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Blackouts in Iran: Why is the Electricity Deficit So High This Summer?

May 24, 2021
Arash Hasan-Nia
7 min read
Summer has not yet begun and several cities in Iran, including parts of the capital, are already experiencing prolonged blackouts
Summer has not yet begun and several cities in Iran, including parts of the capital, are already experiencing prolonged blackouts
Power industry spokesman Mustafa Rajabi Mashhadi told ILNA the electricity deficit could reach 4,700 MW this summer
Power industry spokesman Mustafa Rajabi Mashhadi told ILNA the electricity deficit could reach 4,700 MW this summer
A combination of cryptocurrency mining, water shortages and ailing infrastructure mean some analysts expect the deficit to be closer to 9,000 MW
A combination of cryptocurrency mining, water shortages and ailing infrastructure mean some analysts expect the deficit to be closer to 9,000 MW

Times have changed in Iran. These days, power outages in cities no longer simply mean the loss of lighting, the air conditioning clattering to a halt or missing one’s favourite TV series, airing on the two sole channels to exist in the midst of a gruelling eight-year war with Iraq.

Power outages have taken on a broader meaning now. Even a temporary loss of electricity can mean missing out on education, not getting to exams, not socialising or engaging with people and work online, and crashing out of online tournaments.

Summer has not yet begun but several cities in Iran, including parts of the capital, are already being blighted by these much more serious blackouts. Power outages in the run-up to June, before electricity consumption in Iran reaches the usual summer peak, are a worrying early sign of difficult weeks and months ahead.

The 9,000 MW Deficit

Mustafa Rajabi Mashhadi, a spokesman for Iran’s power industry, has told ILNA news agency that electricity shortfalls will reach 4,700 MW during the peak period this summer.

This is not a new issue. Iran's electricity revenues did not cover expenditure last year either and in summer 2020, demand peaked at 63,000 megawatts while the most the system could deliver at a given time was 58,250 MW. Then and now, the result was frequent power outages across Iranian cities.

But there are other, more pessimistic assessments for summer 2021. Hashem Orei, the head of the Energy Union of Iran, recently told Jahan-e Eghtesad newspaper that peak demand for electricity will reach 65,000 MW this year, while the maximum deliverable amount will be 56,000 MW. A deficit of 9,000 MW, he said, could mean "widespread blackouts".

For 2020-2021, the capacity of Iran’s power plants was assessed as being at 58,313 MW but so far only about 32 percent of this has been delivered. The low efficiency of Iranian power plants, as well as wastage in production, transmission and distribution, are all contributing factors. The efficiency of electricity generation at Iran's thermal power plants is estimated to be about 38 to 39 percent, with efforts being made to bring it up to an also-dismal 42 percent.

The Ripple-Effect of the Investment Deficit

Hashem Orei has also warned that a dip in investment in the electricity industry is having dire consequences in Iran. Low resourcing has slowed and even halted the process of increasing production in line with consumption growth, and has also exhausted the industry’s abilities to improve and modernize its worn-out, suboptimal distribution network – so much so that the loss of power inside the network has now reached alarming levels.

According to the Iranian government’s energy balance sheet for 2017, some 3.1 percent of the electricity generated in Iran's power plants was used just to keep the equipment and machinery of the power plants themselves going.

More electricity is then wasted in the form of heat in transmission. The total loss within the network in 2017 was more than 11 percent, compared to a world average of less than eight percent.

Even before the deficit is addressed, demand for electricity in Iran is growing by around 3,000 MW a year. This not been met. Last year, the country’s nominal capacity for electricity generation increased by 2,500 MW: an increase of 1,802 MW in actual power.

Ebrahim Khoshgoftar, chairman of the Iranian Electrical Industry Syndicate, has claimed in the last few days that no money has been invested in the field of electricity generation for four years straight. Investment by the Ministry of Energy, he said, had been “zero”.

 It came despite the fact that in August 2019, Minister of Energy Reza Ardakanian, announced “record-breaking” electricity production in Iran, to the point that the country was apparently selling surplus electricity to neighboring countries.

No Water for Electricity Generation

One of the key reasons for the decline this year is the reduction in output from hydropower plants, which have been affected by drought and a 53 percent reduction in dam reserves. This alone, Rajabi Mashhadi said, would be responsible for a 3,500-MW deficit in 2021.

For its part the Ministry of Energy has cited other environmental factors as being behind the deficit. Rising temperatures have prompted more widespread use of air conditioners, the government said, while the lack of rainfall has increased the number of hours that agricultural farms need to spend pumping water, in turn using up electricity.

New Culprits on the Scene: Bitcoin Miners

The last 24 months have seen new suspects added to the list of those accused of deepening Iran’s electricity crisis. These are cryptocurrency miners, who, with or without a license, operate energy-intensive devices to “farm” digital currencies.

In January 2021, massive blackouts in many Iranian cities led to whispers about the reason being a Chinese and Iranian state-funded Bitcoin mine in Rafsanjan, Kerman province. Amid popular outcry and protests near the site, the governor of Kerman ordered the mine’s temporary closure. Since then, though, speculation about the role of cryptocurrency miners in Iran’s blackouts has been rife in the official news media.

Cryptocurrencies are one way for the Iranian regime and citizens alike to get around sanctions. As such, and after mosques were mobilized to convert their basements into digital currency extraction centers – in exchange for free electricity – many now believe the Revolutionary Guards have a heavy presence in this burgeoning sector.

The extent of cryptocurrency mining in Iran is unclear. Shahbaz Hassanpour, deputy chairman of the Iranian parliament's economic committee, recently announced that Iranians involved in this practice reaped some $500m a year.

But a report by Reuters last week, which cited research data from a blockchain analytics institute called Elliptic, estimated that Iran's annual revenue from cryptocurrency mining may be closer to $1 billion. It also found that 4.5 percent of the world’s Bitcoin is now mined in Iran. Buying and selling cryptocurrencies inside Iran remains illegal, but the Central Bank does permit Iranian miners to use them to import goods.

Industry spokesman Mostafa Rajabi Mashhadi has said the total electricity consumption of cryptocurrency extraction units in Iran now stands at about 1,500 MW. Of this, he said, only about 200 to 300 MW was consumed by licensed, authorized farms, while some 87 percent of known cryptocurrency mines are operating illegally. According to Rajabi Mashhadi, each cryptocurrency mining device consumes about as much power as an air conditioning unit.

Homayoun Haeri, a deputy minister of energy, had also said that all of Iran’s licensed farms combined ought to be consuming about 300 MW. Given that the vast majority of mines are not legal there would little hope in the Ministry of Energy ordering them to shut down for the summer.

An Electric Shock to the Economy

Increasing Iran’s generation capacity is not possible in the short term. Nor is improving efficiency or modernizing the infrastructure, due to the financial constraints on the government. The only way forward is for the Ministry of Energy to increase imports or enforce managed blackouts.

The latter, however, would entail huge costs. In a year when the coronavirus pandemic on the one hand and sanctions on the other have left no room for bettering production, deliberate shutdowns would harm Iran’s economy all the more.

Abolfazl Roghani, head of the Iranian Chamber of Commerce’s Industries Committee, recently complained that industry was the “first victim” of blackouts. Producers, he said, are the first to be cut off during peak times despite paying the most for electricity and gas. The losses include the temporary suspension of production and trade, delays in fulfilling obligations and the deterioration of perishable items, leading to a chain of decline.

"As soon as the weather warms up,” he lamented, “electricity supply becomes the biggest problem for industries in the country, and when it’s cold in winter, gas becomes the biggest challenge. These issues are now serious.”

In the meantime, the Ministry of Energy is also trying to control electricity consumption in offices, to turn off the lights on highways and in shopping malls, encourage households to reduce their consumption and crack down on unlicensed cryptocurrency mines.

Given the gravity of the situation, just like those responsible for air pollution and bad water management in Iran, it seems the best option now open to officials in the Ministry of Energy is to pray for rain.

Related coverage:

Iranian-Chinese Facility to Restart Bitcoin Mining After Blackouts

Fact File: Did Bitcoin Mining Lead to Blackouts in Iran?

Water Tariffs to Increase in Iran Ahead of Summer Shortages

Iraq Suffers Power Cuts as Iran Tries to Monopolize Energy Deals



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