Industrial production in Iran faces a crisis, as manufacturers report that frequent power outages have often halted operations. This is particularly striking given that Iran has one of the world's largest oil and gas reserves.
The country face severe power shortages every summer and gas shortages every winter. Each year, policymakers opt to cut industrial power to keep household lights on. The shortfall reaches up to 14,000 MW, or 20%, during the summer.
Iran International reported last month that due to high summer temperatures, Iran faces a huge energy deficit, but the situation has not improved since early July.
Industrialists argue that it is truly perplexing for energy policymakers to choose the easiest route of cutting power to factories and steel plants rather than developing infrastructure or purchasing electricity to meet the country’s shortfall. They question how policymakers plan to compensate for the lost production, cover the insurance and costs incurred by power outages, and address customer commitments and the financial losses due to production delays.
Hamidreza Ghaznavi, Secretary-General of the Entrepreneurs Association, reacting to the frequent power cuts, told Khabar Online on Thursday, "The Ministry of Industry, Mine, and Trade (Ministry of IMT) must resolve the power cuts affecting industries. However, there is no vocal support for the industrial sector."
Varied impact on different sectors
In response to how much current capacity is affected by power cuts, Ghaznavi noted, "Some industries have been shut down for two months. Others operate only at night, and some alternate between two weeks of operation and two weeks of shutdown." He explained that while different industries face varying challenges, the steel and textile sectors are particularly hard-hit. He stressed that although all manufacturers are struggling, these sectors are in worse conditions.
Policy failures and economic consequences
Ghaznavi criticized the Ministry of IMT for not sufficiently protecting production. He noted that reducing electricity consumption in the public sector could increase the supply to the industrial sector, but this approach has not been effectively implemented. He pointed out that there are many ways to reduce power consumption, such as implementing penalties, but these measures are not being enforced to prevent the deteriorating conditions in factories.
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.
Official statistics reveal that 13% of Iran's generated electricity is lost during transmission and distribution due to an outdated grid. Experts belive losses reach 30%. This loss 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.
Dire outlook for Iranian economy
Ghaznavi emphasized the dire situation, urging the Ministry of IMT to take more action on power cuts and support investments. He noted that a resolution was passed to encourage factories to adopt solar power and clean energy, but this has yet to be implemented. There has been little support for factories to transition to solar energy, and no immediate actions have been taken to facilitate this shift.
Despite the recurring power cuts to industries, the CEO of the Iran Power Generation, Transmission, and Distribution Company recently announced that the country’s electricity consumption demand reached an astonishing 79,872 megawatts, a record-breaking figure in Iran's electricity industry history. According to Mostafa Rajabi Mashhadi, only 128 megawatts shy of breaking the 80,000 megawatt mark, the figures are astonishing. This level of demand is equivalent to the electricity consumption of both Egypt and Spain combined.
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. Ghaznavi stressed that people need jobs for their livelihoods, and factories need to operate to meet market demands. If prices rise due to shortages, those who have had reliable power might find themselves unable to afford necessities, he added.
