Economic Analysis – Iraq
The Iraqi government’s strategy is increasingly shifting towards the adoption of solar energy amid concerns over the potential loss of Iranian gas supplies. This pivot is crucial as the state seeks to provide reliable energy solutions to its citizens by ensuring the availability of solar panels and batteries at competitive pricing and manageable installment plans. While officials assert that solar energy cannot fully replace the national electricity grid, they propose its integration in sectors such as agriculture, industry, and public institutions that operate primarily during daylight hours.
Recently, the Iraqi government announced new initiatives aimed at launching smart solar energy projects in response to the expiration of the U.S. exemption allowing Iranian gas imports for electricity generation. Authorities are emphasizing the urgency of preparing land allocated for these solar projects.
The anticipated severe summer conditions are prompting the government to take decisive action regarding solar energy, particularly since the electricity crisis remains critical, characterized by a shortfall of 26,000 megawatts. This deficit is forecasted to worsen to around 36,000 megawatts with the cessation of natural gas imports from Iran, translating to a staggering 70% of the country’s current electricity demand.
Prime Minister Mohammed Shia Al-Sudani has engaged with the Minister of Electricity and the National Team for Smart Solutions and Renewable Energy to assess the technical dimensions and implementation strategies for the solar initiative. Discussions included a review of energy systems’ performance and production capacities using smart practices and methodologies.
Experts suggest that the pressing need for alternative gas sources could potentially be addressed by connections with Gulf states; however, this process is expected to be time-consuming. Hence, the strategic development of solar energy is highlighted as a viable solution, particularly through initiatives like the project by French company Total Energy, which aims for a capacity of 1,000 megawatts.
It is noted that Iraq could benefit from establishing five or six similar solar stations across various regions. The financial and operational efficiency of such stations, coupled with Iraq’s favorable climate—boasting approximately 300 sunny days each year—makes solar energy a compelling option. This could significantly alleviate the burden on the national electricity grid, especially with the support of large companies in this sector.
In July 2024, Haider Mohamed Makiya, the head of the National Investment Authority, formalized the investment agreement for the 1,000 megawatt solar power plant project in Basra, marking a pivotal step in diversifying Iraq’s renewable energy portfolio.
According to energy analysts, Iraq is lagging in solar energy development, especially in contrast to Gulf states like the UAE and Saudi Arabia that are advancing their renewable systems to prepare for a post-oil future.
Sherwani highlights that the financial allocations within the Ministry of Electricity are adequate to establish two to three solar plants annually, with each facility projected at a cost of no more than $800 million. This level of investment over five years could significantly mitigate the existing electricity deficit. Furthermore, encouraging both citizens and governmental bodies to adopt alternative energy sources could play a major role in addressing the ongoing energy crisis.
The expiration of U.S. exemptions for Iraqi gas imports on March 8, 2025, poses new challenges. The Iraqi government now faces difficulty in sourcing Iranian gas necessary for its power stations.
The U.S. State Department confirmed the conclusion of these exemptions as part of its stringent policy towards Iran, reinforcing the goal of mitigating Iran’s nuclear threat and curtailing its missile program and support for armed groups.
Energy expert Hamza Al-Jawahiri acknowledges the potential of solar energy but cautions that it cannot entirely replace traditional power plants, particularly as solar energy generation is limited to daylight hours. This necessitates storage solutions, which can be financially burdensome compared to other energy sources like gas.
Nevertheless, Al-Jawahiri believes utilizing solar energy in agriculture and industry can be economically advantageous, given the daytime operational hours in these sectors. This would not only enhance energy supply but also relieve pressure on the national grid.
In February, Minister of Electricity Ziad Ali Fadel announced the accreditation of eight specialized solar energy companies as part of an initial phase under the Iraqi Central Bank’s initiative.
Researcher in economic affairs Hammam Al-Shamaa notes a growing trend of households relying on solar energy, with solar panel systems in the market capable of providing around 20 amps at a cost of approximately $6,000. While these systems may not entirely replace existing energy sources, they nonetheless alleviate some pressure on the national grid.
Al-Shamaa emphasizes that the success of the solar energy initiative hinges on the government’s provision of solar panels and lithium batteries at affordable prices and flexible financing options through loans from the central bank, targeting the middle class.
If implemented effectively, this approach could provide substantial energy relief to many households, particularly for those eligible for loans of around 10 million dinars, contributing significantly to the energy demands of approximately 10,000 homes and enabling them to operate independently of the national electricity supply during the day.
Iraq currently relies on Iranian gas for approximately one-third of its electricity production, with Iran supplying about 50 million cubic meters of gas daily. Despite this, Iraq’s energy requirements during peak periods exceed the available supply, underscoring the urgency for alternative and sustainable energy solutions.