Warning Against Free Electricity Plan

EghtesadOnline: Free or subsidized electricity cannot help tackle the array economic ills and challenges, but wrong policies will certainly lead to more complex issues, a veteran economist says.

News ID: ۷۵۰۹۱۲

07 September 2020

Denouncing the government’s plan to exempt households that use electricity within a certain limit from paying their bills, Ali Shams Ardakani, who is head of the Energy Commission of Iran Chamber of Commerce, Industries and Mines, told ILNA, “So long as power pricing policies are not premised on energy economics, problems associated with [high] consumption will never be resolved.”

Elaborating the point, Shams Ardakani said, "Supplying 30 million subscribers with free power is not a scientific approach and is doomed to fail. This plan of the government has been devised by some electric engineers and not by experts in energy economics. It highly unlikely to yield positive results.”

Imposing higher tariffs on those who exceed reasonable consumption limits is the most effective way of convincing the people to consume electricity prudently, he noted.

Ardakani, a former diplomat and government advisor who holds a PhD in economics, believes that supplying free power to subscribers, be it urban or rural regions,  will give rise to corruption.

For instance, providing rural people in Urmia, West Azarbaijan, and Esfahan provinces heavily subsidized power encouraged most of them to dig more wells, and this resulted in over extraction from groundwater reserves. The worst and most precarious consequence was that Urmia Lake and the Gavkhouni Wetland dried up.

"Whoever uses electricity should pay. But large consumers should pay way higher compared to regular users. Populist moves cannot and will not solve economic problems," he warned.

As per a government proposal, households that use electricity within a certain range (less than 100 kilowatt hours per month in regions with moderate climate and less than 400 kWh in hot areas) will be exempt from paying bills from November.

Electricity is heavily subsidized in Iran. Power generation cost, including production and transmission, is 2 cents per kilowatt-hour, but is sold at 0.7 cents per kWh.

"The experience of developed countries shows that the only solution to convince subscribers to use power judiciously is to revise tariffs and add a surcharge on heavy consumers that will cover real prices including the cost of generation, dispatch and transmission."

Long gone are the days when pleading and requesting people spur consumers to moderate their use and cut their power bills, he said.

Tangible Difference

"There should be a tangible difference between electricity tariffs in peak and non-peak hours so that subscribers get a sense of the necessity to reduce consumption" and waste.

He went on to say that with such an approach, people will see the wisdom of buying power-friendly appliances to ease demand, while government officials won't have to plead with the people to turn off their lights.

Ardakani argues that policy and decision makers have long stuck to a wrong approach by not charging subscribers as per a stepwise scheme, in which all consumers are charged a fixed rate per kilowatt-hour, but should pay a surcharge if their consumption exceeds pre-set brackets. The same plan can and should be extended to industries and agriculture.

Ardakani, a strong opponent of "cheap power prices", says low tariffs have apparently encouraged farmers to equip their wells with electric pumps, which normally work non-stop for three months -- a practice that definitely translates into wasting public and national funds.

Water wells used for farming should be identified and equipped with smart meters, he said, adding that farmers should be allowed to use the pumps only between 11 pm and 5 am when demand is low.

“The government needs to offer incentives to households to use solar panels on their rooftops," he said, adding that solar panels are economically viable and generate maximum amount of electricity between 2 and 3 pm that normally are peak hours.

With more than 300 sunny days in a year, well above the UK with 150 days of sunlight per year on average and with far less intensity, Iran has huge potential to expand its solar energy infrastructure.

Volte-Face

What is interesting is the Energy Minster Reza Ardakanian’s volte-face regarding the free electric proposal.

The minister who was strongly against providing schools and education centers free electricity (proposed by the government last year), is now saying that the new plan is in the “interest of the  power industry” because it can help his ministry export more power.

“In our view it is a wrong not to charge education centers. When water and electricity are consumed free in schools, it obviously will be difficult to persuade children to use energy wisely,” Ardakanian has been quoted as saying time and again in the past few months.

Average global electricity consumption rises by less than 3% per annum. In Iran demand for power jumps to over 6% every year – a pattern that has been causing concern among experts, environmentalists and conservationists long pleading for effective action to help curb consumption and waste.