Industrial Power Tariffs to Rise 400%

EghtesadOnline: All industrial units that consume more than 2 megawatts of electricity per month will be charged 2.5 cents per kilowatt hour as of the next fiscal year (starting March 2022), the head of Thermal Power Plants Holding Company said.

News ID: ۷۸۷۳۸۴

06 December 2021

“Industries are levied 0.5 cent per kilowatt hour currently and the 400% rise is expected to help the cash-strapped Energy Ministry meet its financial requirements,” Mohsen Tarztalab was also quoted as saying by Mehr News Agency.

As per the new bill passed by the Majlis, electricity tariffs for energy-intensive industries, namely cement factories, oil refineries and petrochemical and steel companies, will increase fivefold as of March 2022.

Industries account for 40% of Iran’s annual power consumption of 280 billion kilowatt hours.

“The move [tariff hike] will add at least $400 million to the ministry’s annual revenues. The ministry has been obliged to use its revenue not only to settle a part of its massive debt to private companies but also rehabilitate aging infrastructure and expand water supply to rural areas,” the official said.

According to Tarztalab, investment in power plants, renewables and infrastructure decreased sharply in the past three years and the state-run Iran Power Generation, Distribution and Transmission Company (Tavanir) will face problems related to electricity security from 2022.

“Installed power capacity of 85 gigawatts is sufficient to meet demand. Declining private investment has become a major concern amid the likelihood that the key sector may face serious shortages come 2025,” he added.

Speaking of risks for the future sustainability of power systems, he warned that financial constraints have become a major issue for infrastructure renewal and expansion.

“Policies that can mobilize investment for sustainable power systems, like raising power tariffs, should be given high priority.”

The official noted that lack of investment is rooted in the fact that private power producers have been hit hard by deferred payments because the Energy Ministry has failed to meet its financial commitments on time.

The Energy Ministry's debt has ballooned to $2 billion, of which $500 million are owed to the industrial giant MAPNA Group.

Annual power consumption in Iran grows by 5-6%, but expansion plans have been undermined due to funding deficit, mismanagement and the energy subsidy policies.

“Power projects to the tune of $13 billion are on hold because contractors want strong guarantees that they will be paid on time,” the TPPHC boss said.

The number of electricity meters nationwide in the household, agro and industrial sectors, which now exceeds 37 million, soars by 1 million per year.

Galloping Inflation

Despite the advantages of the Majlis decision to raise industrial electricity prices by 400%, economic experts warn that the decision will further push up the galloping inflation because at least 40% of goods produced by major industries (cement, steel, petrochemical and oil refinery plants) are sold domestically.

"Such a mistake should have been avoided by learning from the past," Amir Mohammad Eslami, an independent energy expert, told ISNA, noting that whenever energy and power prices (whether it is gasoline or electricity) increase, the domestic inflationary impact is a foregone conclusion.

Referring to the abrupt government decision to raise gasoline prices in November 2019 from 5 cents per liter to 7.5 cents per liter, he said the overnight 50% rise reduced household expenditure on basic needs such as food, health, education, housing and apparel.

Last but not least, high power tariffs can undermine economic growth by affecting the supply-demand chain for goods and services. A price hike tends to depress the demand side because it raises the cost of production and end users may not be able to afford many things as time passes by.

Consumption Level

Tavanir is charging subscribers based on their consumption level, with the top energy users charged up to eight times the tariffs levied on average users, Mostafa Rajabi Mashhadi, the head of Iran Grid Management Company, an Energy Ministry subsidiary, said.

Under a stepwise pricing scheme that took effect in September, subscribers who consume less than 300 kilowatt hours per month pay much less than the bill paid by those using more than 600 kWh monthly.

“Power is sold at 1,000 rials [0.5 cents] per kWh to those whose consumption is maximum 300 kilowatts per month and those who use between 300 KW and 600 KW are levied 16% more than the previous category [6 cents per kWh]. And consumers using more than 600 KW per month are charged 8,000 rials [40 cents] per kWh,” he added.

Having different consumption categories and a progressive increase in tariffs spurs consumers to moderate their usage and cut down on their power bills.