The Price of Cheap Power

Roughly 80% of Iran’s power comes from natural gas priced at about $34,000/mcm — a tenth of what U.S. households pay for the same gas. Hydro and renewables barely register.

The IEA puts Iran’s power-sector subsidy alone at roughly $12.5 billion a year. A 2022 Energy Policy study found that removing it entirely would cut demand 16% and emissions 31% by 2050, and push renewables from 2.5% to nearly half the generation mix — simply by letting price do its job.

Worth understanding why the subsidy exists at all: by Iran’s own implicit economics, exporting gas as electricity is the worst-earning thing the country can do with it. A Stanford analysis found electricity exports return about $70,000 per million cubic meters of gas — versus $155,000 for petrochemicals, $270,000 for gas exports, and $450,000 for compressed natural gas sold as vehicle fuel. Domestic power, priced under the subsidy, earns even less. There’s never been much internal pressure to price power properly.

That gap is now a lived crisis: rolling blackouts, industrial revenue lost to outages rising from ~300 to ~400 trillion tomans between 2024 and 2025, and emergency-market electricity trading at 4x the regulated price. A drought and the 2026 conflict with the U.S. and Israel have compounded things — but the underlying structure, a system built almost entirely on subsidized gas with a razor-thin hydro cushion, is the constant.

Ethiopia’s grid is ~94% hydropower — genuinely clean, not subsidized fossil fuel. But before the country’s last tariff reform in 2018, residential customers paid just 1.3–3.4¢/kWh against a real ~9.2¢ cost of service — and currency depreciation ate most of that 2018 increase anyway, so tariffs were still only around 3¢ by 2022, after Ethiopia had adjusted prices just five times in over sixty years.

The generation side just got a major boost, too: the Grand Ethiopian Renaissance Dam, Africa’s largest hydropower project, added 5,150 MW — roughly doubling national capacity — when it was inaugurated in September 2025, after a $5 billion build financed almost entirely by Ethiopians themselves.

The tariff trigger was a 2021 debt default and a 2024 IMF program requiring cost-reflective pricing.

Even after the full reform, tariffs will still sit below actual cost — and the Energy for Growth Hub flags five open risks that could still undercut the gains: the cost structure stays underpriced even post-reform; revenue can’t rely on tariffs alone; higher bills don’t automatically buy reliability; a 4–6x increase strains affordability against wages that haven’t kept pace; and each new rural connection costs $100–$1,000 against customers with little ability to pay, so access expansion remains the harder unsolved problem. One more wrinkle worth knowing: because prices rise every quarter, the $0.006/kWh ranking figure up top is already a few tariff updates behind Ethiopia’s actual current rate.