected in cash flow instead of discount rate. • Sovereign spread is not a good proxy for political risk. • An alternative approach to value renewable energy investments is proposed. • The method can unlock investment in renewables in developing counties. [ABSTRACT FROM AUTHOR]

Abstract This paper investigates the potential of renewable energies utilization in detail through three in-house developed strategies to increase the renewable power generation share until the year 2050 assuming either an optimistic 100% or a practical 50% based on the national policies. Solar, wind, and waste energy are the most feasible alternative energy resources in Iran. In the first strategy, power plants are phased out according to their lifetime and replaced by renewable resources in 5-year time steps. The second strategy employs a 3% replacement rate to reach a 100% renewable power generation in 2050. In the third strategy, the national plan of the power ministry is utilized to adopt a more practical pathway for increasing the renewable power generation share up to 50%. Pollution and water shortage crises are also considered within the framework of this study. The following work can lay the foundation for future studies of its kind in Iran as well as other countries all over the world. Developing the presented results can lead to the practical implementation of the study, which will vastly benefit the residents. Moreover, it will provide a great investment opportunity for foreign and domestic companies working on the field. Highlights • Approach applied to renewable penetration in the power system of Iran. • Three strategies are proposed for transition to 100% renewable. • The storage cost for three scenarios for the year 2050 are calculated. • The storage problem was addressed for various regions of the country. [ABSTRACT FROM AUTHOR]