The capacities of the energy exchange for the prosperity of the electricity industry/ Why is the role of the capital market weak in the electricity industry?

According to Tejarat News, the 7th development plan, which is still under consideration by parliamentarians, has proposed a part of the capacities of the energy exchange to improve the state of the electricity industry. In a report, the Majlis Research Center has investigated the strategic issues of the energy sector in the 7th Development Plan, relying on electricity transactions in the energy exchange.

The electricity industry, as one of the most important infrastructure industries of the country, has faced many challenges in recent years, especially in terms of providing financial resources for the development of power plant capacity. The inefficient electricity pricing system has reduced the income and accumulated debt of the government to the private sector, and as a result, it has destroyed the attractiveness of investing in that field. Therefore, the need to move towards an efficient electricity pricing system is undeniable.

However, critics of the government believe that it was the government body that prevented the creation of a competitive environment in the electricity industry for many years to keep this market exclusive. In this way, the government is both a producer, a seller and a price setter, and as the only producer and supplier of electricity in the country, it gets all its benefits. However, the government in the 7th development plan, like the 6th plan, has had a partial view of the energy exchange.

Lagging of development plans from electricity production goals

The report of the research center has emphasized that one of the approaches that can be adopted in this field is to create a market that transparently discovers the price of electricity based on the principle of supply and demand. Based on this, in Part “2” Clause “B” of Article (44) of the Law of the Sixth Five-Year Development Plan, the Ministry of Energy is required to determine the purchase price of electricity according to the market mechanism in the stock exchange, but performance reports indicate that with The existence of legal duties is only a small part of the total volume of electricity transactions in the country (about three percent) in the framework of the energy exchange. At the same time, in clause “b” of article (43) of the 7th development plan bill, the Ministry of Energy is obliged to increase the share of electricity transactions in the energy exchange to at least 30% of the total transactions by the end of the second year of the plan and at least 60% by the end of the plan. Is.

The volume and value of electricity transactions in the energy exchange

In general, in the electricity market of the Iran Energy Exchange, transactions are carried out in three main markets, i.e. the physical market, the derivative market and the market of other tradable securities. Currently, 82 power plants (both public and private), 458 industrial subscribers, 49 electricity retail companies and 39 distribution companies are present in the electricity trading section of the Energy Exchange. In recent years, the annual average of electricity transactions in the energy exchange has been approximately equal to 9 billion kilowatt-hours with an average value of four thousand billion rials per year.

According to this report, the volume of electricity transactions in the energy exchange was only about three percent of the total transactions, and from the perspective of the value of the transactions, it was about one percent. Therefore, the electricity transactions carried out in the framework of the energy exchange did not play a decisive role in electricity transactions, and therefore the objectives of the legislator in the sixth development plan have not been achieved.

Discovering the price of electricity below the price of the wholesale market!

It should be noted that the discovered price of electricity in the energy exchange is lower than the wholesale market, and the main reason for this is the power plants’ need for liquidity. Among the challenges that have led to the diminution of the role of the stock exchange in electricity transactions, we can mention the lack of comprehensiveness and integrity of the laws regarding electricity trading, the lack of full implementation of the laws and regulations related to electricity trading, the governmental and sometimes monopoly structure that governs the active institutions, the stoppage of the supply process. Credit of distribution companies and some mechanism of prescriptive pricing mentioned.

According to the report of the Majlis Research Center, these challenges are such that in some cases, they have caused the reverse trend in the development of electricity transactions of the stock exchange. Due to the reasons mentioned, the value and volume of the market of large consumers of Iran Energy Exchange has been growing until 2018 and has started its downward trend since 2018.

Solutions to increase the role of the energy exchange in electricity transactions

Along with the pathology of the issue, this report presents suggestions for the seventh development plan with the aim of promoting electricity trading in the energy exchange and increasing the share of this market in discovering the price of electricity and suggests that the general approaches of the Ministry of Energy in the field of electricity trading should be considered Determine different markets.

On the other hand, the implementation of laws related to electricity trade should be accompanied by a single procedure in order to increase the share of electricity transactions in the energy exchange. Another solution to increase competitiveness in the electricity market, including the development of energy exchange transactions, reforming the structure of the electricity market, and especially increasing competition in the electricity retail sector.

In addition, it is possible to facilitate the conditions of activity in the energy exchange by increasing the flexibility in determining the price ceiling and electricity tariffs of active subscribers in the energy exchange.

Read more reports on the Capital Market and Energy Exchange pages.