Transition in Iran’s Electricity Market Considering the Policies on Elimination of Electricity Subsidies: System Dynamics Application

Because of electricity subsidies, electricity price in Iran is much lower than its real value, and the growth of electricity demand is much more than its rational rate, which in turn implies ever increasing investment in the electricity section by the Government. Therefore, the recent Government policies are based on elimination of electricity subsidies, followed by commissioning complete electricity market to attract investors in the power industry. In this paper, a model is developed for electricity demand prediction and evaluating Iran s current electricity market and complete electricity market to deal with optimistic and pessimistic electricity demand. Hence, a system dynamics framework is applied to model and generate scenarios because of its physical capability and information flows that allow understanding the behavior of nonlinear dynamics in uncertain conditions. To validate the model, it was compared with the available actual data within 21 years, since (1988-2008). After model validation, two scenarios are evaluated based on the influence of eliminating electricity subsidies on electricity demand in short-term and long-term and then commissioning of the probable complete electricity market is evaluated.