RenCap analyst: Iran electricity sector booming but shut to private money

An analyst at Russian investment bank Renaissance Capital says Iran generates enough electricity to cope with a hypothetical pace of economic growth that would double its GDP, but that it may be a while before private investors are let into the country’s state-controlled electricity sector.

Iranian electricity is quite cheap as well as abundant, Vladimir Sklyar says in a report.

Iran’s installed capacity exceeds that of China or Brazil in per capita terms, which puts the Islamic Republic in the “developed-economy basket”, he says. Iran also has better electricity supply than Turkey and South Africa.

The country’s generating facilities are relatively young, having an average age of 15 years, and its total installed capacity of 73.2 gigawatts (GW) is likely to break through the 100 GW mark in the next five to seven years, Sklyar argues.

The industry also demonstrates “many traits of high efficiency” with grid losses of 13% in 2014 compared with those of 15% in Turkey and 11% in Russia, he says. Today only 42% of the installed capacity is used, which “leaves plenty of room to meet both fast-growing demand and sudden peaks in consumption”.

Iran, moreover, has some of the world’s lowest electricity prices, with the average wholesale price being $8 per megawatt-hour (MWh) compared with $75 in Egypt and $17 in Russia. The low charges are chiefly the result of the state control of the electricity industry, a subsidy system – which is planned to be phased out in the next few years, – and cheap natural gas, which is the sector’s main fuel, though nuclear and hydro generation is on the rise, Sklyar argues.

However, there are no medium-term plans to let private investors into the state-dominated industry. There is only limited pressure for the sector to be opened up to private money and for its tight regulation to be liberalised. The industry also has an opaque pricing system, the researcher says.

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