Review of the electricity industry situation; We have years of delayed investment in the country

The electricity industry has always been considered as one of the strategic and development components of other economic sectors of the country. Although the electricity industry has played a significant role in the development of the country, it has faced many issues and problems in the last few decades. In such a way that in recent years we have witnessed blackouts in the country. Lack of investment, mandated pricing, insufficient budget and inability to strengthen infrastructure have faced this industry with a crisis in recent years.

Seyyed Mohsen Mirsadari, a member of the board of directors of the Iranian Knowledge-Based Organizations and a member of the board of directors of the Iranian Electricity Industry Syndicate, believes: The energy exchange can be the savior of this industry and should create a specialized market and a safe space for buying and selling electricity, gas and other energy sources. In such circumstances, prices are announced transparently and not mandated, and supply and demand exchanges are carried out. If the energy exchange can properly fulfill its duty, prices will be realistic and tariffs will be affordable, and from there, private sector investors will enter this field.

What effects has mandated pricing left on the electricity industry?

Regarding this issue, the reality is that if the supply and sale price in any industry is lower than the cost price, it will create an imbalance. The situation in the electricity industry is the same. In a way, investment must be made in line with this annual shortage in the electricity industry. We have had years of delayed investment in the country, and one of the reasons for this is that when investment is made by the private sector, it cannot achieve the return on investment it intends to achieve. Therefore, the private sector does not enter this field, and the government sector is also unable to do so due to the lack of liquidity. As we see, they do not even have the possibility to pay their debts and arrears to private sector contractors, and this is the whole story of mandated pricing; Therefore, when the price of electricity is set at a fixed price and lower than the cost price, the result is what we are facing now.

On the other hand, when there is no investment in the production, transmission, and distribution of electricity, it causes blackouts. The network currently needs to improve quality and rebuild, and fixed pricing causes this vicious circle to continue, and we do not have the opportunity to improve and modernize the infrastructure of this industry.

On the other hand, in the consumption sector, when the price is not real, no one thinks about efficiency and control of consumption, and we are faced with increased demand for consumption, which also puts pressure on the network and causes countless problems.

This is while if the price is real, renewable energies will also flourish, because now we are required to pay a much higher price for their consumption than for the electricity consumed, and there is no incentive left to produce renewable electricity. Given the situation where investing and implementing renewable electricity generation projects is not cost-effective, we must be content with government projects. On the other hand, the government also does something whenever it has liquidity, which is currently facing a liquidity shortage, and the result is that we are constantly facing blackouts.

Isn’t it possible to generate electricity for something other than the grid? Does the supply and demand of electricity have to be on the grid?

There is a discussion called distributed generation; that is, in areas that are not covered by the electricity grid, at our discretion, if, for example, it is possible to build a solar power plant; we can install a generator or create a system to convert solar energy into electricity. But when we want to work on a large scale, this must be done on the grid. Because factors such as grid stability occur in the national electricity grid, and this requires that the electricity transmission system occur on an integrated grid. On the other hand, if anyone wants to produce and sell electricity on a large scale, locally, we may run into security issues. Therefore, the electricity transmission system must be based on a nationwide grid, which we now see is owned and controlled by the government.

Why aren’t industries free to produce and distribute electricity themselves in private power plants?

According to Article 16 of the Knowledge-Based Production Leap Law, industries that consume more than one megabyte are required to provide one percent of their annual electricity needs through the construction of renewable power plants, and this figure will reach at least 5 percent in the fifth year. Therefore, large industries can and are required to produce electricity, otherwise they will be fined and must pay for their excess electricity consumption at a renewable tariff.

Then, 50 percent of the income generated from this place will be spent on guaranteed purchase of renewable electricity, and 25 percent of it will be allocated to the Presidential Vice-President for Science and Knowledge-Based Economy to support laboratories, knowledge-based companies, and accelerators.

Therefore, the possibility of electricity production by the private sector is possible to some extent, and it seems that they should use this possibility more, and in the next stages we can expect to enter other phases.

In part of your speech, you mentioned that mandated pricing has reduced investment in this area and created a heavy debt for the government to contractors, which in turn leads to power outages and grid instability. In the meantime, what role can the energy exchange play in eliminating the existing monopoly?

Look, the energy exchange has its own function and must create a specialized market and a secure space for buying and selling electricity, gas, and other energy sources, on which prices are announced transparently and supply and demand transactions are carried out. If the energy exchange can fulfill its duty properly, transparent pricing will take place, and when prices become transparent and tariffs are affordable, from there on, private sector investors can enter. When these enter, since the private sector’s profits and losses are at stake, categories such as efficiency, productivity, and cost reduction also become important.

Therefore, in the long run, we will witness a reduction in energy consumption, an increase in supply, and an improvement in productivity. In addition, there will be an opportunity for projects related to the energy sector, especially renewable energy, and the improvement of electricity infrastructure to be financed through the stock exchange.

And why are we not witnessing such events now?

Well, currently the energy stock exchange does not have its main function, and electricity suppliers are mostly state-owned power plants. Therefore, if the stock exchange reaches its main position, it can both create a physical market for buying and selling electricity in the electricity industry and make electricity prices more realistic. In addition, an energy derivatives market will also be created on which contracts will be exchanged using financial instruments instead of electricity, and through this, price risks will also be managed.

In part of your speech, you mentioned renewable energy, please explain what the current situation is in this regard?

Currently, efforts are being made to increase the capacity of renewable power plants. Tenders are constantly being held, and companies are participating in them, given that the guaranteed purchase rate has made renewable electricity attractive. Of course, we are behind the world standard, and now about 2 percent of the country’s electricity consumption of the country’s total electricity production comes from renewable energy, which is about 13 percent in the world.

However, it is clear from the announced plans that they are trying to increase this figure to the average in the world and even to about 15 percent. Long-term development plans have also been considered for this category so that private sector investors will be interested in participating in this field.

However, there are problems. For example, to realize these projects, there is a need to register orders and import panels and equipment, because although domestic production capacity has made some progress, it is not enough and we are still dependent on imports. Imports also face challenges such as registering orders and allocating foreign exchange and the like.

On the other hand, there is the challenge of licenses. Because, to build solar power plants, a large and significant amount of land is needed, and we often hear that projects that should have been implemented a year ago are still having problems obtaining permits and their challenges have not been resolved. There are infrastructure problems in this area, because, where the power plant is installed, there must be the possibility of transmission and infrastructure for connecting to the grid.

What should be done to develop this area?

First of all, the National Development Fund must fulfill its obligations in financing projects and help this process.

In terms of renewable energies, it is true that our momentum has increased, but we have a long way to go before we can reach the desired point, given the huge capacity that exists in our country in this field, and we can promote this market by removing obstacles and creating incentives such as the possibility of exports and swaps. In addition, the energy exchange can play a significant role in this area, which can be a good incentive if it is established in this area and purchases and sales are made on its basis.

Source: Delvarnameh

Published: 1403/08/19