The Iranian government is facing a momentous challenge in developing the power infrastructure it needs to assist its economic recovery.

In order to address its problems and lift capacity, President Hassan Rouhani’s government has drafted plans to expand the distribution network, cut waste, reduce consumption by raising domestic and industrial tariffs and invest in the renewable energy sector.

The FT reports that the country is having to contend with falling oil prices, huge debt, crippling international sanctions due to its nuclear power programme, drought, and generally critical power sector underinvestment.
Hamid Chitchian - Iran energy minister
“It is absolutely wrong to think we can achieve economic growth without having sufficient electricity production,” Hamid Chitchian, Iran’s energy minister, warned. “The electricity sector has consistently been weakened over the past five years and investment has dramatically decreased.”

The problem has been compounded through the policies of previous administrations. Decades of heavy government subsidies have left Iran with high levels of energy consumption. While energy demands are growing at 6 per cent a year, growth in capacity is limited to a third of that. The ministry admits its depleted power network requires at least $4.4bn of investment.

Meanwhile former president Mr Ahmadi-Nejad slashed energy subsidies in 2010, requiring government ministries to pay back the subsidies to people in monthly instalments. This is now a huge burden for Mr Rouhani’s administration, which has to pay most Iranians about $17 every month and indirectly meant the pace of construction of new power plants lags behind rising demand.

The country hasn’t yet suffered the same fate as South Africa in terms of power outages, due partly to the shrinking of Iran’s economy over the past two years, which led to a 30 per cent slump in industrial energy use.

Alireza Kolahi, chairman of Iran Electrical Industry Syndicate, which comprises 500 largely privately-owned companies, said that without additional investment and capacity, power cuts were likely. “The current drought means we cannot fully use hydroelectrical plants” that are an alternative source, he added.

Mr Kolahi said with the right investment, Iran’s electricity sector could become an “engine to help the economy out of its current stagnation”.