I nvestment in power plants, renewables and electricity infrastructure is incompatible with levels required to safeguard electricity security after 2022, managing director of Iran's Thermal Power Plants Holding Company said.
“Installed power capacity of 68 gigawatts is barely enough to meet current demand. Low investment by private firms has become a concern amid the likelihood that this key sector could face serious shortages in less than three years,” Mohsen Tarztalab was quoted as saying by ISNA on Saturday.
He spoke of “risks for the future sustainability of power systems” and warned that funding constraints could well become a lasting impediment, especially in the long-term, to electricity infrastructure projects.
“Policies that can mobilize investment for sustainable power systems, like raising power tariffs, should take center stage.”
Tarztalab revealed that lack of investments are diverse, one of which is that private power producers have been hit hard by deferred payments because the cash-strapped Energy Ministry has failed to meet its financial commitments on time and play by the rules.
The Energy Ministry's debt has risen to $1 billion, of which $400 million is owed to the industrial giant Mapna Group.
In a letter to the ministry, Mapna CEO Abbas Aliabadi earlier said nonpayment of bills will disrupt projects now underway. Moreover, routine maintenance and repairs that should be completed by May will be delayed.
Annual power consumption in Iran grows between 5% and 6%, but expansion plans have been undermined in recent years due to financial restraints, management issues and the dominant but unhelpful role of subsidies.
Projects on Hold
Power generation cost, including production and transmission, is close to five cents per kilowatt-hour, but subscribers are charged 1.4 cents per kWh because electricity is heavily subsidized.
“Power projects to the tune of $13 billion are on hold because contractors want full guarantee that they will be paid on time,” the TPPHC boss said.
Furthermore, the number of electricity meters nationwide in the household, agro and industrial sectors, which now exceeds 37 million jumps 1 million a year.
Foreign exchange rates have risen by 300% over the past decade. Metal prices (including steel and copper) have surged at least six times and this is while electricity tariffs have barely increased by 1.7 times.
Direct Investment
In related news, ISNA quoted Mohammad Javad Mousavi, board member of Iran Renewable Energy Association (IrREA), as saying that despite the 50% of foreign direct investment in Iran’s power sector in the recent past in green energy almost 200 companies active in the renewable sector are facing insolvency because the Energy Ministry refuses to pay “reasonable tariffs” to private power producers.
“The ministry has refused to raise prices and insists that producers sell what they produce at 20 cents for 9 cents per kWh at the most," he complained.
Such imprudent policies have undermined the industry that had been growing gradually. Now most companies are unable and unwilling to continue work in the (loss-making) sector.
Mousavi is of the opinion that the private sector is capable of indigenizing knowhow to manufacture inverters, solar panels and cables on the condition that it gets real support “otherwise there are more lucrative businesses for the private sector.”
Creating a market in which between 500-1,000 MW can be produced and sold is a strong incentive for private firms not to abandon their commitment to develop green energy, he was quoted as saying.