Political Economy of Iran’s Electricity Industry: Long-Run Marginal Cost Approach

Set forward-looking electricity tariffs is very important to the political economy. Therefore, determining the basis for electricity prices will provide a diagnostic criterion for politicians and legislators to avoid mandated pricing. The present article investigates the long-run marginal cost forecasting of Iran’s electricity based on the predicted demand of vision 2041. Two scenarios of continuing the current trend and the high growth with frugality determine and distinguish the future power plant generations for each base year in a desired vision. In other words, total power generations and the share of each power plant type were scheduled, and consequently, long-run marginal costs are estimated based on the average incremental cost approach and levelized cost of electricity concept. The effects of fuel price and discount rate variations are investigated in this study. The LRMC variation trend based on the domestic fuel price is opposite to corresponding global fuel price.