Abstract for: Effects of Gas Subsidy on the Behavior of Power Stations in Iran:A new policy to reduce energy intensity in electricity section

Presently in Iran, gas-driven power stations and combined-cycle power stations compete as they share a common budget allocated by the government for their establishment. With the government offering gas at subsidized rates, the cost price of electricity production at gas-driven power stations is comparatively lower, thereby enhancing their attractiveness for the investor. Therefore, despite their decreased efficiency, the establishment of such power stations is on the increase which in turn imposes additional costs for the government. On the other hand, it would be in the best interest of the government to help increase investment in combined cycle power stations which are far superior in terms of efficiency, and which, in the long run, would be profitable. In this paper we present a model and suggest policies for the government through which a decrease in energy intensity can be achieved without incurring additional costs for the government. We suggest practical ways to optimize existing methods of power production by diverting subsidies offered by the government.