Document Type : Research Paper
Authors
1 PhD Student in International Economics, Faculty of Administrative and Economic Sciences, Ferdowsi University of Mashhad, Mashhad, Iran
2 Associate Professor, Faculty of Administrative and Economic Sciences, Ferdowsi University of Mashhad, Mashhad, Iran
3 Assistant Professor, Department of Power and Energy Economics, Niroo Research Institute, Tehran, Iran
Abstract
Electricity trade has emerged as a crucial element within the global energy market, necessitating strategic optimization of Iran's role within this system. This study endeavors to design a mathematical model for optimizing Iran’s electricity exchanges by analyzing the balance between direct electricity exports and indirect exports, particularly through product groups such as steel and cement. The research employs an applied quantitative design, utilizing supply and demand modeling, and integrating elements of trade network analysis and competitiveness theory. The statistical population encompassed Iran's electricity-intensive export sectors, with key products demonstrating high energy consumption and export relevance selected via a purposive sampling method. The study modeled decision-making scenarios related to electricity production, import, and export structures, employing a mathematical framework rooted in competitiveness indices and trade gravity models. Data analysis was performed using sensitivity analysis and network trade indicators. The results indicate that a moderate increase in electricity production capacity significantly supports enhanced profitability and regional competitiveness, while excessive expansion leads to diminishing returns. Steel was identified as a high-potential long-term export product, whereas cement proved to be a more viable short-term option. The study concludes that reforms in the supply structure and the implementation of targeted export strategies are essential for improving Iran’s electricity trade, noting that increased bargaining power alone will not guarantee higher profitability. The developed model serves as a strategic planning tool to strengthen Iran’s position in both regional and international electricity trade.
Introduction
Electricity is vital to modern infrastructure and economic development, and Iran—endowed with ample energy resources and strong generation capacity—has the potential to lead regional electricity trade. However, rising domestic demand, resource limitations, and regional competition require a strategic reassessment of export and import policies. While earlier studies mostly emphasized direct electricity trade, this study introduces a dynamic multi-objective optimization model that also includes indirect exports through energy-intensive goods like aluminum and steel. The model positions Iran as the central node in a regional trade network, with its electricity flows treated as decision variables and external flows assumed stable. It aims to optimize electricity allocation among domestic use, direct exports, and indirect exports, using criteria such as trade competitiveness, profitability, gravity index, and infrastructure constraints. The study evaluates trade with key partners like Turkey, Iraq, and Pakistan, and supports policymakers in identifying optimal strategies and understanding the economic rationale behind Iran’s electricity trade. The paper provides a structured analysis across five sections, offering practical insights and policy tools.
Methodology
This study develops a decision-making framework to optimize Iran's electricity trade, covering both direct electricity exchanges and indirect trade through electricity-intensive goods. The model uses a multi-objective optimization approach to enhance competitiveness and profitability while reducing costs. It assumes a fixed trade network with constant flows among other countries, treating Iran’s electricity inflows and outflows as decision variables. The mathematical formulation defines key sets for countries (V), electricity-intensive commodities (K), and domestic allocation scenarios (S).
Key Constraints:
Electricity Supply Constraint: This constraint ensures that domestic consumption, direct exports, and indirect trade do not exceed the total electricity capacity
Export Capacity Constraints: Exports cannot exceed the domestic production limits for energy-intensive goods. Demand Constraints: Trade must align with market demand limits. Minimum Electricity Allocation for Industry: To prevent the collapse of energy-intensive sectors, a minimum electricity allocation for substitute commodity exports is ensured, and also Total Trade Volume Calculation: Iran’s total trade accounts for both direct and indirect electricity flows.
Objective Functions:
Maximize Iran’s Trade Competitiveness:
Maximize Profitability:
This methodological framework enables policymakers to optimize Iran’s electricity trade position, balancing domestic electricity allocation, direct exports, and indirect exports.
Results and Discussion
This study introduces a mathematical model for optimizing Iran’s electricity trade by incorporating both direct exports and indirect trade through electricity-intensive goods like steel and cement. Using real-world data, the model identifies effective trade strategies to enhance competitiveness and profitability. Key findings show that steel is a valuable long-term export, while cement offers short-term gains. A moderate (10–15%) increase in domestic electricity production boosts trade performance, but returns diminish beyond that. Political efforts to increase demand are not financially effective under current conditions.
Policy Recommendations
Based on the study's findings, the following policy recommendations are proposed:
Prioritize Energy-Intensive Exports: Focus on industries like steel and cement over direct electricity exports to maximize economic gains.
Control Generation Growth: Keep electricity production increases within 10–15% to avoid diminishing returns.
Support Export-Oriented Plants: Promote private investment in power plants dedicated to exports to balance domestic supply and boost revenue.
Improve Trade Infrastructure: Strengthen legal and technical frameworks to reduce dependence on political negotiations and enhance regional trade efficiency.
Keywords
Investigating the impact of accession to the World Trade Organization on Iran’s electricity exports. Quarterly Journal of Economic Modeling, 3(3-9), 177–202. [in Persian]
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