Rise in Electricity Prices Not Sufficient

Rise in Electricity Prices Not Sufficient
Rise in Electricity Prices Not Sufficient

The energy ministry's plans to enjoy a 30 percent increase in electricity bills to compensate its deficits and debts failed as the budget bill submitted to the parliament stipulates for a lower increase than previously planned.

Household electricity prices will increase 10 percent, and 20 percent for other subscribers, including industrial, commercial, and administrational sectors, IRNA reported.

"With regard to the financial strains facing the electricity sector, the stipulated increase in electricity prices is not sufficient to cover energy ministry's expenditures," energy minister Houshang Falahatian said Monday, expressing hope that the required funds will be allocated "through other means."

Plans to construct 5,000 megawatts (MW) of power plants each year were halted due to lack of funds, the minister noted. A total of 2,500 MW power plants went into operation from March 21, 2014 to January 21, with further 1,100 MW plants due for commissioning before summer.

The energy ministry's debts stand at $7.5 billion (200 trillion rials), including obligations to the banking system and participatory bonds issued by the previous administration. Another big part of the debts concerns private contractors.  

A substantial gap exists between the total cost of supplying electricity and revenues generated from domestic sales of the energy carrier. Government is planning to introduce measures to help provide required funds, and also curb high consumption. Raising prices has been among the proposals.

The electricity price of 500 rials ($0.01) per kilowatt hour (kWh) has hindered development projects, the minister said. "Nevertheless, we will continue exporting electricity so long as domestic needs are met." The energy ministry claims the production of the same unit of electricity costs the government around $0.03.

Approximately, $95 billion is needed for the development of power sector projects, Alireza Daemi, deputy energy minister for planning and economic affairs said. Negotiations were held with Azerbaijan on electricity export from Iran to the northern neighbor, whereby 500 MW of electricity will be exported to Azerbaijan, should a final agreement is reached between the two countries.

Iran's electricity price for export varies from country to country. Afghanistan, for example, receives less expensive electricity due to Iran's commitment to contribute to the development of the war-ravaged country, whereas exports to Pakistan, Turkey and Iraq have higher tariffs.

Annual exports are estimated at 12 billion kWh, and imports at 3.7 billion kWh, with revenues from power exports close to $1 billion per year.

Iran’s electric power industry is ranked 14th in the world and first in the Middle East in terms of electricity generation with an installed power generation capacity of 72,000 MW.

The country is the largest exporter and importer of electricity in the Middle East and exports electric power to Armenia, Pakistan, Turkey, Iraq, and Afghanistan. Azerbaijan and Armenia supply electricity to Iran under a swap agreement.