Iran Chamber of Commerce, Industries, Mines and Agriculture’s Research Center has criticized a controversial policy based on which private electricity producers are obliged to sell power to the state-run Iran Power Generation, Transmission and Distribution Management Company (Tavanir) at prices determined by the government.
Reflecting the opinion of specialized commissions and provincial chambers across the country, ICCIMA said in a report that as long as the private sector is forced to sell electricity at specified (low) prices, investors won’t be interested in developing electricity infrastructures, Barq News reported.
Echoing the views of a cross-section of experts, the chamber said investment in power sector amounted to $7 billion in 2008, which declined by 85% and reached $1 billion in 2020.
"Power generation in Iran costs at least 3 cents per kilowatt-hour for the private sector, but it should sell it to Tavanir for less than 2 cents and consumers are charged less than 1 cent per kWh," reads on excerpt of the report published on Otaghiranonline.ir.
Grappling with ballooning budget deficit, the government is unable to pay the price difference to private power producers and the Energy Ministry’s debt to the private sector is estimated to be around $3 billion, which is on the rise.
At first glance, selling power to consumers at subsidized prices is a good idea, but such populistic moves could have detrimental effects, one of which is that private companies will be reluctant to invest in the loss-making industry and people will be adversely affected by frequent outages sooner rather than later.
At least 400 power transmission and distribution projects are on hold, as private sector contractors are waiting to have their debts settled.
The report concludes that the country’s power generation capacity is very unlikely to rise unless the government rethinks its ad-hoc policy.
Private sector investment in the power industry is said to be near $22 billion and 54% of power demand are met by private producers.
Heavy Domestic Demand
According to Mostafa Rajabi-Mashhadi, the head of Iran Grid Management Company, an Energy Ministry subsidiary, although the country's installed capacity has increased in proportion to the annual economic growth, it is still not sufficient to meet the heavy domestic demand.
“As the number of electricity meters increases by half a million each year, lack of investment will not only hamper economic development but could also hinder normal life,” he said.
“The installed power capacity of 80 gigawatts is not sufficient to meet current demand and lack of investment is causing distress, as the key sector is already facing shortages.”
Power consumption in Iran grows by 5-6% per year, but expansion plans have been undermined by financial restraints, management issues and the dominance of energy subsidies.
The Energy Ministry repaid $900 million in debt to private contractors in 2019, but still owes $3 billion.
“The government is not in favor of developing a competitive electricity market that can contribute to efficiency of supply systems,” Payam Baqeri, the vice president of Iran Electrical Industry Syndicate, said.
Referring to the old policy of intervention in almost all key sectors, Baqeri said state-operated power plants receive free gas and obviously do not care how much each kilowatt of power is sold for, but privately-owned power stations have to pay 20 cents for each cubic meter of gas and Tavanir determines the tariffs and also how and when plants should be disconnected for routine maintenance.
Hollow Promises
Promises given to private companies have been hollow and they are still not allowed to export electricity, therefore Tavanir’s absolute monopoly cannot be broken easily, the official said.
“It is not for the government to balance energy demand and supply. Its task is rather to devise a framework that ensures energy is produced and consumed efficiently.”
Baqeri said Iran has sufficient potential to produce higher amounts of electricity from renewable sources while the current power output from it is less than 1,000 megawatts.
“Currently, most of our electricity comes from thermal power plants that consume fossil fuels, which harm human health and the environment. Therefore, a significant part of the pollution [30%] comes from power plants,” he added.
Most domestic thermal plants are powered by natural gas that is the cleanest burning fossil fuel as it emits the least amount of CO2. However, the use of renewable energy, including solar and wind, would take care of this big problem without polluting the air.
Iran ranks eighth globally in terms of renewable energy potential. There are 300 sunny days in almost 80% of the country.
“Our minimum radiation exceeds the maximum reported in Europe. We can produce up to 60,000 MW of renewables, including solar and wind power, but this capacity has been neglected,” he said.
The government reportedly plans to raise the current share of renewables to 5,000 MW by 2022. This seems to be a tall order because in addition to financial constraints, developing renewable plants remains a low priority for policymakers.
