It was in 1886 that the first generator came to Iran with nominal power of 3 KW. It is imported to supply the power needed for illuminating some parts of royal palace in Tehran. In 1904, a contract was signed which necessitated the construction of electric power factory called "Cheragh Bargh". Three years later, the factory came into operation but as its Persian name says, the output power was entirely dedicated to illuminate the urban lighting. The nominal power of this power station was 400 KW and it supplied the electric power through a low voltage distribution system in a circle with the radius of 800 meters around the power station location. After the power station started to produce electric power, the factory owner got the authorization for selling electric power to public customers. All related services consisting distribution system development and customers' internal wiring were done by this company. Hence the starting point of electric industry was completely a private localized monopoly with a vertically integrated structure.
Until 1963, there was not a specific organization for managing the electricity affairs in Iran. More precisely, the Interior Ministry had the responsibility to make the major decision about the related issues and promulgate executive instructions to be followed by the existing companies through the country. At this time, local electricity companies had been establishing in Iran. The first law for managing the electric power in a major level was legislated in 3th January 1963 and it was called the law of Iran Electricity Organization. This law, necessitated the establishment of regional electricity companies by merging the existing companies locating in each considered geographical zone. Due to the shortcomings of this law limiting the authority of Iran Electricity Organization, the law of establishing the ministry of "Water and Electricity" was legislated by the parliament on 5th April 1964. According to the legislated law, the ministry took over the stewardship of all existing electric companies. In 1965, a law was legislated saying that all nongovernmental electric companies must follow the generation and distribution defined conditions and accept the selling tariffs. As a result of this law, the profits for the private electric companies were not satisfying anymore and all electric companies forced to be a subsidiaries of this ministry.
Generation and Transmission Company of Iran "Tavanir' was established in 1970. The main activity of this company was to implement the major transmission and generation plans, operate generation facilities, substations and high voltage (230 and 400 KV) transmission network efficiently and technically. Major planning and coordination of all energy related activities were assigned to the ministry of "Water and Electricity". It was in late 1975 that the name of "Ministry of Water and Electricity" was modified to "Ministry of Energy". After this modification, the statute of Tavanir was revised and finally in 1976 "Iran Generation and Transmission Management of Electric Power Company" was born. It is remarkable that it was called with the same old name, the "Tavanir". Apparently, Tavanir handled the electricity related issues as a part of ministry of energy.
As is seen, at the beginning, the electric industry that was completely nongovernmental becomes a thoroughly governmental industry and the electric power was considered as a public service. By advancing the power system restructuring and electricity markets, there are obviously some motivations to perform this revolution in Iran.
It was in 1992 that the first activities were observed in Iran toward the decentralization of electricity industry. In this regard, independent generation management companies were established. New generation facilities were going to develop based on two major contract types "Building, Operation and Ownership" and "Building, Operation and Transfer" the BOO and BOT respectively. In BOO contract as its name says, the building, operation and ownership of generation facilities belongs to a certain party from beginning to the end. Conversely in BOT, the building and operation of the generation facilities were done by a party and finally the ownership was transferred to the governments. Distribution companies were also separated in 1994 and began their official activities. Similar to other countries convinced to proceed the power system restructuring revolution, there were several motivations for the power system restructuring in Iran. They are as follows (Fig. 1):
It was in late 2001 that Iran Electricity Regulatory Board (IERB) was established. The main activities of this committee were to study the existing electricity markets of the other countries. The goal of those studies was to exploit the past experiences in the world. After all, the model of IEM was proposed and based on this model, the "buying and selling electricity regulations" was legislated by the council of ministers in September 2003. Finally it was in 23th November 2003 that the IEM officially begins to work, the market providing a competitive environment for selling trading electric power. Following to this newly born electricity market, Iran Grid Management Company (IGMC) was established in fall 2004.
In fact this is the turning point of power system restructuring in Iran. This company functions as the power system operator and the market operator. Fig. 2 illustrates what has been saying so far.
In Iran, the electricity trades are performed in three major environments, the day-ahead market, the power exchange, and bilateral contract. Fig 3 illustrates main building blocks of IEM.
In the day ahead market an auction is established for the generation companies (GENCOs) with pay as bid mechanism. GENCOs submit their bids the day before delivery of power. The sellers' bids consist of the prices and the quantities. The customers only submit their quantity of demand. As a matter of fact, this mechanism is a single sided auction for the sellers. Market operator clears the market based on the submitted bids of GENCOs and buyers' demand. For inciting the players to develop the generation system capacity, the capacity payment mechanism is included to the IEM. These payments are made to the generation units regardless of being a winner in the auction for selling the energy or not. A price cap is also determined by the regulatory committee limiting the sellers' maximum bidding price. Fig 4. gives the main specifications of day ahead electricity market. The cost of system losses is allocated to the customers and the sellers based on their contribution on the power system total loss. In fact a flow based loss and transmission cost allocation is performed in IEM.
In the power exchange, the trades are categorized as the future contracts leading to power delivery. The buyer and sellers match their bids and offers for a certain quantity of power and the delivery of power will be in the time to come. They are free to make decisions about the prices and there will not be an intervention on their decisions. It should be noted that only the private GENCOs have the authority to participate in the power exchange and sell their power. There is also a limit on the maximum authorized power that could be sold in the power exchange for each generation unit. The quantity of power which is sold in the power exchange will be omitted from the sellers' bidding curves in the day ahead market clearing process. The buyers also will not imposed to pay any additional cost after the day ahead market settlement, for the power that they purchased in the power exchange itself. Fig. 5 gives the main specification of power exchange.
Buyers and sellers are authorized to trade bilaterally. Although the trades need to be approved by the system operator, they are free to negotiate about the prices and quantities. It is remarkable that most of these trades are based on long term contracts.
Average Purchasing Price of Electricity (Cents/kWh)
Average Price of Transmission Service (Cents/kWh)
Average Capacity Payment Price (Cents/kWh)
Average Selling Price of Electricity (Cents/kWh)
As is mentioned before, IEM is cleared based on a single sided auction. Sellers competitively submit their bids and IGMC, on behalf of buyers, purchases their demanded power. Transmission cost is allocated to the transmission system users based on their usage. This mechanism is traceable by considering the payments. Table. I illustrates the total payment and total energy statistics to give a brief financial description of IEM for a year (2012-2013). Yearly average prices could also be helpful in this regard. Table II, illustrates the average purchasing price of electricity, average price of transmission service, average capacity payment price and average selling price of electricity to the buyers.
To have a better view of an electricity market, it is worthwhile to know about the power producers consisting major part of market players. In Iran, the total installed generation capacity, which is derived based on nominal power, is more than 68.9 GW (until March 2013). It is remarkable that total measured generated energy was about 251 GWh for March 2013 to February 2014. 144 power plants consist Iran generation system that 25 of them are state owned or private companies. The contributions of installed power plant technologies consisting Iran generation system are depicted in
Iran has electrical connection to some of its neighboring countries. Total annual import and export in year 1391 (2012-2013) were 3.9 GWh and more than 11 GWh respectively. Fig. 8 and Fig. 9 illustrate the portfolio of Iran electricity trade with its neighbors.
In IEM the main customers are distribution companies (DISCOs) who purchase the energy in the wholesale market and sell it to their customers. Regional electricity companies who principally act as transmission companies (Transcos), also take the role of energy purchaser in the wholesale electricity market. The last energy purchaser in the wholesale electricity market is Tavanir who purchases the energy for export.
Transmission system is where the physical power transaction should be taken place. In fact, transmission system is the key element of power system and also power market, a physical system that may impose limitations or provide opportunities for the market players. Open access to the transmission system is important for providing all the players, a fair access to the electricity market opportunities. It should be noted that this open access is guaranteed by law. Table. III and IV, illustrates the statistics indicating the development of transmission system besides the system which is currently operating. It is remarkable that there are 16 totally state-owned transmission companies which are responsible for planning as well as expansion of the transmission system.
Under development (km)
Sub transmission substations
Under development (MVA)
The organization structure of regulatory board is as follows:
An important part of the regulatory organization is the regulatory board secretariat which is the executive part of regulatory board and responsible for:
Following the Energy Minister order, IERB has been established in 2003. Due to the requirements for power system restructuring and the needs for reregulation, this committee came into exist.
Regulatory board members are suggested by the energy minister's deputy of electricity & energy and the final decision about the suggested persons' membership is made by energy minister himself. It should be noted that the members are selected from individual experts. Currently the regulatory board has 7 members. The members are appointed for a two years period.
In fact, the IREB is a governmental authority overseeing the electricity market. It acts in a manner that could guarantee the fairness and justices in the electricity market environment. It also monitors the conformation of executive procedures adopted by market operators with the legislated market laws. It also observe the functions and relations of all market participants including the IGMC which acts as the system and market operator. Finally, IREB has the authority to handle the market players' claims.
The regulatory committee members hold more than 240 meetings to legislate the market rules, revise the existing rules (about 100 rules) and make decisions about the cases disputed.
Electricity market is a dynamic environment. Such environment needs to be accurately monitored. As result of this monitoring, some issues are propounded that necessitates to revise the existing regulations and executive instructions. It is also probable that the market players' suggestions or claims unveil the shortcoming of the existing electricity market laws that lead to legislate new regulations. Market monitoring unit of the IGMC could also report the market holes to the IREB due to open access to the market data and close interaction with the market players.
Revising the market rules, suggesting the alternate executive procedures or assessing the electricity market shortcomings needs the technical and economical roots, the effects of decisions on the market conditions and the reactions of the market players to be scrutinized. In these cases, regulatory board establishes the specialized work groups that consult the IREB to solve the issues. Experts, universities professors and experienced individuals are invited to the workgroups. According to the laws, one of the IREB members must participate in the workgroup assessing a market issue. When it is necessary IGMC could also have some representatives in the workgroups.
Market Monitoring and Development
Power Exchange Monitoring and Management
Electricity Market Contract Management
Iran electricity market (IEM) (wholesale market) is a single sided auction in which, Iran Grid Management Company (IGMC) purchases the electricity on behalf of the consumers. Large consumers (distribution companies and regional electricity companies) forecast their demand and inform (IGMC). Then the market will be created based on the adjusted load forecast data.
It is possible for the large consumers to purchase their demand within the power exchange. Bilateral contract is also another environment enabling the large consumers to procure the power for their customers. Distribution companies and regional electricity companies constitute the buyers sector in IEM. Tavanir can also take the role of a consumer purchasing electric power for export. It buys the power and sells it to the foreign parties.
Company (Regional Electricity Company: REC)
Sistan and Baluchestan REC
Company (Distribution company: DC)
North Khorasan DC
East Azarbayejan DC
South Khorasan DC
West Azerbayejan DC
Great Tehran DC
Esfahan Proviance electric DC
Chahar Mahal Bakhtiary DC
In Iran, it is possible for a privately owned power plant to make an energy conversion agreement (ECA) with a governmental company (called Tavanir). This company buys the output power of this power plant with a predetermined tariff (regulated by the ministry of energy) for a certain period of time (namely five years). This procedure preserves a sufficient level of internal return rate for the investors during the power plant lifetime considering that at the end of the agreement the power plant should participate in the electricity market. Tavanir is authorized to sell the power of ECA plants in the wholesale electricity market. Privately owned power plants could also freely participate in the electricity market and sell the energy.
Renewable energy resources (12 power plants with the total capacity of 169 MW) such as, incineration plants, wind power plants that are connected to the distribution system, small-scale solar power plants, and biomass plants make agreements with Renewable Energy Organization of Iran and the generated power will be purchased based on the regulated tariffs. Small scale gas turbines (58 power plants with the total capacity of 472 MW) bilaterally sell the energy to the regional electricity companies. In the light of the above explanations, the electricity market participators are categorized as follows: