Power Industry Future at Risk

EghtesadOnline: Iran’s power industry has not developed as would have been expected in the last eight years, head of the Federation of Iranian Energy Exports Industries said.

News ID: ۷۵۱۱۴۸

30 September 2020

“Close to 4,000 megawatts were added to the national grid per annum between 2006 and 2013. Between 2014 and 2020 this volume fell by a massive 50%,” Mohammad Parsa was quoted as saying by Barq News.

Unending volatility in the domestic currency market has understandably made the private companies averse to invest in power production over the last four years, he concurred.

“New investment by private power producers is almost zero now and the country will suffer the consequences in the future.”

The number of electricity meters nationwide in the household, agro and industrial sectors, which now exceeds 37 million, jumps by 1 million a year and lack of investment in the industry will not only hamper economic development but also impede normal life in rural and urban areas, he said.

“So long as private companies have to spend 1.5 cents on producing a kilowatt of electricity and sell it at 0.2 cent, no investment will be made in the sector, not at least in the foreseeable future,” he protested echoing the stance of economic and energy experts across the spectrum.

Parsa revealed that work on most power development projects that became operational in the past four years had started (with private sector participation) before 2016, when the rate of one dollar in Iran was 40,000 rials and investment made economic sense.

“Now that a dollar sells for 300,000 rials, investment in this sector means nothing but disaster.”

Parsa has a solution that can and should address the problem. He says the Energy Ministry needs to create the conditions for the private sector to be able to sell electricity in foreign markets and use the forex earnings to cover its mounting expenses.

“For example, if a private firm produces 2 gigawatts per day, it should be allowed to sell half (1,000 MW) to Iraq and earn 10 cents per kilowatt hour and sell the other half at 0.2 cent in the domestic market.”

As per law the Iran Power Generation, Transmission and Distribution Management Company (Tavanir) is in charge of purchasing electricity from all power producers obliged to sell to the state giant.

Absolute Monopoly

In related news, Barq News quoted an energy expert, Alireza Kafshkanan, who has valuable experience in electrical firms, as saying that as long as electricity export is the exclusive premise of the government, the power industry will not develop due to the disinclination of private firms to get involved in mega projects, he warned.

If the private sector breaks this absolute monopoly of electricity export and the ministry makes way for the presence of private companies in this sector, not only export but also production will rise.

Stressing Iran's capability to become a regional electricity export hub with its untapped infrastructure and skilled workforce, he added, "Ten years of Iran’s valuable experience in electricity exchange with neighbors, namely Pakistan, Afghanistan and Iraq is worthy of praise. But it’s strange that nothing has been done to expand this role into a regional hub.”

The underlying reason behind the monopoly is not only the difference(s) between domestic and export power tariffs. It is the systemic surge in foreign exchange rates.”

Although electricity export tariffs vary and are based on a variety of factors, namely fuel prices in the Persian Gulf, power can be sold for at least 10 cents per kilowatt hour in international markets. The same power makes less than 1 cent in the home market.

Surging Currency Rates

Currency rates have surged in Iran as a permanent feature of the troubled economy. According to prices quoted to Financial Tribune by local exchange bureaus, the dollar touched 300,000 rials on Tuesday.

Pointing to measures taken by Iran's competitors, including Qatar and Saudi Arabia, to expand their national grids to export electricity to Europe, he said regional Arab sheikhdoms are taking strong steps to sell electricity to Europe by extending a subsea cable from the Red Sea to the Mediterranean Sea.

Iran was the largest energy subsidizer in 2018, according to the International Energy Agency's report.

Having spent $70 billion on energy subsidies in 2018, Iran ranked first globally, leaving behind Saudi Arabia with $44.72 billion and China with $44.44 billion.

Energy consumption in Iran’s household sector is two times that of global average and in industries the situation is worse as most machinery and equipment are old and should be replaced.

Iran’s GDP is about $450 billion. In Turkey it is $1000 billion and yet energy consumption in Turkey is one-third of Iran. Experts and environmentalists in no small number have warned that energy use in Iran is prohibitive and can be reduced only by raising tariffs -- something the government is reluctant to do.