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Thanks to Kevjn Lim for his contribution to this
report.
Iraq's power system has struggled for decades, with chronic
power outages, high losses, and gas supply shortfalls plaguing the
power sector and weighing on the country's economy. In July 2021,
blackouts across Iraq and simultaneous cessation of Iranian power
imports triggered mass protests and highlighted the risk of energy
overreliance on Iran. Several development programs have been
launched to build much-needed power capacity. But these have been
exposed to a combination of macroeconomic, political, and violent
risks. This challenging risk environment will likely continue to
hinder new investments in Iraq's power generation.
Developing Iraq's power system requires the government to
increase effective power generation while addressing transmission
losses and gas supply shortages. It would also require structural
reforms to reduce power revenue losses.
Iraq faces mounting power deficit mainly because of its low
power capacity availability. The power plants' reliable
capacity—that is effectively able to produce
electricity—only accounts for about half of their total
nameplate capacity and thus has been unable to meet the country's
rising power peak demand (see Figure 1). In addition, losses in the
power network account for about half of the total demand, owing to
high technical transmission and distribution losses and rising
nontechnical losses, such as electricity theft from the grid and
unpaid power bills.
Figure 1
At the end of the line, end users undergo daily power cuts from
the national grid, and therefore, often rely on expensive private
generator businesses. This translates into a more costly and
inefficient power supply system, since inhabitants pay excessive
power charges, while grid power supply does not recover its
generation costs.
On the fuel supply side, Iraq lacks domestic gas supply and
infrastructure, which contributes to persistent electricity
shortages. Iraq relies on Iran for both power and gas imports,
making it vulnerable to supply disruption from Iran and US economic
sanctions.
Political, security, and macroeconomic risks are affecting Iraqi
power investments. Terrorist attacks related to the Islamic State
are still a threat to recent power projects. Both contract
risks—arising from corruption and political
interferences—and macroeconomic risks—such as the
COVID-19-related crisis and the government's overreliance on oil
revenues—have precluded the implementation of power
investments. External and internal political risks, including
political wrangling likely to emanate from legislative elections
held in October 2021, will likely exert pressures on power
generation and interconnection projects.
Elsa Kiener, senior research analyst with the Climate
and Sustainability group at IHS Markit, is responsible for
electricity market research in the Middle East and
Africa.
Zaineb Al-Assam, associate director, Country Risk,
Middle East and North Africa, is a regional analyst specializing in
Iraq.
