In 2006, Iran generated a projected 190 billion kilowatthours (Bkwh) and consumed 149 Bkwh. 172 Bkwh was generated by conventional thermal electric power, and about 18 Bkwh was generated by hydroelectric power, with a marginal amount of renewable (solar and wind) power provided. As of 2007, EIA shows no nuclear electric power generation. Iran seeks to increase its installed capacity by roughly 10 percent annually, keeping in line with its projected 7-9 percent annual demand growth.

Iran has been focused on meeting higher demand mainly through expanding combined-cycle and hydroelectric power. However, a severe drought during late 2007 and early 2008 adversely affected Iran's hydroelectric production, leaving water reservoirs emptied during the summer peak demand season, resulting in a drop of nearly 70 percent in hydroelectricity power generation. This has brought into question Iran’s ability to fulfill its domestic power obligations, let alone its export obligations. Consequently, as of late 2007 some 85 water dams were under construction.

Further investment is required to meet Iran’s future consumption needs. The Ministry of Energy estimates that to meet the growth in demand projected, capacity must reach 60,000 MW by 2015. A substantial element of this new capacity is due to be generated by independent power producers (IPPs), who are expected to have foreign equity stakes. Iran has a number of such projects in preparation, including plans to develop an IPP-based 1,000 MW open-cycle gas-fired power plant in Shiraz with the help of Quest Energy of Dubai. To date, most projects have been awarded through Iran’s state-owned Tavanir but there is recognition that IPPs and private capital are necessary to meet even medium-term demand projections. The government also aims to increase power reserves to 26 percent, signifyingthat the number of new projects awarded is likely to increase in the coming years.

Iran continues to develop its nuclear program to generate electricity. Its first nuclear power plant of 1,000 MW is to be built at Bushehr with Russian assistance and operations are planned to begin in 2010.Russia is also providing fuel under an agreement signed in early 2005. Iran plans to develop 7,000 MW of nuclear-generated electricity by 2020. The United Nations and various other interested parties are keenly monitoring Iran’s use of nuclear fuel and technology.

Iran currently exports electricity to neighboring states including Armenia, Pakistan, Turkey, Iraq, and Afghanistan. Azerbaijan and Armenia supply electricity to Iran. The Azerbaijani Energy and Industry Minister has stated that talks were held on establishing a circular power grid between Russia, Azerbaijan, Iran, Turkey, and Georgia.

Tavanir and Saudi Arabia's Zenel Company have agreed to build a 1,200 MW power plant in Azerbaijan.Iran also plans to develop Belarus’ heating stations and to construct a new hydroelectric station in the country.