Iraq has signed a heads of agreement with Emirati renewable energy developer Masdar for solar energy projects with a total capacity of at least 2 gigawatts in central and southern Iraq. The move, when fully implemented, will help to alleviate electricity shortages that have plagued Iraq and allow Baghdad to gradually ease reliance on costly Iranian gas and electricity imports. It also signals the Iraqi government’s determination to move forward with its much-delayed renewable energy program.
Masdar said in a statement that the heads of agreement was signed on June 24 via a videoconference attended by Iraq’s oil minister, Ihsan Abdul-Jabbar Ismail; electricity minister, Majid Mahdi Hantoush, and president of the National Investment Commission, Suha al-Najar. Delegates from the United Arab Emirates included Energy Minister Suhail Mohamed Faraj Al Mazrouei, Minister of State for Foreign Trade Thani bin Ahmed Al Zeyoudi, and Masdar CEO Mohamed Jameel Al Ramahi.
Speaking in a video on the Oil Ministry’s Facebook page after the ceremony, Najar said the contract was worth $1 billion, adding that it constituted one of the largest photovoltaic projects in the Middle East. Ismail said a joint committee would be formed to determine the sites for the proposed solar parks, and he expected a contract would be signed within a few months.
The project is expected to be completed within three years with the first solar farm operating a year earlier, Ismail said. Iraq has set a target of generating 20% to 25% of its electricity, or 10 GW to 12 GW, from renewable energy by 2030. The country enjoys very high irradiation levels in its southern and central provinces, estimated at more than 1,899 kilowatt hours per square meter in the west and south, according to a February 2020 assessment by the Iraq Energy Institute.
Masdar, a subsidiary of Abu Dhabi’s Mubadala Investment Company, has a global portfolio of renewable energy projects, but the agreement with Iraq carries geopolitical significance. The UAE and Saudi Arabia are resetting their relations with Baghdad and stepping up their investments in Iraq to counter Iran’s economic and political influence. Saudi Aramco and Saudi-based Acwa Power are holding separate negotiations with Baghdad on investments in oil and gas field developments as well as renewable energy projects. The UAE has pledged to invest $3 billion in Iraq while Saudi Arabia has announced its intention to invest in Iraq, but no firm commitments have been made so far.
Masdar will deliver the project using the independent power producer model, whereby the contractor will build and operate the solar farms in return for a flat fee. This has become the preferred vehicle for Iraq’s government to attract foreign investment into its electricity sector, both for the development of new capacity and upgrades to existing power generation plants.
Masdar’s Ramahi said the agreement would contribute to the development of clean energy solutions in Iraq and help in attaining its climate goals. “The UAE shares Iraq’s commitment to diversify away from a dependence on oil and gas, and to accelerate the transition to clean energy sources,” he said during the signing ceremony.
Iraq, which relies almost exclusively on crude oil exports for nearly all its budget revenue, has struggled to diversify its economy and so remains vulnerable to oil price volatility. Although it has vast gas reserves, much of its natural gas is associated with oil production, and Iraq does not have the needed infrastructure to gather and process all the gas produced. Roughly half of its total gas production is flared, a wasteful practice that is also harmful to the environment as greenhouse gases are emitted into the atmosphere.
The World Bank lists Iraq as among seven countries that account for two-thirds of global gas flaring. Data from the World Bank’s Global Gas Flaring Reduction Partnership published in April shows that Iraq flared 17.37 billion cubic meters of gas in 2020, second only to Russia. Iraq has joined the partnership and has committed to zero flaring by 2030, though outside the initiative, Baghdad’s goal is to halt gas flaring by 2025.
Iraq’s flared gas, the World Bank noted in a 2017 report, would be enough to support an incremental generation capacity of around 8.5 GW, which is roughly the current gap between Iraq’s supply and demand. Capturing even a fraction of the wasted gas would allow Iraq to narrow the gap between supply and demand for electricity. But that alone is not enough given the state of its electricity infrastructure, which has suffered from decades of neglect, war damage, and underinvestment.
At present, Iraq has few options but to continue importing natural gas and electricity from Iran at an annual cost of $3.6 billion, according to Iraq’s electricity minister. Although Iran is under U.S. sanctions that prevent it from exporting oil and gas, Washington has made an exception for Iraq, granting waivers that allow Iranian imports. But these exemptions are not open ended, and Washington has made it clear that Baghdad should develop its gas infrastructure and secure alternative sources of supply. Electricity shortages, particularly during the scorching Iraqi summers, have stoked public anger and are among grievances over poor social services that have led to street protests in recent years.
The latest U.S. waiver was granted in March for 120 days. Yet while waivers allow Iraq to import gas and electricity from Iran, banking sanctions prevent the transfer of funds resulting in mounting debts to Tehran and the interruption of supplies. Iraq has two contracts for gas purchases, signed in 2013 and 2015, for Iran to supply 50 million cubic meters per day by pipeline to southern and central Iraq and 1,200 megawatts of electricity. Iraq relies on Iranian energy supplies for around 40% of electricity generation. But gas volumes from Iran fluctuate, and when they decline, there is insufficient capacity to meet peak demand. Iran interrupted gas supplies in December 2020 as it waited for Baghdad to resolve the payment delay. Volumes were restored several weeks later but at reduced levels.
Hantoush, Iraq’s electricity minister, in a March 4 interview with Iraq Oil Report said Baghdad owed Tehran around $4 billion, though Iran has put the amount outstanding at $6 billion. He said the imports cost $300 million per month, and he cited two reasons for the interrupted flows from Iran: Iranians’ high consumption of gas and Iraq’s failure to make payments. He noted that, because Iran is under sanctions, “For several years, we have not paid their money as a result of our inability to deliver the fees.”
With temperatures rising, the Iraqi government has agreed to reschedule the debt to allow Iranian imports to resume at full levels before peak summer demand sets in. Hantoush said Iraq was receiving only one-third of the contracted 50 million cubic meters, which he said was enough to generate 7 GW of electricity.
Iraq has capacity to produce 19 GW of electricity, though generation is running at around 14 GW to 16 GW because of transmission losses. The gas shortage has forced combined cycle power plants to operate at just 60% of capacity. The Electricity Ministry had hoped that capacity would reach 22 GW in time for the summer, but that was contingent upon the stable supplies of Iranian gas and electricity that have not materialized. Even if Iran supplies its full contractual volumes, peak demand is forecast to rise to 30 GW this summer, which would leave a supply gap. Subsidized electricity prices also encourage high consumption when the power is on.
With high temperatures expected, some provincial authorities have limited electricity supplies while others have called on people to ration their use of electricity. Influential Shia cleric Muqtada al-Sadr, who has often been critical of the government’s management of the electricity sector, launched a broadside via Twitter with a long list of what he said were failings in delivering stable supplies of electricity to the people, citing corruption as one of the main causes of dysfunction in the sector.
To make matters worse, since January, there have been a series of attacks targeting power stations and installations in Iraq, including an attack that struck one of the four power lines linking Iran and Iraq. The government has blamed the attacks on the Islamic State in Iraq and the Levant, which still has some active cells in Syria and Iraq. Reuters reported on June 27 that ISIL had claimed responsibility for a rocket attack on a power station.
Amid these mounting pressures, Iraq will need time to rehabilitate its power sector and attain gas self-sufficiency or find alternative suppliers. It has signed up to link its power grid to that of its Gulf Cooperation Council neighbors, an initiative supported by both the UAE and Saudi Arabia. But progress here has been slow since a memorandum of understanding was signed in 2019 with the Gulf Cooperation Council Interconnection Authority for the supply of 500 MW to southern Iraq. There has been no word when the agreement will be finalized. Baghdad has also explored various other options, including electricity imports from Jordan, Saudi Arabia, and Turkey, but none have advanced.
In 2012, Iraq announced plans to invest $1.6 billion in solar and wind energy, but movement was slow given more pressing security issues. Much of the new investment will come from borrowing from international financial institutions.
The Iraqi government has prioritized power projects over other energy investments. Bids to install 755 MG of solar capacity were due to be launched in October 2019 but the coronavirus pandemic and collapse in oil prices in early 2020 delayed progress while mass protests that forced the resignation of Prime Minister Adel Abdul Mahdi’s government in May 2020 held up official business. The delayed solar projects were finally awarded in February and will be installed in seven locations across Iraq. If all the projects are implemented, Iraq will attain greater solar capacity than Saudi Arabia has managed to install to date, an indication of the ambitious scope of Iraqi aspirations in this sector.
Baghdad is also negotiating a 1 GW solar project with France’s TotalEnergies, part of a wide-ranging $7 billion energy investment that includes development of oil and gas and a water project to supply southern oil fields. In early June, the Cabinet agreed to exempt the French energy major from competitive bidding by issuing a “single bidder tender” for the solar segment after some politicians raised objections. Because of the land required for a solar project of that size, it will be split into two 500 MW solar parks: The first is expected to be operational by the end of 2022 and the second by 2023, reaching a full capacity of 1 GW, according to Ismail.
Iraq desperately needs to advance an agenda on climate change in order to tackle the harmful emissions caused by gas flaring. The country has finally joined the growing trend of its neighbors to deploy renewable energy as an alternative to gas and liquid fuels for power generation. The recent advances offer a glimmer of hope (powered by renewables) that Iraq may be stepping out of the darkness.
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