The Price of Cheap Power Full Research Note

Iran’s electricity mix is not complicated. Depending on which tracker you use and which year, somewhere between 75% and 85% of the country’s power comes from natural gas, with most of the remainder split between other fossil fuels and a thin sliver of hydropower — generally under 5%. Enerdata’s own figures put gas at 80% of generation specifically. Renewables, excluding hydro, barely register: as of 2024, Iran had roughly 350 megawatts of wind and 1 gigawatt of solar installed, against a target it had set for itself of 4.5 gigawatts of wind by 2021. It missed that target by a wide margin.

That subsidy doesn’t cost money in the abstract. The IEA estimates Iran’s total energy subsidies have swung between $30 billion and $137 billion a year over the past decade, tracking global fuel prices. By 2020, the power sector alone accounted for roughly $12.5 billion of that — more than natural gas or oil products individually. Keeping the lights cheap has become the single largest line item in Iran’s energy subsidy bill.

— The core finding of Aryanpur, Fattahi, Mamipour, Ghahremani, Ó Gallachóir, Bazilian & Glynn, Energy Policy (2022), paraphrased

That’s the theoretical version. The 2025–2026 version is playing out in real time, and it’s considerably less orderly.

Iran’s own thermal plants average about 39% efficiency, well below modern combined-cycle standards, and grid losses of roughly 13% are more than double what’s typical in developed networks. The consequences have been concrete and expensive.

Some cement factories had electricity allocations cut by 90% during the worst 2026 shortages. On Iran’s own Energy Exchange — power traded outside the regulated system — prices during peak shortages ran roughly four times the standard rate, a fairly stark illustration of what electricity is actually worth in Iran once the subsidy is stripped away.

Iran’s electricity is cheap because a subsidy is absorbing the gap between what people pay and what power costs to produce. When that gap gets too large to sustain, something eventually gives. In 2025 and 2026, what gave was the lights.

Ethiopia’s story starts from an entirely different place: it is, by most measures, one of the cleanest electricity systems on the planet. Ethiopian Electric Power’s own data puts hydropower at roughly 94% of installed capacity, with wind, geothermal and biomass making up nearly all of the rest — there is essentially no fossil fuel in the mix. IRENA confirms it from a different angle: 96% of generation in 2023 came from hydro, and renewables made up 90% of Ethiopia’s total energy supply that year.

But the more interesting story, from a “why was this so cheap” standpoint, isn’t the generation mix — it’s the price.

A July 2026 analysis from the Energy for Growth Hub lays out the mechanics. Before Ethiopia’s last tariff reform in 2018, the average residential customer paid between 1.3 and 3.4 US cents/kWh, against an actual cost of generation, transmission and distribution estimated at roughly 9.2 cents. The 2018 reform nudged nominal prices up — but the birr then lost more than 80% of its value against the dollar between 2006 and 2022, which quietly ate the increase and left the average residential tariff back down around 3 cents by 2022. Ethiopia had only adjusted electricity prices five times in over sixty years going into 2024; currency depreciation did the rest of the damage on its own.

The reckoning arrived via debt, not drought. Ethiopia missed a Eurobond payment in 2021, entered a G20 Common Framework debt restructuring, and took on an IMF stabilization program in 2024 — one condition being quarterly tariff increases aimed at full cost recovery, with subsidies eliminated entirely by 2027/28. By the time the program concludes, the lowest-consuming three-quarters of residential customers will pay four to six times what they paid before the reform started; industrial tariffs will rise sixfold, as shown above.

Halfway through, the utility-finance results look like a clear success:

That last stat sits alongside a caveat most “cheapest electricity” listicles skip entirely: a rock-bottom price only matters to people actually connected to the grid.

Roughly 60 million Ethiopians — most of them rural — still have no power at all. A price of $0.006/kWh is, for them, a completely abstract number. Ethiopian Electric Utility’s own mandate is to push national access from 44% to 75% — but each new rural connection costs $100 to $1,000 to build, against customers with very limited ability to pay, which is arguably the harder problem the reform hasn’t solved yet.

If Iran is the cautionary tale and Ethiopia is the mid-course correction, it’s worth asking whether any country has pulled off genuinely cheap electricity without either subsidizing its way into crisis or clawing the price back up later. Two cases are instructive — and they don’t tell quite the same story.

The pattern across all four cases: cheap electricity that lasts is priced close to its actual cost of production, backed by a resource base large enough to sustain that price. Cheap electricity that doesn’t last is priced below cost — propped up by a subsidy (Iran) or simple neglect (pre-reform Ethiopia) — and it eventually forces a correction. Managed, like Ethiopia’s four-year program. Or unmanaged, like Iran’s 2025–2026 blackouts.