The Islamic Republic of Iran has an area of 1648 million square kilometers, a population of 62.8 million, and a 1999 GDP per capita of 6.6 million Rials in current prices. GDP per capita in constant prices has increased during the period of the second five-year plan (SFYP 1995-1999) by 4.7% annually. Iran has substantial mineral resources and some of the largest hydrocarbon reserves in the world. Population in Iran increased rapidly before the first five-year plan (3.2% annually), but was controlled after the plan, with the rate of increase reduced to 1.7% in 1999. The GDP structure of Iran is shown in Table 1.

Table 1. Evaluation of GDP 1980-1999 in constant price of 1992 (billion Rials).

Oil was the key domestic fuel during 1960-90 and it played a major role as generator of export income and of surplus finance. In the past, annual crude oil production in Iran fluctuated widely, reaching a peak of 6 mb/d in 1974, plummeting to 1.3 mb/d in 1981 and then increasing by the second five-year plan to 3.1 mb/d. The annual level of production is now no longer determined by production constraints, but is regulated by OPEC's quota. This means that the exportable surplus of oil is determined (at least in the short run) by the domestic level of demand. The reduction of oil consumption by energy savings and by fuel substitution therefore has become the most important policy objective in the national energy policy.

In view of this background and due to its vast reserves, natural gas is destined to become the fuel of the future, replacing other fuel use wherever it is economic. Natural gas production started in 1966 for exports to the former Soviet Union. During the 1970s, its use in Iran started to develop as well. Today natural gas is a major fuel in Iran. The annual production of natural gas is about 54 billion cubic meters, of which more than one third is used in power production and the rest is used in the residential and industrial sectors.

Energy Sector

Iran's primary resource base includes oil, natural gas, hydropower, coal and solar energy (Table 2). Geothermal is about to be developed at a serious level. The present estimates of proven reserves amount to 90 billion barrels of oil (about 8.5% of the world total) and 24 trillion cubic meters of natural gas (close to 15% of the world total and second largest in the world) respectively. The present estimates show that the proven reserves of coal are about 13 billion tons. Production of primary energy is shown in Table 3.

Table 2. Proven reserves of fuels in Iran (1999).

Table 3. Production of primary energy in Iran (mboe).

The final demand structure of energy has experienced a decrease in oil and a considerable increase in natural gas shares during last ten years (Table 4). In this period, oil products share in final demand has declined from 79.8% to 62.7% while the natural gas share increased from 7.1% to 28.3%. The residential/commercial sector was the most important energy consuming sub-sector during the 1988-99 period, accounting for more than a third of total consumption; energy demand for transport amounted to more than one fourth of the total.

Iran is one of the few oil producing and exporting countries in the world to carry out programs for improving the energy efficiency of the different consuming sectors. The conventional and "easy" way to improve energy efficiency in a country is to adjust prices of energy products to cover production and delivery costs; moreover, a high tax on energy products is frequently applied in many countries. Due to low prices, population and economic growth, the energy intensity in Iran has constantly increased during the last several years (Figure 1).

Table 4. Energy consumption trends in Iran (mboe).

Figure 1. The trend of energy intensity in Iran, 1970 to 1998.

One of the main environmental problems that Iran is currently facing is air pollution, especially in Tehran. The energy-related carbon emissions in Iran have climbed steadily, following very closely the energy consumption (Figure 2). Iran, in recent years, has tried to reduce carbon emissions through utilisation of gas in power plants.

Figure 2. Growth of energy consumption and carbon emissions in Iran. Source: EIA

Electricity Generation

Some of the main figures of the power sector are shown in Table 11. The annual average growth rate of installed capacity, generation, consumption and number of customer are 5.8%, 8.2%, 7.8% and 4.8% per annum during 1989-99 period, respectively.

Table 5. The power sector in Iran.

According to statistics concerning electricity generation from 1999, the total actual capacity of power plants under the management of the Ministry of Energy was 25 273 MW, out of which 51.9% was produced by steam power plants, 37.9% by gas and combined cycle power plant, 7.9% by hydropower and the rest by diesel generating stations (Table 6). In 1999, electricity generation also increased an average of 3.4% compared to 1998.

In 1999 Iran's power plants, including those under the management of Ministry of Energy and heavy industries, generated 112 TWh of energy, for an annual average growth rate of 7.4% during 1990-99 period (Table 7).

Table 6. Installed capacity of power generation in Iran.

	1998		1994		1999		Annual growth rate 1988-99 (%)
	Amount (MW)	Share %	Amount (MW)	Share %	Amount (MW)	Share %
Steam	7 475	54.6	10 742	52.6	13 115	51.9	5.2
Combined cycle	-	-	3 175	15.6	5 803	23.0	-
Gas	3 489	25.5	3 785	18.5	3 763	14.9	0.7
Hydro	1 914	14	1 953	9.6	1 999	7.9	0.4
Diesel	803	5.9	758	3.7	593	2.3	-2.7
Total	13 681	100.0	20 413	100.0	25 273	100.0	5.7

Table 7. Electricity generation in Iran (1978-1999).