Iran’s Electric Grid is Falling Apart

Global warming and climate change have directly impacted energy consumption in many countries. Due to the recent increase in energy consumption in Iran, the government will need to invest in its electricity grid to maintain stability. Unfortunately, electricity production in the country’s current power plants has not been considered. Because supply will not be able to meet demand in the coming months, power outages in some parts of the country will be inevitable.

In recent months, the issue of bitcoin mining in some provinces has led to an increase in the crisis in the country’s electricity industry, and naturally the rate of blackouts and power outages has increased. In January last year, electricity was cut off in several cities, including Tehran, Tabriz, and Anzali. At the time, a spokesman for Iran’s electricity industry said the reason for the shutdown was the limited supply of fuel to power plants. According to Mostafa Rajabi Mashhadi, if all Iranians could decrease their consumption of gas by 10%, the problem of electricity outages would be solved. (It should be noted that Iran’s state-owned electricity industry connects all three sectors of production, transmission, and distribution, as a single enterprise).

With a generation capacity of 265 billion kWh in 2017, Iran is ranked 16th in the world in terms of electricity production, second only to Saudi Arabia in the region. In terms of consumption, however, with 221 billion kWh, it is ranked 18th, and in terms of per capita consumption with 269.1993 kWh, it is ranked 92nd among the countries of the world. Moreover, the influence of technology and industrialization is shallow. Other aspects of this issue also reflect the notion that households use different energy sources in different seasons; for instance, many Iranian households use electricity for air conditioning in the summer, but gas for heating in the winter.

Iranian law specifies that the government is obliged to take the necessary measures to make Iran a hub for electricity production in the region. Moreover, connecting Iran’s electricity grid to its neighbors for the purpose of export increases the interdependence between these countries, allowing energy policy to function as an arm of Iran’s soft power. The interdependence of countries in the field of energy affects their political relations and regional policies; for this reason, energy policy is an issue that should be considered as part of the grand strategy of the Islamic Republic of Iran. As the region’s prospective electricity hub, Iran has gained a larger role in regional interactions.

Summer Blackouts Loom

According to Reza Ardakanian, Iran’s Minister of Energy, in April 2021, 22% more energy was consumed in April 2021 than in April 2020. The reasons for this are myriad; a premature heat wave, a water shortage, and increased demand due to unauthorized cryptocurrency mining all played a role. However, according to Ardakanian, the most important cause was a lack of production mobility. The Minister of Energy stated, “Electricity consumption has increased by 12% compared to last year, and if no savings are applied, a blackout will definitely be planned in the country.” He added that, with the management of “peak load”, consumption reached 58,300 MW. If consumption management were not applied, consumption could exceed 60,000 MW, forcing Iran into a planned shutdown.

Referring to the blackouts this winter, Mohsen Shadman, Chairman of the Energy Commission of Mashhad Chamber of Commerce, said: “One of the reasons for the government’s lack of investment in infrastructure sectors such as electricity, gas and water is the lack of necessary resources.” One of the most important issues in this regard is the low price of energy carriers in the country. Construction of a 2 MW unit used to have a payback period of 3-4 years, but now it takes at least 8 to 10 years to pay off the initial investment. The latest statistics show that the electricity generated by the country’s power plants last year increased by 5.1 percent compared to 1998, reaching 343 billion kilowatt-hours.

The Chairman of the Board of Directors of the Electricity Industry Syndicate also pointed to the government’s cut in electricity exports in recent years. The consequences of the electricity outage were never beneficial to the country’s economy. Fortunately, the government was acutely aware of outages’ harmful effects, and it was decided that, in the event of a shortage of domestic electricity, its exports would not be stopped and electricity shortages would be compensated by imports from neighboring countries. Therefore, the import of local electricity is not a problem, provided that exports are developed in return.

A Price Problem

Due to the availability and low extraction cost of natural gas, Iran’s electricity prices are among the lowest in the world. These low prices have in recent years incentivized a new trend: bitcoin mining, which many Iranians use to pay for goods and services, although the Iranian government has initiated a crackdown on this practice. Although the causes of blackouts in January 2020 were pressure on the grid, there have been some speculations on social networks about the possibility of a “cyberattack” on Iran’s electricity infrastructure. But these estimates have so far not gone beyond rumors, and no official or independent source has cited it. Mahmoud Vaezi, the Chief of Staff of the President of Iran, also announced the entry of the Ministry of Intelligence into the “illegal” extraction of bitcoins, partially as a way to make up for the sanctioned nation’s currency woes.

In recent weeks, the escalation of domestic electricity consumption has caused the government to use highly polluting fuel oil in power plants. As a result, air pollution in metropolitan areas, especially in Tehran, has passed the red status and reached an extremely dangerous “purple” status. The government has reportedly been forced to shut down power plants due to pollution, leading to further outages.

Throughout all of this, Iran has maintained its position as the leading electricity producer in the Middle East. However, this industry has never been without its shortcomings, and these cases, especially in the thermal electricity generation sector, which supplies about 90% of the country’s electricity needs, have created challenges for those involved in this field to supply the electricity needed in the coming years. According to the statistics and data of Iran’s Sixth Development Plan, the country’s electricity network needs to build about 4,000 MW of new thermal power plants annually to supply power to households and the industrial sector. On average, then, the electricity generation sector has invested $4.3 billion per year, but it is clear that this number is not enough, and further electricity generation capacity is needed.

The construction of power plants is mainly funded by the private sector, regardless of whether the distribution company is non-governmental or government-run. The price of the electricity generated will be multiplied, which did not happen in the past due to the currency price. As expected, electricity consumption has increased this year. The Ministry of Energy hopes that by saving electricity consumption in government offices, it will be possible to prevent blackouts in the hot months of the year. Ardakanian stated that by reducing the thousand megawatts of electricity consumption which belongs to electricity consumption in offices, it would be possible to prevent blackouts and electricity outages in summer. It remains to be seen whether this reduction will actually take place.

Bitcoin and Fuel Oil

Iran is no stranger to electricity blackouts from insufficient supply and excess demand. More than 300 megawatts of unauthorized electricity are consumed each year by illicit cryptocurrency miners. Ongoing negotiations between Iran and the United States have led some to expect an agreement in the next one or two months and the lifting of some sanctions against Iran’s energy industry. If sanctions are lifted against Iran’s financial sector, Iranian banks can facilitate the energy transfer process between Iran and other countries. As a result, there is no need for bitcoin mining, unless a specific group continues it for the benefit of their own interests.

However, a far more significant problem for Iran’s energy sector is an unusually high level of gas consumption in spring 2021. High domestic consumption has reduced the amount of gas delivered to power plants, which has naturally also reduced electricity production. Increasing natural gas production requires attracting capital and technology which Iran, buckling under the weight of sanctions, does not have. Conversely, another solution would be to decrease domestic consumption, but Iran has so far been unable to do this, either. Whichever approach Iran chooses to pursue, solving its electricity problem from either direction will require a long time.

It seems that due to the current consumption pattern and the lack of conditions to increase natural gas production, power generation will be insufficient to meet demand in the months ahead. It is natural that electricity outages will have a negative impact on Iranian industry, and in addition to the negative effects of the coronavirus outbreak of Iranian industries, these industries must be prepared to face these unusual conditions. In view of the above, it will be a hot summer for Iranian industry and society.

Dr. Omid Shokri Kalehsar is a Washington-based Senior Energy Diplomacy, Energy Security Analyst, and also an analyst at Gulf State Analytics (GSA), currently serving as a Visiting Research Scholar in the Schar School of Policy and Government at George Mason University.

The views and opinions expressed in this article are those of the authors and do not necessarily reflect the views of Gulf International Forum.