Energy Subsidies Hindering Electricity Sector Growth

EghtesadOnline: Iran is the only country in the world where 20% of the annual GDP ($100 billion) are spent on energy consumption subsidies, the vice president of Iran Electrical Industry Syndicate said.

News ID: ۷۸۶۷۵۵

28 July 2021

“As long as the key electricity and energy sectors receive the massive funding, they cannot develop as expected,” Barq News also quoted Payam Baqeri as saying.

Put it simply, if the annual $100 billion subsidy had been invested in the sectors over the last few years, infrastructures would have been much more developed now.

“Spending the huge funding in the form of subsidy has been a recipe for disaster,” he added.

Referring to the loss-making power sector, the official noted that close to 5,000 megawatts of new electricity generation capacity were supposed to be added to the national grid per annum over the last seven years, but the figures show less than 2,000 MW have been added per year, that is why frequent outages have become a norm.

Baqeri said supplying low efficiency power plants (20%) with natural gas as feedstock is a clear indication that energy is neither valued nor conserved in Iran.

“Gas should be converted to added-value goods in the key petrochemical sector instead of being wasted in Rey, Besat and Tarasht power plants that should have been decommissioned 20 years ago,” he added.

Of the five power stations in Tehran, three have an efficiency level of under 25% for more than two decades and this means 75% of feedstock gas turns into heat and toxic emissions.

“Even if the power plants have a higher efficiency (60%), the electricity they produce is wasted in homes for heating purposes without contributing to the GDP,” he said.

Shifting to Renewables

Shifting to renewables is fast becoming a norm in most countries (including oil-rich states), as they face massive ecological problems, especially global warming from fossil fuels.

However, in Iran, the authorities still insist on constructing more thermal power plants and raising their efficiency from 20-30% with little action on expanding green power.

Iran's installed power capacity is 85 gigawatts, of which less than 1 GW comes from renewables such as solar and wind.

Iran’s northwestern neighbor Turkey is increasing electricity production from renewables that account for 13 gigawatts of the country's total power output of 89 GW. India’s renewable capacity is said to be 79 GW, Japan 32 GW while the tiny UAE generates 15% or 8 GW of power from green resources.

Baqeri said the government is apparently undecided or confused about redefining electricity as a commodity (requiring minimal government intervention in the market beyond measures to ensure fair competition) or a social service (requiring the government to intervene or even control delivery systems).

The government is not in favor of developing a competitive electricity market that can contribute to efficiency of supply systems.

Referring to the old policies of intervention in almost all key sectors, he 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 the Power Generation, Distribution and Transmission Company (Tavanir) determines the tariffs and also how and when plants should be disconnected for routine maintenance.

“Promises given to private companies have been hollow and they are still not allowed to export electricity. Tavanir’s absolute monopoly cannot be broken easily,” he said.

“It is not for the government to balance energy demand and supply. Their 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.

Contentious Policy

According to Mohammad Ali Pour-Amiri, a board member of Iran Renewable Energy Association, given the highly contentious policy of subsidizing fossil fuels, clean energy will not get the voice and space it deserves.

“Energy [including fossil fuels] is valuable and shouldn’t be used wastefully. It is regretful that low prices have created conditions wherein people do not value the precious resource and have gotten into the habit of misuse and overconsumption,” he added.

Pour-Amiri put the onus on the government and stressed that fossil fuel subsidies have to be lifted for renewables to become attractive.

“The country lacks a roadmap for energy economics,” he added, noting that efforts have been made to replace fossil fuels with green energy but such attempts have never been taken seriously largely due to the bloated policymaking bureaucracy and shortsightedness of decision-makers.