Iran's Energy Crisis: Power Cuts Hit Industrial Sector Hard

Iran is grappling with a severe energy deficit crisis, exacerbated by the summer heat and the government's failure to meet natural gas and electricity production targets.

Recently, Iran's Deputy Minister of Industry, Mines and Trade announced drastic measures, revealing that electricity supply to the industrial sector will be halved during the summer months.

In a letter addressed to the government, Reza Mohtashmipour highlighted significant shortages. The steel manufacturing sector, demanding 5,500 MW, will receive only 2,400 to 3,800 MW. Similarly, the cement industry, requiring 1,000 MW, will be allocated just 500 to 650 MW.

Before delving into Iran's electricity deficit situation, it's crucial to note an error in Mohtashmipour's official letter where units were incorrectly stated as "Watt hour" instead of "Watt". This elementary error reveals the often criticized lack of expert knowledge among top officials and their assistants.

For example, he erroneously indicated that the steel manufacturing sector requires "5,500 MWh power". However, the correct unit is watt, not watt hour. If we measure the steel sector's electricity need based on watt hour, it is approximately 45 million MWh annually, 3.75 million MWh monthly, or 120,000 MWh per day.

Power deficit

Although the nominal capacity of Iran's power plants is 90,000 MW, many of these plants have been worn out for years. To inflate the numbers, Iranian officials include decommissioned power plants in the statistics for nominal power generation capacity.

According to the statistics of the Ministry of Energy, the "actual" power generation capacity is about 75,000 MW. In addition to worn out and decommissioned fossil fuel power plants, the country's hydropower plants have generated electricity less than the nominal capacity due to the drought. The shortfall peaks at 14,000 MW or 20% during summer.

Despite government plans to launch over 6,000 MW of new power plants last year, only a fraction materialized (about 30%), underscoring persistent challenges. This summer, the government has adjusted the working hours of the public sector and implemented electricity cuts in dozens of offices due to high electricity consumption from cooling systems.

It's notable that the government bureaucracy consumes only 2,000 MW of electricity even at peak demand using all cooling systems, representing just 3% of the country's total electricity demand. Even if the entire public sector, including offices, banks, hospitals, schools, and universities, were closed and street lighting completely cut off, it would only mitigate half of Iran's summer electricity deficit.

According to statistics from the Ministry of Energy, Iran's electricity consumption is distributed as follows: public and road lighting sector 10%, household sector 32%, industrial sector 36%, agriculture 14.5%, and commercial sector 7.5%.

World Bank estimates

The World Bank recently reported a slowdown in Iran's GDP growth, projecting moderation for the fiscal years March 2024-March 2025. This is attributed to subdued global demand, ongoing international sanctions, and domestic energy shortages, which exacerbate Iran's severe electricity deficit in summers and substantial gas deficit in winters.

To prioritize residential energy needs, the government has imposed limits on energy supplies to the industrial sector, causing annual losses estimated at $6-8 billion. The International Monetary Fund also forecasts continuous GDP deceleration in Iran between 2024 and 2026.

Instead of addressing the fundamental energy imbalance, authorities have resorted to cutting off electricity and gas to industries—a short-term solution that fails to resolve the country's energy deficit.

Official statistics reveal that 13% of Iran's generated electricity is lost during transmission and distribution due to an outdated grid. This is equivalent to the total electricity consumption of the steel industry, which generates export revenues. Moreover, many of Iran's power plants are inefficient gas or steam types. Rather than modernizing the grid or converting to more efficient combined-cycle plants, the government has opted for measures like adjusting office hours or imposing restrictions on industrial power supply.

Iran boasts ideal conditions for solar energy production, with 300 sunny days annually, yet renewables contribute only 1% to the country's electricity generation. Last year, the government aimed to launch 2,800 MW of solar and wind power plants but achieved only 2% of the target.

Compounding these challenges is the government's burgeoning debt to private power plants, now amounting to 900 trillion rials ($1.5 billion), a 300% increase since 2021, which has become a significant crisis.