Decarbonization and green finance as a catalyst for improving energy efficiency: a practical case study in Iran for repowering steam power plants.

The energy sector is recognized as the largest contributor to carbon emissions in Iran. Decarbonization strategies are urgently required, with particular attention being paid to energy efficiency upgrades in legacy steam power plants through repowering. While the expansion of renewable energy is widely discussed in global green transition dialogues, the role of efficiency improvements has been comparatively underfunded and overlooked. A financially viable case study is presented in this research to address the stagnation caused by financial constraints and outdated infrastructure. A gas turbine repowering model for existing steam plants is examined, where thermal efficiency is enhanced through waste heat recovery by integrating new and existing systems. Three key findings are revealed through financial modeling: (1) project profitability is increased by approximately 0.35% for each 1% reduction in interest rates, (2) bankability is significantly improved through optimized equity-debt structures, and (3) after the gas-saving incentive expires, the project remains technically beneficial (fuel and emission savings persist), but its private financial viability becomes more sensitive to regulated electricity tariffs and policy mechanisms that determine how efficiency gains are monetized. These findings are considered instrumental in addressing investor risk perceptions and policy barriers. It is demonstrated that targeted green finance instruments, including concessional loans and guarantees, could be employed to unlock capital for efficiency projects. Moreover, the inclusion of 2.5 million credits for a 10-year period significantly enhances the project’s financial viability, increasing the NPV to 2.5 times that of the base case and doubling the IRR. Unlike variable renewable energy sources, repowered plants are shown to provide grid-stable, baseload energy savings, making them a practical foundation for Iran’s energy transition. A dual-track policy approach is proposed: private-sector participation is to be incentivized through risk-mitigation tools, while international climate finance is to be directed toward scalable repowering initiatives. By quantifying both financial and emissions impacts, a replicable framework is provided for emerging economies seeking to modernize aging infrastructure while maintaining energy security. The prioritization of efficiency projects alongside renewables through green finance mechanisms is advocated as a cost-effective pathway toward net-zero emissions.