Market Report, "Iran Power Report Q2 2016", published

The signing of the Joint Comprehensive Plan of Action between the Iranian government and the PG+1, comprised of the five permanent members of the Security Council and Germany, an agreement aimed at bringing an end to sanctions on Iran through agreement on the country's nuclear programme, has precipitated considerable activity among foreign investors looking to take advantage of the country's considerable market for electricity, both in terms of domestic supply and export.

Since the signing of the agreement, several companies, many of them European, and several government delegations have visited Iran, signing agreements with the government aimed at installing a number of new power plants in the country. In Q116, Iranian authorities announced potential co-operation over nuclear power plants with both Hungary and Japan.

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However, BMI's forecasts for the power sector remain quite cautious, for the time being. BMI predicts Iran's total power generation to be 258.11TWh in 2016, an increase of 1.55% on 2015's 254.17TWh. Between 2017 and 2025, BMI forecasts this output to increase at a year-on-year (y-o-y) average rate of 2.27% to 319.79TWh by 2025.

According to BMI's research, Iran will have 80,864.37MW of installed capacity in 2016, representing a 0.57% increase on 2015's 80,409.30MW. During the period 2017 to 2025, this figure will increase at an average year on year rate of 2.0%, reaching 96,508MW by 2025.

A number of factors underscore the cautious nature of our forecasts. In recent years, Iran's economy has not performed well. It underwent a 10% contraction in real terms across the period 2012 to 2015. The government predicts a rapid rebound in economic growth, at a rate of 8% y-o-y. However, we predict that the economy will grow at just over 4% per year. The upside is limited by the poor outlook for oil and gas prices and limitations on the removal of sanctions, with the US government maintaining 'primary' sanctions. Indeed, while non-US firms and foreign subsidiaries of US firms will now be permitted to conduct business in Iran, US companies will not. Moreover, some European firms have decided to remain on the sidelines for now, since doing business with companies linked to Iran's Republican Guard will remain a punishable offence.

All these factors limit the prospects for growth in consumer and industrial power demand in Iran, while also limiting the resources - fiscal and professional - available for investment in the sector.

Modest growth in the Iranian power sector will continue to be driven by gas-to-power, as the government seeks to take advantage of the country's abundant natural gas wealth. The government will also push ahead with its programme of converting older simple cycle units to combined cycle technology, thereby increasing efficiency and boosting capacity.

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