Estimation of Welfare Costs of Power Outages in Iran's Economic Sectors

Electricity plays an important role in the production of various economic sectors.  Power outages can thus impose high costs on these sectors and ultimately on economic growth and development.  The purpose of this study is to estimate the welfare losses resulting from a possible power outage in the productive economic sectors of Iran. This study was conducted in two stages using provincial panel data for the period 2010-2019. In the first stage, the electricity demand functions in the sectors of industry and mining, agriculture and services are estimated. In the second stage, changes in the welfare surplus of electricity users (due to possible power outage) are calculated using the estimated demands. The results of the first stage show that  electricity and diesel are complements in the industry and mining sector while electricity and natural gas are substitutes in the service sector. The agricultural sector is not sensitive to changes in electricity prices.  Estimated welfare losses of sectors (industry and mining, agriculture and services) at the macro and provincial levels show that  Kohgoluyeh, Boyer-Ahmad and East Azerbaijan provinces have respectively the highest and lowest welfare losses in the industry and mining sector. In the service sector, North Khorasan and Alborz provinces have respectively the highest and lowest welfare losses from possible power outages. JEL Classification: D04, C33, Q41 Keywords: Welfare costs, power outages, economic sectors, Iran, Consumer surplus