Why Iran can’t keep the lights on

For Iranians, the seasons are now marked by two certainties: rolling blackouts during the scorching summer heat and toxic smog from burning low-grade fuel in power plants during the freezing winter.

This is the tangible result of Iran’s chronic electricity imbalance, a structural crisis that has moved far beyond a simple supply-and-demand issue to become a major drag on the nation’s economy and public welfare.

With a nominal installed capacity of around 94 gigawatts, Iran’s power grid looks robust on paper. But the reality on the ground is systemic decay. A combination of an aging and inefficient thermal fleet, extreme dependency on natural gas, recurring droughts crippling its hydropower capacity and soaring demand has created a persistent and widening gap between nameplate capacity and reliable output.

This analysis dissects the anatomy of Iran’s power crisis, benchmarks it against global players and outlines a policy roadmap for recovery, arguing that any sustainable solution remains hostage to the nation’s geopolitical isolation.

Anatomy of a failing grid

Iran’s power infrastructure is a story of arrested development. While capacity has grown from less than 7.5 GW before the 1979 revolution, the grid’s architecture is dangerously imbalanced.

• Over-reliance on Gas: Over 80% of Iran’s electricity comes from thermal power plants, overwhelmingly fueled by natural gas. This creates a systemic vulnerability: in winter, as residential gas consumption skyrockets, the energy ministry is forced to divert gas from power plants, compelling them to burn highly polluting and corrosive mazut (heavy fuel oil), leading to grid instability and severe air pollution in major cities.
• Inefficiency and decay: A significant portion of Iran’s thermal fleet is old and inefficient, with an average efficiency rate well below modern combined-cycle gas turbines (CCGT). This means billions of cubic meters of gas are wasted annually.
• Climate-hostage hydropower: Hydropower, once a reliable pillar, has become a volatile source due to recurrent droughts. The heavy concentration of hydro capacity in a single province, Khuzestan, creates a systemic risk that can slash available power by double-digit percentages during dry years.
• Symbolic renewables: Despite world-class solar and wind potential, especially in the sun-drenched central and windy northern regions, renewables (excluding hydro) account for a negligible fraction of the grid. As the table below shows, installed capacity for solar and wind remains at a symbolic level, a clear sign of technological lag and missed opportunity.

Table 1: Iran’s installed power capacity by province & type (MW) – 2024 (Abridged for key provinces)

Iran in the global mirror: a story of underperformance

A comparative look at global electricity producers reveals the depth of Iran’s predicament. With a per capita consumption of around 4,200 kWh, Iran lags significantly behind industrial economies and even many of its Gulf neighbors. This is due not to a lack of resources but a failure of policy.

Table 2: Iran vs. global power players – 2024

While nations like France (with nuclear), Canada (with hydro), and China (with industrial scale and innovation) have leveraged clear market strategies and bankable contracts to attract investment, Iran has remained stuck in a “carbon lock-in.”

A toxic mix of pervasive energy subsidies that distort price signals, contractual uncertainties, and a disconnect between regulators and industry has crippled investment in both efficient generation and demand-side management.

Iran’s net electricity exports of around 3 TWh are negligible and unreliable, collapsing during domestic demand peaks. This underscores that without first achieving domestic energy security, regional electricity trade cannot be a strategic tool for either grid stability or sustainable revenue.

The path forward: a four-point plan under a sanctions cloud

The global energy transition is no longer a distant forecast; it is an accelerating reality reshaping economies and geopolitical alliances. The trajectory is clear. As the projection chart starkly illustrates, the world is at a crossroads.

Proactive nations following an aggressive policy scenario are on track to see renewables overtake fossil fuels as the primary source of electricity around 2037. This is not a far-off future; it is just over a decade away. The alternative, a ‘business-as-usual’ path, delays this crossover to a catastrophic 2082, but even that trendline shows the inevitable decline of fossil fuels.

For Iran, this global shift presents an existential threat. While the world sprints towards a clean energy future, Iran is not merely lagging; it is running in the opposite direction, deepening its carbon lock-in with every new inefficient thermal plant and every winter of burning mazut.

This development path is a dead end. It guarantees further economic isolation, technological backwardness, and the continued degradation of its industrial base and public health. To avoid being permanently left behind in a world powered by clean electricity, a radical and decisive policy shift is not just an option—it is an urgent necessity.

A viable recovery plan must include four pillars:

1. International contracts (EPCF/BOT): Attract reputable international firms to build modern solar, wind and combined-cycle power plants. This requires offering bankable Power Purchase Agreements (PPAs) with clear, currency-indexed tariff structures and legal protections.
2. Budgetary realignment: Dedicate at least 1% of GDP annually for the next 5-7 years to a clear infrastructure program: 20 GW of solar, 8 GW of wind, and converting 15 GW of gas plants to combined-cycle, alongside grid upgrades and storage systems.
3. Fuel mix reformation: Reduce natural gas’s share in power generation from ~80% today to a maximum of 60% by 2030 by boosting efficiency and rapidly scaling renewables.
4. Geopolitical strategy for power exchange: Develop robust, high-capacity interconnectors with neighbors, backed by reliable seasonal swap and trade agreements to manage peak loads and enhance regional efficiency.

Systemic management crisis

Ultimately, Iran’s electricity crisis is a crisis of governance.

The country is caught in a vicious cycle of summer blackouts and winter pollution, eroding both industrial competitiveness and public well-being. The technical and financial roadmap out of this quagmire is clear: diversify the energy mix, boost efficiency and invest heavily in solar, wind and storage.

However, the elephant in the room remains Iran’s international isolation. While domestic reforms are essential, any sustainable solution is fundamentally hostage to the country’s geopolitical standing.

Without access to international finance, cutting-edge technology and bankable contracts – all of which are severely restricted under the current sanctions regime – Tehran’s ambitious plans to modernize its grid will remain just that: plans on paper.

For Iran’s lights to stay on, a resolution to its long-standing standoff with the West is not just a diplomatic goal; it is an economic and infrastructural necessity.

A senior economic analyst and deputy CEO of an oil & gas company based in Tehran, Amirreza Etasi (Amir.etasi@gmail.com) has worked for more than a decade at the intersection of public finance, energy and development policy, both in executive roles and as a contributor to major media outlets in Iran and abroad.