Technical Note No. 5
Article 121 as well as the M3E (Market for Energy Efficiency and Environment) Bylaws2 have been established to create the legal framework for a market environment which is characterized by very low consumer prices for energy. The artificially low prices, supported through government subsidies, currently encourage the wasteful use of energy and impede projects for energy efficiency improvement as the price distortion prevents consumers and potential investors from reaping the true economic benefits associated with reduced energy consumption. Consequently, many energy efficiency projects that are worthwhile from an overall economic perspective are currently not implemented because the associated cost savings for the consumer do not cover the investment costs.
The idea behind Article 12’s provisions and the M3E is to incentivise energy efficiency investments which are otherwise unprofitable from an energy consumer’s point of view: they assign an additional value to energy savings by reimbursing energy saved, or by allowing project owners to sell the savings to higher-tariff national or international consumers for a pre-defined period. The basis for this mechanism is the strongly differentiated system of energy tariffs currently in place in Iran.