Power infrastructure continues to generate headaches

Reuters

• Political chaos causes power output to fall short of demand 
• Iraq’s electricity shortages due to delays in payments to Tehran

As the peak summer months draw near and political stalemate continues to block hopes for reform in Iraq, concern is mounting that the poor performance of the country’s power sector could spark a return to mass protests.

Iraq’s electricity infrastructure is in dire straits. Ravaged by war, decades of mismanagement, political chaos and corruption, power output falls far short of demand. 

One long-standing challenge is financial. Citizens enjoy highly subsidised power – up to 90 percent of the cost of production – leaving a huge gap for the treasury to cover.

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Furthermore, electricity bills are rarely paid: the country has been in a near-constant state of emergency in recent decades, leading to a culture of non-payment.

Philip Ingram, a retired senior British intelligence officer with close links to Iraq, told AGBI: “Energy has been at the forefront of issues across Iraq for decades.

“The frictions caused by the Kurdish north and southern Basra having oil wealth, while the cash-poor central part of Iraq remains devoid of energy influence, has hampered successive governments trying to rebuild an energy infrastructure for the whole country. 

“This, combined with endemic corruption, mismanagement and infighting between ministries, has led to little real progress.”

Some $81 billion has been invested since 2005 to maintain a functioning power sector, but there is still a 9gw gap between peak supply and demand during the summer months when air conditioning units are cranked up.

“As the country rebuilt from the 2003 conflict and with climate change creating longer, hotter summers, the difference between supply and demand for electricity has worsened,” Ingram added.

Corruption blights the power sector. It is easy to siphon off money through development projects, especially with billions of dollars being invested in haste. Iraqis have been left with little to show for all the public spending, with many blaming corruption.

An Iraqi energy insider, speaking on condition of anonymity, told AGBI: “If you ask an Iraqi to pay their electricity bill during these summer months, you will be lucky if they just spit in your face.”

Gas imports

Technical deficiencies are another problem. Despite nearly doubling hydrocarbons output over the past decade, Iraq flares off more than half of its oil-associated gas production as it lacks the infrastructure to capture it. Instead, the country relies on imports from Iran for one-third of its gas supply.

Much of Iraq’s current shortage of electricity is down to delays in making payments to Tehran.

US sanctions on the Islamic Republic mean Baghdad cannot send cash to Tehran, requiring payments to be processed in imports of food and medicine, adding huge administrative costs to the already pricy energy imports and leaving Iraq in heavy arrears. 

On top of this, the political impasse since the October 2021 parliamentary election has prevented Iraq from passing a federal budget, further holding up payments. Iran often responds by reducing gas deliveries, which triggers widespread power outages.

The Ministry of Electricity said in a statement on June 1: “The reduction of 5 million cubic metres of the supplied Iranian gas has led to limitations to the system’s loads, and caused the reduction in the hours of electric power supply.” 

In mid-June, parliament finally approved a bill allocating approximately $2.7 billion to clear arrears affecting the power sector. Iran has since agreed to supply Iraq with 50 million cubic metres of gas a day during the summer months.

According to a report on the country’s energy sector published by the International Energy Agency in April 2019, electricity demand in Iraq is set to double between 2019 and 2030, driven by a population growing by more than 1 million people each year. 

The report, Iraq’s Energy Sector: A Roadmap to a Brighter Future, concluded that the best way forward was “cutting network losses by half at least, strengthening regional interconnections, putting captured gas to use in efficient power plants, and increasing the share of renewables in the mix.”

Since its publication, Baghdad has turned to its neighbours to boost those interconnections, inking first a deal with the GCCIA Interconnection Authority for a GCC-Iraq power link. 

Progress was delayed by the pandemic, however, and work on building the interconnection is still underway. 

Interconnections with Turkey and Jordan have been completed ahead of this summer peak, though. In January Iraq and Saudi Arabia signed a memorandum of understanding confirming intentions to link their electrical power grids.

In an attempt to boost domestic gas production and reduce its reliance on Iranian imports, Baghdad signed an agreement in September 2021 with France’s TotalEnergies for the construction of a new gas gathering network and treatment units to recover gas currently being flared on three oil fields. 

The project would supply local power stations with sufficient gas for up to 1.5gw of electricity generation capacity in the first phase and 3gw in a second phase. However, media reports in February suggested the deal had run into trouble amid parliamentary scrutiny.

Renewables ambition

Iraq has also set out plans for clean energy to account for up to 20 to 25 percent of its power production, or 10 to 12gw, by the end of the decade. 

It has allocated $680 million for investment in renewables, signing a major agreement last year with the UAE’s Masdar for five solar energy projects around the country with a combined capacity of 1gw, and more set to follow.

The $27 billion of deals Baghdad signed with TotalEnergies in September also included the construction of a 1gw photovoltaic solar farm to supply the Basra region.

Some are sceptical about the wisdom of investing in renewables at this time. 

“You cannot think about renewables on their own, you have to think about the whole energy model in Iraq,” said Yesar Al-Maleki, an energy economist. 

“The problem with renewables, especially solar, is that you will have intermittency of supply.

“Given that the Iraqi power system is vulnerable in this way, you will have problems dealing with the reliability. 

“Iraq should’ve started first with pilot projects, gained experience then moved gradually to utility scale.

“But Iraq is also chasing time trying to build as much capacity as it can.” 

Iraq’s transmission and distribution system is in urgent need of an upgrade. Technical and commercial network losses, estimated at about 50 percent, are among the highest in the world.

Al-Maleki said: “The network is old; it has endured many attacks on the pylons in the last two years. Iraq needs more lines and to resolve issues on the distribution side as well. 

“The government has tried, but it is a race against time and capacity, with demand growing by up to 10 percent a year, and the supply side is not keeping up.”

According to Al-Maleki, the focus for now should be on strengthening transmission and distribution networks rather than renewables. 

“These projects are shiny, giving officials opportunities to celebrate on national TV, but the detail shows that more investment in the distribution and transmission is required,” he said. 

“Replacing a transformer or cables on a street won’t get you on TV, but it is vital.”