CLIMATE CHANGE, ENERGY AND ENVIRONMENT A ROADMAP TO PREPARE IRAQ'S POWER SECTOR FOR ENERGY TRANSITION Harry H. Istepanian- Noam Raydan Reviewed by: Dr Luay Al-Khatteeb October 2022 Iraq federal government’s attempts to incorporate renewable energy into the mainstream energy sector, have not been wholly successful due to policy conundrums, illdesigned institutional and governance structures, distorted market mechanisms, and technical challenges, particularly those involving grid connectivity. In this report, the authors present an overview of the status of the electricity sector in federal Iraq with a focus on the key challenges it is facing, before discussing a roadmap towards energy transition, and the major steps that need to be taken for a successful transformation. These will include technical, economic, and legal measures. Al-Bayan Center for Planning and Studies

CLIMATE CHANGE, ENERGY AND ENVIRONMENT A ROADMAP TO PREPARE IRAQ'S POWER SECTOR FOR ENERGY TRANSITION Harry H. Istepanian- Noam Raydan Dr Luay Al-Khatteeb October 2022

C ontents Executive Summary...................................................................................................... 3 1 BACKGROUND 5 2 CURRENT STATUS OF THE ELECTRICITY SECTOR 7 2.1 Delays in Developing Gas industry and Reliance on PNG for Power................................. 8 2.2 Unreliable Public Supply and Neighborhood Generators................................................ 9 2.3 Peak Demand Shortage................................................................................................ 10 2.4 High Operating Cost.................................................................................................... 11 2.5 High Aggregated Technical and Commercial losses....................................................... 11 2.6 Lack of Accurate Demand Forecast.............................................................................. 12 2.7 Corruption in the Electricity Sector.............................................................................. 13 3 ENERGY TRANSITION: CURRENT CHALLENGES 14 3.1 Outdated Grid Infrastructure and T&D Losses............................................................... 15 3.2 Solar Power and Baseload Demand.............................................................................. 15 3.3 Cost of Generation...................................................................................................... 16 3.4 High Costs for Replacing Oil-Fired Plants....................................................................... 16 3.5 Emissions Laws and Regulations.................................................................................. 16 3.6 Limited Awareness Campaigns and Lack of Financing................................................... 17 1

CONTENTS 4 A ROAD MAP TOWARDS ENERGY TRANSITION STRATEGY 18 4.1 Quality of Service and Commercial Performance.......................................................... 19 4.2 Engaging the Private Sector......................................................................................... 19 4.3 Restructure Electricity and Legal Entities....................................................................... 19 4.4 Ensuring a Just Energy Transition.............................................................................. 20 4.5 International Support For Energy Transition.................................................................. 20 5 CONCLUSIONS 22 REFERENCES.............................................................................................................. 23 List of Abbreviations.................................................................................................... 25 List of Tables............................................................................................................... 25 List of Figures................................................................................................................ 26 List of Pictures........................................................................................................... 26 Appendix A- Iraq Electricity Energy Schematic................................................................. 27 Appendix B- Iraq Energy Market Multi-Buyer Conceptual Design................................ 28 2

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION EXECUTIVE SUMMARY As Iraq grapples with increasing environmental challenges as a result of climate change, including soaring temperatures, unabating dust storms, and drought, the federal government of Iraq has expressed on various occasions its readiness to transition to clean and sustainable energy. In 2020, the government, and in partnership with the UN Environment Programme(UNEP), launched a process to develop a National Adaptation Plan(NAP) to build the country’s resilience to climate change 1 . The plan aims to focus on technology transfer to reduce Greenhouse Gas(GHG) and methane emissions by at least 30 percent from 2020 levels by 2030 2 . The Ministry of Environment, meanwhile, plans to develop a national vision for climate change, including the Nationally Determined Contributions(NDCs) 3 [ تامهاسملا ةقيثو ةينطولا ], and the Framework for their implementation. Being the world’s second-worst flaring country after Russia in 2020, Baghdad has also expressed its commitment to utilize associated gas and develop its gas fields for the purpose of reducing its carbon footprint and protecting the environment. Figure 1 shows the variance in carbon emissions under three different scenarios. 1 UNEP(2020), Iraq launches National Adaptation Plan process for climate change resilience.https://www.unep.org/news-and-stories/ press-release/iraq-launches-national-adaptation-plan-processclimate-change 2 The Climate and Clean Air Coalition(2022), Iraq Includes Methane in its Nationally Determined Contributions, Citing Health and Development Benefits. https://tinyurl.com/2nrw7uf8 3 The United Nations defines an NDC as“a climate action plan to cut emissions and adapt to climate impacts. Each Party to the Paris Agreement is required to establish an NDC and update it every five years”. https://tinyurl.com/2frxnxrz EXCECUTIVE SUMMARY  launched a process to develop a National Adaptation Plan(NAP) to build the country’s ͳ ʹͲ͵Ͳ ʹ ͵ ةينطولا تامهاسملا ةقيثو – F Š i ‡ g  ” u ƒ re ‡™ 1 † G ‡˜ r ‡ o Ž‘’ w t h o Ž† f c o Š‡ 2 e ‘ m i ˆ s s † i — o …‹ n s o ƒ”„ f i ˆ‘ r ‘ a –’ q u ƒ n d ”‘ e –‡ r …–‹ d i Š f ferent ‡ s  c ˜‹ e ”‘ n  a ‡ r – i o  ‹ s ‰—” ( ‡ a u t ‘ h ™• o r ‡ s ’ ”‹ a ƒ n …‡ a l y ƒ” s „ i ‘ s ) 350,000,000 300,000,000 Carbon Emissions (tons CO2e) 250,000,000 200,000,000 150,000,000 100,000,000 50,000,000 0 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 Base Case with NDC Strategy with Zero Flaring (Authors’ The various clean energy and environment-focused events ͳ w h ic h ͲʹͲ t Ȍ h e g — o …Š v ‡ e r ƒ n –‹‘ m ƒŽ e n †ƒ t ’–ƒ h –‹‘ a s jo i ‘ n …‡ e •• d s Ž‹ o ƒ– f a …Š r ƒ , ‰ m a •‹Ž y ‹‡ c ‡ r e a  t Ȍ e the ʹ il ‘ l  u –” s ‹„ i — o –‹‘ n t h ‹–‹ a ‰ t B ƒŽ– a g ƒ h d ‡˜ a ‡ d Ž‘’ is ‡– a l ‡ r  e ‡ˆ a ‹–• d y ‹ o n a serious path towards ͵  The United Nations defines an NDC as“ ‹ e  n ’ƒ e …–• r g y t r ƒ” a –› n s i Š t ‡ i o ƒ” n ‹• . H ”‡ o ‡ w ‡– e v e ‡“ r — , ‹”‡ t † a l ‘ k i – n ƒ„ g Ž‹•Š a b o u t † e n ’† e ƒ– r g y ˜‡ t ” r a ˆ‹˜ n sition ›‡ƒ”•”( before preparing the relevant policies and regulatory framework to ensure its suc ‹‹ c ess, puts the cart before the horse. In the power sector, which is the focus of this report, the government’s attempts for instance to incorporate solar energy into the mainstream energy sector, have not been wholly successful due to policy conundrums, ill-designed institutional and governance structures, distorted market mechanisms(e.g., poor quality products), and technical challenges, particularly those involving grid connectivity. In this report, the authors present an overview of the status of the electricity sector in federal Iraq with a focus on the key challenges it is facing, before discussing a roadmap towards energy transition, and the major steps that need to be taken for a successful transformation. These will include the following detailed technical, economic, and legal measures(Figure 2): 1) Increase investment to immediately improve the distribution network, while focusing on increasing generation, including renewable sources, particularly 3

solar energy; 2) Draft and pass the necessary laws that focus on engaging low-carbon investment, and environmental protection; 3) Expand and increase the reliability of electricity supply (e.g., SAIDI, SAIFI, CAIDI) 4 ; 4) Increase energy efficiency and energy conservation, including the development of energy service companies; 5) Improve electricity sector good governance and performance via a clear separation of duties and functions of enterprises owned by the Ministry of Electricity(MOELC); 6) Establish an independent energy market and transmission system operator, and encourage a gradual move to cost recovery tariffs through full commercialization of the electricity sector; and 7) Develop funding policies and financing schemes that include targeted subsidies and routinely adjusted electricity rates. Figure 2 Government key strategic areas To gradually achieve these measures, Iraq will require international technical and financial support, with a major contribution from the private sector and foreign investors. Public investment in Iraq depends directly on public finance, but there is significant scope to reduce overall costs for government by leveraging private finance. This, however, will require an attractive investment environment, which until now remains lacking in federal Iraq. 4 SAIDI= System Average Interruption Duration Index. It is the minutes of non-momentary electric interruptions, per year, the average customer experienced. SAIFI= System Average Interruption Frequency Index. It is the number of non-momentary electric interruptions, per year, the average customer experienced. CAIDI= Customer Average Interruption Duration Index. It is average number of minutes it takes to restore non-momentary electric interruptions. 4 EXCECUTIVE SUMMARY

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION 1 BACKGROUND Electricity generation in Iraq is heavily dependent on fossil fuels, with thermal power stations consuming approximately 22 million tons of liquid and gas fuels in 2020(Table 1). Table 1 Fuel consumption for electricity generation in 2020 (source: moelc, authors’ analysis) Fuel Type Quantity(tons) Although Iraq is considered a relatively low emitter of CO2 (with per capita emission of 5.24 metric tons in 2020) compared to some other countries in the region (Table 2) 5 , the increase which the country experienced in recent years is alarming. Carbon emissions from Iraq’s overall energy sector jumped from 71.7 million Mt CO2e in 2000 to 210.8 million Mt CO2e in 2020, and based on the expected growth in emissions, this amount is likely to increase to 472.9 million Mt CO2e by 2050(Figure 4). 1 BACKGROUND Natural Gas 12,847,384 Table 2 Crude Oil 634,866 A • n nual CO2e per capita F › u e ʹ l O ‹ŽŽ i ‹ l 3 ‡ , Ž 0 5 ‹ 0 , Ͳ 4 ʹ 0 8 Country Annual CO2 Emissions[metric Gas Oil Fuel Type 5,387,059 Quantity(tons) tons per capita] T —” o ƒ t a ƒ l 2 ͳʹ 1 ǡͺ ,9 Ͷ͹ 1 ǡ͵ 9 ͺͶ ,7 17 Qatar 37.02 The contribu — t ‡ i Ž o n of hydroelectricity is qu ͵ i ǡͲ t ͷ e Ͳ l ǡͶ o Ͳ w , standing at around 4%, ƒ d e ‹ s pite the presence of the ͷǡ͵ t ͺ w ͹ǡ o Ͳͷͻ m ain rivers of Tigris and E u ‘ p –ƒ h rates, while the share o ʹ f ͳǡ r ͻ e ͳ n ͻǡ e ͹ͳ w able energy, such as biomass, solid waste, solar, and wind energy of t ‡ o t a — l ‡Ž g e ‘ n • e — ra ’ t –‹ i ‘ o  n r e Ž‡ m …–” a ‹ in ‹–› s  ‡ n  e ‡” g ƒ l – i ‹‘ g  i b ‹ l e ʹͲ , ʹͲ n  ( o So t u w rc i e t : h M s O ta EL n C d , a i u n th g ors t ’ h A e nalysis) Kuwait 20.83 Bahrain 20.55 ‡ S ‡” a ‰› u d …– i ‘” A r  a ’‡ b i ˆ” a 1 7 ͳͲ . Ǥͺ 9 6 U Ͳͷ A E 15.19 vast potential for renewable resources, particularly solar energy(Figure 3). „‹‘ƒ•• F ig ‘Ž u ‹† r e ƒ 3 Generation mix(2022) Oman Country Iran Iraq (D a ta Source: Our Annu 1 al 2 CO .1 2 E 7 missions [metric tons per capita] 8. ͵ 8 ͹ǤͲ 7 5. ʹ 2 ͲǤͷ 4 World ͺǤͺ i ͹ n Data) 2.0% Figure 4 24.0% Iraq’s actual and forecast of co2 emissions(2000 – 2050) 42.0% 500,000,000 450,000,000 Iraq CO2 Emission (Mt CO2e/year) 400,000,000 350,000,000 5.0% 4.0% 300,000,000 250,000,000 200,000,000 4.0% 150,000,000 100,000,000 19.0% Gas Oil Hydro Diesel Tie Lines IPP Other [D ‡ a ‡” t ƒ e –‹‘ S  o u ‹š r c ʹ e Ͳʹ : ʹ M O ƒ– E L C ‘— ] 50,000,000 0 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Actual CO2 Emissions(tons) Forecast CO2 Emissions(tons)  : Iraq’s Act [ ua S l a o nd u F r or c ec e as : t o W f CO2 B E G mis , sio A ns u (2 t 00 h 0 o – 2 r 0 s 50 ’ )[ a So n ur a ce: ly W s BG is , A ] uthors’ analysis] 5 Fed O era u l r Ira W q’s o t r a l l d k o i f n –”ƒ D • a ‹– t ‹‘ a  : ‹ h t – t ‘ p s ‡ : ƒ /  /o u ‡ r ” w ‰› o r  ld ‡ i • n d  a ‹† t a ƒ .o r ˜ g ‡” / Ǧ g ‰” r ‘ a ™ p ‹ h ‰ e r ‘ /  c • o — -e ’ m –‹‘ i  s s ˆ i onsͷ per-capita?tab=table …Šƒ‰‡’s effects which the country experienced in recent years is alarming. Carbon emissions from Iraq’s 5 ͷ

BACKGROUND Federal Iraq’s talk of transitioning to clean energy comes amid an ever-growing consumption of fossil fuels and associated gas flaring which has been contributing to the drastic climate change’s effects across the country. Iraq is classified as the fifth most vulnerable country in the world to climate change according to the United Nations Office for the Coordination of Humanitarian Affairs(UNOCHA) 6 . Over the past years, the country has suffered from prolonged heat waves, erratic rainfall, desertification, drought, and extreme water shortages 7 . If these changes are not mitigated through sound planning, they will impact the country’s GDP in the long term. According to a study published by Stanford University, Iraq’s GDP per capita will decline ͸ 93% by 2100 due to climate change 8 (Figure 5). †‡•‡ F ”– i ‹ g ˆ‹ u ƒ– r ‹ e ‘ǡ 5 ͹ through sound planning, they will impact the country’s GDP stud P y r p o ub je lis c h t ed e b d y St i a m nfo p rd a U c n t iv s ers o it f y, I c ra l q i ’ m s G a DP t p e er c ca h ’‹ a –ƒ n g ‹ŽŽ e o Ž‹ n i ͵ r Ψ a q „› ’ s ʹͳͲ g Ͳ d p …Ž‹ p ƒ e r …Š c ƒ a ‰ p it ‹ a ‰—” u n Ȍ ͺ t i l 2100 Federal Iraq’s commitments to green and clean energy sound encouraging. However, in the power sector, which is the subject of this report, they can hardly be realized considering the country’s inherited and poor electrical infrastructure. For instance, the national grid in its current condition, cannot withstand additional and substantial supply from any potential clean energy projects, and the transmission and distribution networks must be upgraded to control the heavy technical and non-technical losses. Without these improvements, Iraq won’t be able to successfully transition to clean energy in the next decades. Understanding all these challenges and how they can gradually be resolved is of crucial importance before exploring the landscape of green and clean energy. The following sections will examine the above-mentioned challenges and others in detail before presenting a roadmap for energy transition. 0% -10% 2010 2020 2040 2060 2080 2100 -20% -30% -40% -50% -60% -70% -80% -90% -100%  Iraq’s (Source:https://web.stanford.edu/~mburke/climate/map.php) •‘— A –Š d ‡” d i ” t ƒ i “ o n Š a ‡ l ” l ‡ y , ‡› t h ‹Ž e ˆ‹‡Ž h †• e a ”‡ v y ‘…ƒ r –‡ e † l ǡ i a ™ n c ‹ e ’‡ o †‡ n f ‡ o ”ƒ s Ž s  Ir il aq f ’s u …Ž e ‹ ls ƒ , a ƒ n –‹‘ d t Ž h ƒ e — –Š”‘ o — n ‰Š g o Š‡ i n g –‹‘ g ƒ a ŽŽ› s f ‡ l – a ‡” r  in ‹ g ‡† , p ‘ a –” r ‹ t „ i — c –‹ u ‘ la r ly  — in s o —– u t he r  n ‹•• I ‹‘ r  a • q w h †ƒ e ’– r e …Ž‹ k ƒ e –‡ y o ƒ i – l • f ͻ i Ǥ e l Š d ‡ s a  r – e ƒ”‹Ž› l o ‘ c  a  t ‹ e – d ‡ , w i ƒ l “ l i m Ͳʹ p e –‘ d e f ” e ‹• d e ‰” r ‡ a ‡ l ‡ I – r a ƒ q • ’ s c ͳ l Ǧ i ʹ m a t ʹ e Ǧ‡ a “— c ‹˜ t ƒ io Ž‡ n p  l ‹ a •• n ‹‘ — t ”‘ h  r o ‹–• u g † h —•– t ”› h e † N a ‡ t  i o n ‹ a † l ‘ ly D ‘” e t e ̈́ͳ r Ͳ m i „ n ‹ŽŽ e ‹‘ d ‹˜‡ C •– o  n ‡ t – r i  b u ”‡ t ‡ i  o n …‘ ( ‘ N  D C ˆ”‘ )  — t Š o c u ”‹ t ˜ƒ– G H † G e „Ž m i ‡ s s –‘ io n ‘˜ s ‡” a n d ‡š a d ͳͲ a p ‡ƒ t ”• ͳͲ ed t e o ral I c ra l q im ’s c a om te mitm im en p t • a c t ” s ‡ 9 ‡ . T h Ž‡ e v ‡ o ”‰ lu n ‘ t — a † r i ‡ l  y …‘— c ” o ƒ‰ m ‹‰ m i ‘ t ™ m ‡˜ e ‡” n t o f ’‘™ Ir ‡ a q ‡…– i ‘ n 2 Š 0 ‹…Š 2 1 t ‡ o t Œ‡ h e P –Š a ‹• r is ‡’‘ A ”– g r ‡ e › e m e Šƒ n ”† t w „‡ a s ƒŽ‹ t œ o c ‘ u • t ‹†‡ 1 ”‹  2 % CO2-equivalent emissions from its industry and open a ͸ w i n ȋʹ d Ͳͳ o ͻȌ w  Ž‘ f „ o ƒŽ r U ˜‹ S ”‘ $  1 ‡ 0 – 0 b –Ž‘ i ‘ ll  i o n i  n vestment in green economy, ͹ ͺ f  r ˆ o ‘” m b ‹˜ o ‡”• t ‹ h t h ‘ e ‘ p ‹ r i va ’ƒ t e a n Ž‹ d ƒ–‡ p u Šƒ b ‰ li ‡ c s e ”ƒ c “ǡ t o r  s ȌǤ o ver the next 10 ͻ y e a r –– s ’ 1 • 0 ǣȀ . Ȁ™™™Ǥ—†’Ǥ‘”‰Ȁƒ”ƒ„Ǧ•–ƒ–‡•Ȁ’”‡••Ǧ”‡Ž‡ƒ•‡•Ȁ‹”ƒ“Ǧ”‡ƒˆˆ‹”•Ǧ…‘‹–‡–Ǧ…Ž‹ƒ–‡Ǧƒ…–‹‘Ǧ ͳͲ 6 UNEP(2019), Global Environment Outlook 6: https://tinyurl. com/2pqf4rrz 7 WBG, Climate Change Knowledg ͵ e Portal: https://climateknowledgeportal. worldbank.org/country/iraq 8 Stanford University, Economic Impact of Climate Change on Iraq: https://web.stanford.edu/~mburke/climate/map.php 9 UNDP:https://www.undp.org/arab-states/press-releases/iraq-reaffirmscommitment-climate-action-under-paris-agreement-draft-nationallydetermined-contributions-document 10 UN-Iraq(2021), As Iraq joins Paris Agreement, UN calls for further support to help the country adapt: https://iraq.un.org/en/161240-iraqjoins-paris-agreement-un-calls-further-support-help-country-adapt 6

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION 2 CURRENT STATUS OF THE ELECTRICITY SECTOR Direct Cost of Electricity Shoratge on GDP (million US$) Power (GW) Power demand in federal Iraq increased significantly country’s inherited and poor electrical infrastructure. after 2003 due to limited but considerable economic ‡ d ‡ e ”‰ v › e lo ‘Œ‡ p …– m e † n t a ƒ n • d ‹••‹‘ p o ƒ p u ‹• l – a ”‹ t „— io –‹‘ n g ™ r ‘ o ” w t — h . P ’‰ o ”ƒ w †‡ e r s  u –”‘ p ply, – h Š‡ o w ƒ˜ e v ‡ e Š r  , ‹…ƒ h a † s b  e Ǧ te e ch n nic i a n l lo s s u se f s f . W ic it i h e o n ut t th , es l e e im a p d ro in ve g men t t o s, Ira a q c w u on t ’ e t be p ab o le w to er • o — u …‡ t • a •ˆ— g ŽŽ e s ”ƒ t • h ‹– a ‹‘ t h a Ž‡ v ƒ e a ‡ f ”‰ f › e c t –Š e d ‡š t – h e …ƒ l † i ‡ v •Ǥ e s of millions of citizens, a  n †‡ d ”•–ƒ s † l ‹ o ‰ w e d d Š o ƒŽŽ w ‡‰ n e † c o ‘™ n o Š‡ m i  c d †— e ƒ v ŽŽ› e l ‡ o p •‘ m Ž˜‡ e n t ( ”— F i ‹ g ure 6). ‹ H ’ a ‘” v –ƒ i  n g t ‘ o e ’ n Ž‘” d ‹ u r Š e p † r • o …ƒ’ lo n g ”‡ e ‡ d p o Ž‡ w e  r ‡”‰ c u t ‡ s — ‘ŽŽ‘™‹ t  h a ‡ t –‹‘ c • o uld last for over 12 hours per day— many businesses and industries have been shut down, leading to limited local 2 pro CU d R u R c EN ti T o S n TA , TU a S n O d F TH w E o EL r E s C e T n RI i C n IT g Y SE u C n TO e R mployment, especially among the youth 11 . Figure 6  — Ž D ƒ•– i r ‘” e c ˜‡ t c o ‘— s ”• t o f ƒ›— e l ƒ e › c t — r • i ‹ c ‡ i • t •‡ y s h † o —• r –” t ‹‡ a g Šƒ˜ e o ‡ n i r ‘ a ™ q ’ Ž‡ s ƒ†‹ g dp – ( ‘ 2 0 ‹– 0 ‡† 7 – 2 ”‘ 0 † 2 — 0 –‹‘ ) ( ƒ a † u t ‘” h •‡ o ‹ r ‰ s ’ ‡ a  n ’Ž‘ a › l  y ‡ s – i s • ) ͳͳ 4,500.00 4,000.00 3,500.00 3,000.00 2,500.00 2,000.00 1,500.00 1,000.00 500.00 0.00 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020  Direct Cost of Electricity Shortage on Iraq’s GDP(2007 –(Authors’ Electricity services in federal Iraq have remained abyssal despite the increa se in power generation over the past ͳͳ  ”‘—’, Iraq has the world’s youngest population and a youth — y ‡ e  a ’Ž r ‘ s › . ‡ F – o r –‡ i n s ͷ t Ǥʹ a n ‡” c …‡ e – , a l t ʹ h Ͳʹ o u g Ȍ h federal Iraq’s design capacity is 37,149 Megawatts(MW), the government failed to produce more than 22,250 MW in July 2022, while peak daily electricity demand was at 36,560 MW 12 . In view of the ever-growing supply-demand gap(Figure 7), Iraqi citizens experience daily acute blackouts, particularly 11 According to the World Bank Group, Iraq has the world’s youngest population and a youth unemployment rate of 25.2 percent as of 2020:https://trendsresearch.org/insight/covid-19-and-the-youthunemployment-challenge-for-iraq-and-lebanon/ 12 Iraq imports about 1.4 GW from Iran, and natural gas to generate another 5.5 GW, but electricity and gas imports from Iran are often interrupted over payment issues complicated by U.S. sanctions, as well as domestic shortages within Iran. d u r –” i ‹ n …‹ g p ”˜ e ‹ a ‡ k s u ‡† m ‡”ƒ m e ƒ“ r m ƒ˜‡ o n  t ƒ h ‹ s ‡† w h ›• e •ƒ n t • e ’‹ m p Š‡ e r  a …” t ‡ u ƒ• r ‡ e s c ™ li ‡ m b t ‰‡ o ‡” a ƒ– r ‹ o ‘ u n ˜‡ d 5 0 d ›‡ e ƒ” g •Ǥ r e ‘ e s •– C ƒ e …‡ l ǡ s i l u th s ou . gh T f o eder m al a Ira k q e ’s d u es p ign c f a o pa r cit t y h is e 3 s 7 e ,149 s h ‡‰ o ƒ™ rt ƒ a ––• g e s , Ȍǡ m a n ‘˜ y ‡” c  o ‡ n  s u ˆƒ‹ m Ž‡† e r ‘ s h ‘† a — v …‡ e b ‘” e c –Š o ƒ m e ǡʹͷ d Ͳ e p e n d —Ž e n ʹͲ t ʹʹ o n p ’‡ r ƒ i  c e ƒ y ‹Ž› p o Ž‡ w –”‹ e …‹ r –› s e ‡ rv ƒ i  c † e s ƒ• s u p ͵͸ p ǡͷ l ͸ ie d b ͳ y ʹ p olluting and unreliable 13 n e i ‡ g ™ h b o Š‡ r h ˜ o ‡” o Ǧ‰ d ”‘™ d ‹ i ‰ e s — e ’’ l Ž› g Ǧ† e ‡ n ƒ e  r † a t ’ o rs ‹‰ — —”‡ m o s ƒ t “ l ‹ y r ‹œ u ‡ n b š’ y ‡”‹ g ‡ r o u ƒ p ‹Ž› s o „Žƒ r … in ‘— d –• i ǡ v i ƒ d ”– u ‹…— a Žƒ ls ”Ž› c o —” n ‹ n e ’‡ c ƒ t  e d — t  o p  o ‘ l – i Š t • ic a Š l ‡ p a ‡ rt ’ i ‡ e ”ƒ s – . F ’” i ‹ g …‡ u r ’ e ‘™ 7 ͳ͵  — Iraq electricity peak supply and demand(2003 – 2021) 40 35 30 25 20 15 10 5 0 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 Peak Supply Peak Demand Average Production  – , Author’s [Data Source: MOEL ƒ C ƒŽ› , •‹ A uthor’s analysis] Although ͳͶ generation capacity has improved in the last 14 few years, due to the participation of the private sector, this has not been commensurate with improvements to the transmission an d distribution networks. ͳʹ D ‰ƒ• u ri ’ n ‘” g t  h e p ”‡ e r ˆ i –‡ o  d 2 ”— 0 ’– 1 ‡† 3 – 2  0 ‡ 1 8 ••— , g …‘ o  v ’Ž e ‹…ƒ r – n ‡† m e n t • ƒ o …– w ‹‘ n e ƒ• d g ͳ͵ e ‘ n ‡ e r ™ a  t ‡ i ” o n c ‡” o ƒ– m ‘”• p a n •— i † e † s p †‡ r o ‹† d u c —” e  d 5 ’ 1 ’Ž› 0 , — 0 9 3 ‹• , — 5 ˆˆ 3 ‹…‹ 1 M W h •– ,  forcing many households to wait for the government’s power service which usually y Žƒ• e –• t d is t ™ r i Š b ‘— u ”• t i o n companies, which are also owned by the ͳͶ g ‰‡ o ‡ v ”ƒ e –‹‘ r  n m ƒ’ƒ e …‹ n t ‹ , m Ͳʹʹ a naged to sell only 249,713,758 MWh to consumers due to dilapidated transmission and distribution networks. The estimated c ͷ o st of the Aggregated Technical& Commercial(AT&C) losses exceeded$6.25 billion, leaving the treasury with heavy losses amid a lack 13 Some owners of generators can suddenly decide to turn off supply due to insufficient fuel for instance, or new fuel prices, forcing many households to wait for the government’s power service which usually lasts for a few hours. 14 The independent power producers collectively generate 8,809 MW which accounts 24% of total generation capacity in 2022. 7

CURRENT STATUS OF THE ELECTRICITY SECTOR of cost-recovery measures in the electricity sector 15 .If no immediate action is taken to address this financial waste, the power sector’s expenditures are expected to reach US$ 170 billion 16 (base case) by 2050 17 . This is exactly why former Finance Minister Ali Allawi warned in December 2021 that the power sector would have devastating impact on the state’s budget in the next few years if the relevant authorities did not carry out urgent reforms 18 . Iraq’s capital expenditure in the electricity sector was close to US$ 40 billion during the period 2007 – 2021, amounting to around 50% of the total federal budget (Figure 8). During the same period, Baghdad also spent at least US$ 14 billion on imported electricity and costly oil products for power production, including natural gas imported from Iran since 2017. Yet, despite billions of dollars spent on electricity generation, the power sector continues to hamstring economic development. Figure 8 Iraq electricity annual budget(2007 – 2021) Iraq’s current electricity sector). The following sections will go over the key existing challenges in the electricity sector, before discussing energy transition and what needs to be done from the part of the government to ensure its success. 2.1. DELAYS IN DEVELOPING GAS INDUSTRY AND RELIANCE ON PNG FOR POWER Although Iraq is home to the 12 th largest gas reserves in the world, its gas industry has failed to match its production with the rapid growth in demand for electricity(Table 3). Federal Iraq currently produces only 43% of natural gas for domestic use, with the increase in domestic gas production expected to remain between 5 – 7%(compared to 4.6% per year during the last decade), based on the authors’ analysis. Table 3 14,000,000 Natural gas consumption in 2020 Ministry of Electricity Annual Budget (thousand US$) Crude Oil Production (thousand bbl/day) 12,000,000 10,000,000 Source Volume(mmscf/year) 8,000,000 Domestic Gas 285,408.8 6,000,000 4,000,000 2,000,000 0 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total Capital Operational  –[Data Source: Iraq Ministry of Finance, Authors’ [Data Source: Iraq Ministry ƒ o ƒ f Ž›• F ‹•Ȑ i nance, Authors’ analysis] Imported Gas(Central pipe) Imported Gas(South pipe) Total 226,388.2 155,335.6 667,132.5 (Source: MOELC, authors’ analysis) In Š a ƒ d d Ž•‘ i t „ i ‡ o ‡ n to m a ƒ† j ‡ o “ r —ƒ–‡ t r ˆ— a ‡Ž n s ’ m ’Ž› i s Žƒ s … i o n •—ˆˆ‹ & …‹‡– d i  s † t ‹ r  i ‰ b u —” t ‰‡ io ‘ n l — o „• s ‹† s ‹ e ‡• s , the ’‘‘ d e „‹Ž c a ‘Ž d Ž‡ e –‹ s ‘ ǡ l o ‘™ n g ƒ”‹ˆˆ• e le † c t ƒ r i c —” i ƒ t – y c ”‡ r i ƒ s •– i ‹ s ‰ ͳͻ i Ǥ n I r ‘ a ‘– q h Š‡ a s ‘„Ž a ‡ ls o ‘™‡ b ˜‡ e ”ǡ e n bla Ž m e d ˆƒ‹Ž‡† o n ‡”‰› in a Ž‹ d ‹‡ e q † u a ‘‘ t ” e f ” u ƒ e  l s —‡ u p p ‡” l – y ‹ , ƒŽŽ› l a – c ‡‰ k ”ƒ–‡ o f ‘ s ‘’ u ‘Ž f › f i Š c ƒ– i e Šƒ n t funding, burgeoning subsidies, poor bill collection,  Iraq’s 19 low tariffs, and inaccurate forecasting. The root of the problem, however, lies in failed energy policies and poo ‡ r •—” g o v •— e r ‡ n ••Ǥ a nce due to vertically integrated monopoly that has led to inefficient operations and financing 2.1 Delays in Developing Gas industry and Reliance on PNG for Power constraints, hampering any efforts to resolve the chronic –Š pow ƒ e –…Š r s h ”‘ o †— r t –‹ a ‘ g e ‹– s ( ‡ A p ’‹† p e ”‘ n ™– d i ‹ x A ƒ† s h ‘” o w ‡…– s ”‹…‹– t › h e ƒ„Ž‡ s c ȌǤ h  ‡ e † m ‡”ƒŽ a t ƒ i “ c of 15 ’”‘ T † h — e …–‹‘ a v ‡ e š’ r ‡ a g –‡ e p r  ic ƒ e o ‡ f –™‡ e ‡ l  e c t – r i Ψ ci t ȋ y …‘ in ’ƒ”‡ Ir † a q is 0 ‡ . ” 0 2 ƒ 4 U ”‹ S ‰ $ / Š k W Žƒ•– h for †‡ h …ƒ o †‡ u Ȍǡ s  b e a h se o d l o d n s the a a n u d thor 0 s’ . a 0 na 4 ly 1 sis. U S$/kWh for businesses(Source: Iraq Energy Institute(2020), Residential Electricity Subsidies in Iraq: Source Volume(mmscf/year) Exploring Options for Reform: https://tinyurl.com/2jphs43e 16 At today’ s  U ’‘ S ”–‡ d o ƒ l • l a r ‡ v –” a ƒ l u ’‹ e ’‡ . 17 The estimate is base d on the following assumptions, current and ͳͻ  – future electricity generation mix(40% gas fired, 19% oil-fired, 4% diesel,33% Solar) to generate 71,048 MW by 2050. The capital cost of different technologies: ͹ h ttps://www.e-education.psu.edu/ eme801/node/530 18 Ali Allawi’s speech in December 2021: https://www.youtube.com/ watch?v=zUowbqKPp7w 19 Istepanian, H.(2014), Iraq Electricity Crisis, Electricity Journal, May, Vol. 27, Issue 4, pp. 51 – 69. The domestic gas supply has failed so far to address the issue of energy security. The development of domestic Source Volume(mmscf/year) oil-associa t  e ’‘ d ”–‡† g a s a —–Š n d ‹’‡Ȍ d ry gas fiel ͳ d ͷͷ s ǡ͵͵ a ͷǤ͸ p pears to be easy to accept T t ot h al eoretically, but in pra 6 c 67 t , i 1 c 32 e .5 it is complicated due to th e ƒ„Ž‡ M  N in atu i r s a t l G r a y s C o on f su O mpt i i l o ’ n s in c 2 o 02 n 0( c So e ur n ce t : M ra OE t L i C o , a n utho o rs n ’ an i a n lys c is r ) easing oil production more than capturing associated gas(Figure 9). Fi – g Š‡ u ‘” r ‡ e –‹…ƒ 9 ’s ʹͲ Crude oil production in iraq(2003-2021) 5,000.0 4,500.0 4,000.0 3,500.0 3,000.0 2,500.0 2,000.0 1,500.0 1,000.0 500.0 Figure 9: Iraq Crude Oil Production(2003 – 2021) 0.0 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021  – , Authors’ analysis [Data Source: BP, MoO, Authors’ analysis] government’s 8 زاكع ȋ ةيروصنملا Gas Field Potential Production

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION Since 2008, federal Iraq has conducted a series of oil and gas licensing rounds with the government’s strategy focused on increasing its oil reserves and raising oil production from 1.34 million barrels per day(bpd) to 4.7 million bpd in 2020. Meanwhile, two of the main Iraqi non-associated gas fields awarded in the 3rd bid round (2010), Akkaz( زاكع ) and Mansuriyah,( ةيروصنملا ) have yet to be developed partly due to security issues. Table 4 shows the potential gas production which Iraq is planning to add in the next several years. Table 4 Potential increase in the gas production(2022 onward) Gas Field Akaz Mansuriya Potential Production (mmscf/day) 388.0 320.0 average GDP per capita of about US$ 4,145.9(2020). The increase in the demand for electricity is expected to reach above 70,000 MW by 2050 due to economic and population growth. Yet, and although more than 95% of Iraqis have access to electricity to a greater or lesser extent, they suffer from frequent and extended power outages. Even when electricity is available, fluctuations in voltage and frequency during peak demand hours have become the norm in most areas in federal Iraq. The median electricity consumption(base case) for households is 1,628.8 kWh per-month in the main load centers, such as Baghdad and Basra. The median of the low case is 1,162 kWh per month, which is an extremely low level of consumption, even for low-income residential consumers. Figure 10 shows the average monthly electricity consumption for middle-high income households in federal Iraq, knowing that consumption could hit as high as 3,000 – 3,500 kWh/month during peak demand periods. Fifth Round(Enjana, )Khashim Ahmer 250.0 Figure 10 Artawi Basra Gas 300.0 400.0 Average monthly electricity consumption for middle-high income households Halfaya 300.0 ʹǡͷͲͲǤͲͲ Nasriya Gas 200.0 ʹǡͲͲͲǤͲͲ TOTAL 2,158.0 [Data Source: MoO] ͳǡͷͲͲǤͲͲ ͳǡͲͲͲǤͲͲ The delay in taking advantage of its own gas resources, has left federal Iraq dependent on Iran for natural gas. ͷͲͲǤͲͲ Demand for piped natural gas increased from 1,060 mmscf/day in 2017 to 1,940 mmscf/day in 2022 20 , with the annual cost expected to exceed US$ 4 billion for an annual import ranging between 6 – 7 billion tons of Iranian gas. These figures show that purchasing gas from Iran for electricity generation is an uneconomical option, yet the federal government continues to rely on it. ͲǤͲͲ (Source: Ir a ‡ q ”‰› E n •– e ‹–— r –‡ g y Institute) T h ”‹ e –‹…‹ u œ‡ n f a Š‡ ir d ƒ” i ‡ s t r ‘ i – b u ‘ˆ t i ǡ o ͵͵ n ͷǡʹ o ͸ͳ f e Ͳ l ͳ e ͻ c t ‘ r  i • c — i  ty ‡”• s u p ”ƒ p l ‹ y …Ž a —† m ‹‰ o n ǡ͸͵ g ͵ǡͻ h ͵ʹ ig h and lo Š w ‘—• ‡ i Š n ‘Ž c † o m e ƒ a r † e ‹– a ‹‘ s ƒ h a  s b ‹Ž e Ž‹‘ e  n w i ‹ d e Ž— l  y • c — r ™ it Š i ‹ c …Š i z ƒ” e ‡ d . ’ T ”‹˜ h ‡† e r ˆ e a •‹ r e a ”˜‹ t …‡ o •ǡ t al 2.2. UNRELIABLE PUBLIC SUPPLY AND NEIGHBORHOOD GENERATORS Iraq’s economy is considered one of the fastest growing in the Middle East, according to a recent report by the IMF 21 , with a GDP of US$ 220 billion in 2021 and an o ‹ f  4 Ž— , † 3 ‹ 3 5 Ž‡ , 2 –”‹ 6 …‹– 1 (2019) consumers in Iraq, including 3,633,932 h o Š u s ƒ e  h o ld Ž‹ƒ s „Ž‡ a n † d a •‹ n •–‡ a d ‡Ž‡ d …– i ” t ‹ i o ‹–› n a ‘ l o –Š‡ n e ‘˜‡ m ” il ‡ li  o n u ‹˜ n ‡ it s ‹•‡ i n s ˜ƒ lu ms— w  h ‡–™ ic ‘ h a r  e ‡‹‰ d Š„ e ‘” p Š‘ r ‘ iv e ‰‡ d ‡” o ƒ– f ‘” b a s i Š c s  e ‡” r ƒ v –‘ i ” c e •— s ’ , ’Ž i › n c ‘— lu •‡ d Š‘ i Ž n †• g e ‘— le ‰Š c t  r ƒ ic i † t ‹‡ y • . ‡ŽǦ  – T ȋ h e la ) t c o k opera o te f hou r s e eh l o i l a d’ b s e l s e senti a al n lo d ads, s c uc o h n as s li i g s h t t e bu n lb t s, fan e s, l a e n c d t sm ri a c ll i a t p y plian f c r e o s ʹ m ͵ ʹͶ the government has given rise to a vast network of n e Ž– i Š g ‘— h ‰Š b o Š‹• r h ‡ o –™ o ‘” d g ‡ e ”ƒ n –‘ e ”• r a ‘ t • o –‹– r — s –‡ . S ˆ u ‘” c  h g –”‹ e …‹– n e •‡ r …– a ‘” t o ‹–• r s s ƒ u  p ‘– p ly households through small diesel-run generators(typically  “ between 100 – 500 kVA) with isolated distribution web 20 More than 35% of the consumed fuel were in the form of imported gas from Iran. 21 According to the IMF Report(April 2022),“World Economic Outlook. War Sets Back the Global Recovery”, Iraq›s economy is forecast to grow by 9.5 percent in 2022, giving it the fastest real GDP growth of all the Middle East and Central Asia countries. of wires(Photo 1) to operate household’s essential loads, su ʹ͵ c ’ h ‡”ƒ– a ‹‰ s l Ǧ i g ‘ h †‹– t ‹‘ b ‹‰ u l b ”‹ s  , f Š a ‡ n s ‹ , a ‘™ n ‡” d s ’Ž m a „› l l ‡‹‰ a Š p „‘ p ”Š‘ l ‘ ia n ‡ c ‡” e ƒ– s 22 w hen ʹͶ 22 O ˜‘Ž p –ƒ e ‹ r a ‡ t  i ‡ n ”ƒ g –‹‘ a Ǥ i r ͳ Ͳ c Ǥͷ o ͹͹ n ʹ d Ȁ‹ i  t – i ‡ o …Š n ‘ i ’ n ‡ g Ǥͻͷ is ʹͺ t Ͳ r icky when using power supplied by neighborhood generators. Iraqi citizens usually pay around 25,000 The 2023 expectation of 5.7 percent is just one percentage point behind Georgia, the expected leader next year. Meanwhile, Iraqi Dinar per 1 Ampere, and ͳͲ y et a household cannot sometimes operate two ACs at the same time. Additionally, many households consumer prices are expected to rise by 6.9 percent this year and that consume 10 Ampere, cannot operate their electric water 4.7 percent in 2023. https://www.imf.org/en/Publications/WEO/ boilers when using power supply from generators. This usually Issues/2022/04/19/world-economic-outlook-april-2022 turns into a major issue during the cold months of winter. 9

CURRENT STATUS OF THE ELECTRICITY SECTOR public power supply is unavailable 23 . Although this network of generators constitutes an informal electricity sector, its clout cannot be ignored (see Section ‎ 2.7). The annual revenues of neighborhood generators in 2018 reached around$ 4 billion, according to the International Energy Agency(IEA), a sum that was “equal to the amount allocated to electricity sector in the federal budget for capital expenditure in 2019”. 24 Photo 1 Iraq neighborhood electricity supply wires 2.3. PEAK DEMAND SHORTAGE Peak demand period is that time of the year(mainly from June – September and November – January) when demand for electricity or consumption of electricity reaches the highest levels. Normally, this coincides with a dry and hot summer, and cold winter. Given that Iraq’s population is growing at a rate of 2.4% annually 25 , the peak demand for electricity is bound to increase and expand in duration. Figure 11 shows that the peak demand for electricity during Summer 2022 was over 30,000 MW with technical losses estimated at more than 2,000 MW. Meanwhile, the electricity deficit during peak demand has been a whopping 14,311 MW in 2022, an increase from around 3,661 MW in 2003(Table 5). Table 5 Electricity demand and production in 2022 according to the regions Region Northern Middle Middle Euphrates Southern Total Available Generation (MW) 2,130 9,355 3,680 7,085 22,250 Load Demand (MW) 6,150 13,713 6,660 10,038 36,561 Total Generation Demand(MW) 6,765 13,850 7,360 11,041 39,016 Shortage in Load Demand(MW) 4,020 4,358 2,980 2,953 14,311 Shortage in Generation Demand (MW) 4,635 4,495 3,680 3,956 16,766 (Source: MOELC, Authors’ analysis) 23 Al-Wakeel, Ali.(2021). Local Energy Systems in Iraq: Neighborhood Diesel Generators and Solar Photovoltaic Generation. 10.5772/ intechopen.95280. 24 Iraq’s Energy Sector: A Roadmap to a Brighter Future, International Energy Agency(IEA), April 2019: https://www.iea.org/reports/iraqsenergy-sector-a-roadmap-to-a-brighter-future 25 The World Bank data: https://data.worldbank.org/indicator/SP.POP. GROW?locations=IQ 10

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION The growing need for peak power is expected to climb over 51,500 MW by 2035(Figure 11), and if the government wants to keep pace with this growth, it is req M u idd ir le ed to add 9,3 2 55 8,500 13,7 M 13 W in 13,8 p 50 ower 4 g ,35 e 8 neratio 4, n 495 . Middle Euphrates 3,680 6,660 7,360 2,980 3,680 Southern 7,085 10,038 11,041 2,953 3,956 Total Figure 11 22,250 36,561 39,016 14,311 16,766  uthors’ Forecast of annual peak demand for power(2022 – 2035) 60000 50000 40000 30000 32,942 35,001 35,628 36,671 37,913 38,705 41,225 43,284 43,912 44,954 46,197 46,989 49,509 51,568 Peak Demand Power (MW) 20000 10000 0 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2034 2035  – uthors’ [Authors’ analysis] 2.4 High Operating Cost 2.4. HIGH OPERATING COST Th e ‘„‹ b ‡ l † o Ǧ a › t Ž‡ e d ‘™‡” o p ƒ e –• r ʹ͹ a t ǤͶ io n ͆Ȁ a  l c ʹͺ o st(including fuel cost) is among the several C r o e st a T s yp o e ns for th Co e st( h US i ¢ g /k h Wh c ) ost of electricity production in — Ir ‡Ž a q. In 2018, the a ʹ v Ǥʹ e rage cost for fossil fuel power generat ion in Iraq was 7.40 US¢/kWh(Table ʹ͹ 6) ‡ , Ž‡ w –”‹ h ‹–› i c ˆ”‘ h i Š s a  b o —‡ v e t h –”ƒ e †‹–‹ a ‘ v e •‹ ra ’Ž‡ g Ǧ e ›…Ž‡ g l ƒ o b a  l operating cost for ʹͺ 26 27 combined-cycle power plants(3.4 US¢/kWh). Ta ble 6 As Table 7 below shows, fossil fuel-fired power stations in Iraq tend to have total operational costs that are extremely sensitive to changes in fuel prices which in their turn are heavily subsided. Table 7 Fuel costs Fuel Type Natural Gas Gas Oil Fuel Oil Crude Oil Unit M3 M3 Liter Barrel Ministry of Oil Price(US$/ Unit) 0.041 0.357 0.083 0.92 US Price(US$/ Unit) 0.128 0.5 0.1 70.89 28 (Source: MOELC) 2.5. HIGH AGGREGATED TECHNICAL AND COMMERCIAL LOSSES The Aggregated Technical and Commercial(AT&C) losses represent the percentage of power produced by the MOELC-owned distribution companies for which the ministry does not receive payment. The electricity network in Iraq suffers from astronomical AT&C losses, which amount to around 58- 62%. While some proportion of this loss is inevitable due to physical factors(use of poorquality equipment and aging distribution networks), the commercial losses are mainly caused by theft, lack of metering, and poor electricity bill collections(Figure 12). Average costs for thermal and gas turbine power station(2018) Cost Type Fuel Operation and Maintenance Salaries Total Cost(US¢/kWh) 2.23 4.72 0.45 7.40 Figure 12 Transmission and distribution at&c Collected 33% Transmission Losses 6% Distribution Losses 13% [Source: MOELC, Authors’ analysis] Unbilled Losses 23% 26 A combined-cycle power plant uses both a gas and a steam turbine to produce up to 50% more electricity from the same fuel than a traditional simple-cycle plant: https://www.ge.com/gas-power/ resources/education/combined-cycle-power-plants 27 IRENA(2020), Renewable Power Generation Costs in 2021: https://www.irena.org/publications/2022/Jul/Renewable-PowerGeneration-Costs-in-2021 Unpaid Bills 25%  : Transmission and Distribution AT&C(Source: MOELC, authors’ analysis) (Source: MOELC, authors’ analysis)  espite the government’s efforts to increase the  — — On the issue of collecting electricity bills, and despite the government’s efforts to increase the collected revenues 28 A 60 verage Brent Oil price in 2021. 50 T&D Losses (%) 11 40 30 20 10

Collected 33% Transmission Losses 6% Distribution Losses 13% CURRENT STATUS OF THE ELECTRICITY SECTOR from consumers over the past years—b U y nbi h lled ir Lo i s n se g s 23% private companies— Unpaid t B h ills e reduction in AT&C losses has remained slower in Ira 2 q 5% than in neighboring countries, where the AT&C losses on an average are about 10-15%(Figure 13).  : Transmission and Distribution AT&C(Source: MOELC, authors’ analysis) F i – g Š‡ u r • e 1 3  espite the government’s efforts to increase the  — — ”‡ I † r — a …– q ‹‘ t & d l o Ž‘• s • s ‡• e s ƒ• c o  m ƒ‹ p ‡ a † r e Ž‘ d ™‡ t o n ƒ“ e i Š g ƒ h b ‹ o r ‹ i ‰ n Š„ g ‘”‹ c ‰ o u ‘— n  t –” r ‹‡ i • e s ™Š ( ‡ 2 ”‡ 0 0 3 – 2 0 ‘• 1 •‡ 4 ) 60 50 T&D Losses (%) 40 30 20 10 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Iraq Jordan Kuwait Iran Saudi Arabia Turkey Egypt  – uthors’ [Source: WBG, Authors’ analysis]  MOELC’s ͵Ͳ The MOELC’s collected revenues from selling electricity ͵Ͳ t o c  o n ‰”‘ s — u m –Šƒ– e r s ‡ƒ„ 29 w a s ’ƒ› U ‡ S  $ 1 Š‡ , 3 ‘˜ 2 ‡” 9  . ‡ 2 –ƒ m i † l l i ‘ o  n ‡” i ‹ n 2 …– 0 ‘” 1 8 ‹ , while ”‡ g ’” o ‡• v ‡ e –• r n ͶΨ m e n –ƒ t s  u •— b  s ‡” i • d ies exceeded US$ 2,456 million(65%) for 39,153,4 MWh sold 30 . The aggregated book losses (on accrual basis) of the MOELC exceeded 7,498.5 million in 2018 alone, a loss which is generally absorbed by the treasury. This financial waste 31 turns the MOELC-owned enterprises into a heavy burden that relies on state subsidies, and on the ministry of finance for funds while lacking effective cost-recovery methods. a dramatic impact on the MOELC’s revenues, and will reduce government subsidies(Figure 14). Considering the current losses in the electricity sector, and to fully recover costs, the tariff, which has not been revised for decades to reflect the periodic increase in cost of living, or the hike in fuel prices, would need to be set at around US ₵ 22.5/kWh of units sold. However, if AT&C were reduced to 10%, and bill collections increased to 95%, the cost recovery tariff would fall to about US ₵ 9.2/kWh, a rate that is close to the current average tariff. If the high system losses are not curbed, the power sector is expected to require an operating subsidy of about US$9.0 billion per annum (ECA, June 2017). 2.6. LACK OF ACCURATE DEMAND FORECAST There has been a major flaw in forecasting electricity demand since the MOELC’s 2010 Master Plan was released in 2010. The variance between the actual and forecasted demand reached more than 40% in 2020. Improving forecasting methods to determine future demand would help the MOELC devise plans for power production and distribution in such a way that power outages would be minimized. The peak demand as forecasted in the MOELC Master Plan(2010) versus the actual for the period 2009 – 2022 is shown in Figure 15. Fig Š u ‡Ž’ r e –Š‡ 1 5 Ac ˜ t ‡” u •— a l Š‡ a n …–— d f ‘” o r ‡ e c ‡” a ‹‘ s t ʹͲ p Ͳͻ e  – a ʹͲ k d e •Š m ‘™ a n d ‹‰—” ( ‡ 2 0 0 9 – 2022) •‘Ž† ͵ͳ Figure 14 ͵ʹ M  o ‹‹ e •– l ”› c e l  e ƒ c …‡ t r ‘” i c ˆ— i  t †• y r ‹ e v Žƒ e ‹ n ‰ u e ‡…–‹ i ˜ n 2 •– 0 Ǧ”‡ 1 …‘ 8 2,500,000,000 2,000,000,000 40,000 35,000 30,000 25,000 20,000 45.0% 40.0% 35.0% 30.0% 25.0% 20.0% Annual Peak Demand (MW) Variance (%) Electricity Revenue (2018) [US$] 1,500,000,000 1,000,000,000 500,000,000 15,000 10,000 5,000 15.0% 10.0% 5.0% 0.0% 0 Residential Commercial Industrial Governmental Agricultural Billing with Subsidy Billing without Subsidy Subsidy 0 -5.0% 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Actual Peak Demand(MW) MoE Master Plan Load Forecast(2010) Variance(%)  –[Source: MOELC, Authors’ analysis] [Source: MOELC, Authors’ analysis]  MOELC’s C – u Š‡ r b Ž‡ i n –”‹ g …‹–› l o ‡ s –‘ s ” e s a n ˆ— d im …‘˜ p r o ‘• v –•ǡ i n –Š‡ g c ‹ˆˆ o l Š le ‹…Š c t ƒ i • o n r ‡‡ a  t e ‡˜ s ‹•‡† w i ” l l have 29 T h ƒ– e  ar o ou n n l d y U g S₵ r 2 o 2 u .5 p /kW th h a o t f u i n s it a s s m ol e d Ǥ n a ‘™ b ‡ le ˜‡” t ǡ o p a Ƭ y m e ” n t ”‡† is — t ‡ h e g ͳͲ o Ψ v e ƒ rn m „‹ŽŽ e ntal …‘ŽŽ‡ a …– n ‹‘ d c ‹ o …” m ‡ƒ m •‡† e r ‘ c ia ͷ l Ψ s e –Š c ‡ t o ‘• r w ”‡ h ‘ i ˜ c ‡ h r – a e r p iff r w e o s u e l n d t fa s ll 1 to 4 a % bout o U f S₵ to 9.2 ta /k l W c h o , n a s ”ƒ u –‡ m ers. 30 The federal budget for the Ministry of Electricity in 2018 was US$ 8,827.5 million excluding the foreign loans, fuel subsidy by the Ministry of Oil and cost of electricity and fuel imports from Iran. 2.6 Lack of Accurate Demand Forecast 31 Iraq produced 5,100,935,311,000 kWh during the period 2003 – 2 0 Šƒ 1 8 „‡ . ‡ T a k  i ƒ n Œ‘ g a Žƒ n a v ˆ‘ e ” r ‡ a …ƒ g •– e ‹‰ e le Ž‡ c …– t ” r ‹ i c ‹– i › t y †‡ ta ƒ r  i † f f •‹ fo …‡ r a ‡ l l M c O a EL t C e ’ g s o Ͳ r ͳ i Ͳ e s ƒ a •– t ‡” 2 .74 U ™ƒ S • ¢ / ‡ k Ž‡ W ƒ•‡ h , ‹ t h Ͳ e ͳͲ g o Š v ‡ e r ƒ n ”‹ƒ m  e ‡ n t ‡– s ™ h ‡‡ o  u ld h …– a —ƒ v Ž e b † e e ” n ‡…ƒ a • b –‡ l † e t  o ƒ c  o l ” l ‡ e ƒ c …Š t ‡ a total revenue of more than US$ 13.9 billion from selling electricity. Lo ˜ n ƒ” g ‹ƒ –‹ t ‘ e • r m p ƒŽ– l ‡ a ” n ƒ n –‹˜ i ‡ n g ‡” f ‰ o r ‘ p —” o …‡ w e r ‡ p r ‘ o d †Œ u —• c t Š i ‡ o n —’’ a Ž› n d ‹†‡ d i s –‘ t ” r • i b ˆˆ u ‡ t –‹ i  o n mu ’‘ s ™ t ‡” f a •‡ c …– t ‘ o r-in the demand-side variations, and alternative en 2 e .7 rg C y or s r o up u t r io c n e i s n t t h o e E m lec e tr e ic t ity o S r ec a to d r just the supply side factors affecting the power sector. Corruption is pervasive in Iraq’s the ministry of electricity from an institution that’s supposed to provide 12 ͵ͳ ͵ʹ  –

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION 2.7. CORRUPTION IN THE ELECTRICITY SECTOR Corruption is pervasive in Iraq’s electricity sector, affecting services to citizens, projects to develop the electrical infrastructure, and efforts to reform this vital sector. The interference of political parties is one of many forms of corruption, which has transformed the ministry of electricity from an institution that’s supposed to provide reliable services to society and contribute to economic development, into a source of revenues for influential factions. Unfortunately, this is generally known even among electricity sector employees themselves. Therefore, and in such an environment rife with corruption, successful projects that can positively contribute to the economy and the country in general, can hardly be realized. The disruptive and destructive role some political parties play for instance was evident when they opposed government plans to hire private companies to collect bills in return for consistent electricity supply 32 . Political parties perceived such schemes as an attempt to cut consumers’ reliance on a network of private generators in which they have vested interests. Political parties also control how some electricity projects are awarded, a process which involves cash payments that constitute bribes. All the above-mentioned challenges have been stalling the development of Iraq’s electricity sector which can hardly take the path towards energy transition before undergoing the required reforms. For that reason, the next chapters examine federal Iraq’s announced commitments so far towards energy transition, and the necessary conditions for achieving this. 32 Mawlawi, Ali.(2020). Public Sector Reform in Iraq, Catham House: https://www.chathamhouse.org/2020/06/public-sector-reformiraq-0/about-author 13

ENERGY TRANSITION: CURRENT CHALLENGES 3 ENERGY TRANSITION: CURRENT CHALLENGES In October 2021, the federal government announced its plan to reach 33% of clean energy production by 2030, with more than 6,000 MW coming from solar sources 33 . The country’s current solar generation capacity does not exceed 300 MW. The UAE’s renewable energy developer Masdar reached an agreement with Baghdad to build four solar projects in Iraq with a total capacity of 1,000 MW. The projects are divided between 450 MW in the DhiQar governorate, 100 MW and 250 MW in Ramadi, 100 MW in Amara, and 100 MW in Mosul. The Ministry of Electricity also announced that it had reached an agreement with the Saudi Company ACWA Power to build 1,000 MW solar power project in the Najaf governorate 34 . Although these deals would contribute to Iraq’s efforts to start shifting its energy sector to clean energy, it is worth noting that they were motivated by regional politics, and it is unclear if such agreements will be implemented. Iraq has also concluded several other deals with companies outside the Gulf region for solar projects, notably with France’s TotalEnergies and PowerChina(See Table 8). However, the list of government plans for solar projects will unlikely come to fruition before at least 2025. Although the government does appear to be more serious this time around about solar power, the current political paralysis gripping the country has put all such plans on hold, and it remains to be seen how any future government will proceed with the projects. Table 8 Planned solar projects(2021) Project Power China Solar PV Park 35 Chinese Firms, Muthana(130 )MW, 500 MW TotalEnergies, Artawi Solar Park, Basra Masdar(450 MW Dhi Qar, 350 MW Ramadi, 100 MW Amara, )100 MW Mosul ACWA Power MOELC(7 locations including )Contract with Scatec )UNDP(residential PV Total Capacity(MWp) 2,000 630 1,000 1,000 1,000 755 5 6,390 [Source: News agencies] Moreover, if the federal government wants to successfully achieve such a transition, it will have to focus on addressing several technical, legal, and financial issues to curb the challenges that will most likely interfere with its attempts to transform Iraq’s fossil fuel-based power sector to renewables. The sections below look into how the federal government has been approaching the issue of energy transition, and how some issues will affect its plans for clean energy if left unresolved. 33 Iraq in negotiations with foreign companies to produce 12,000 MW of clean energy: https://tinyurl.com/2zsak48m 34 Gulf solar projects, including those led by ACWA and Masdar, have achieved world-record low-priced power purchase agreements; around 1 cent to 1.5 cents per kilowatt hour. The bid price for the bigger Scatec plant was about 3.6 cents per kWh, which reflects the higher risk in these projects than in the Gulf. These higher risks r elate to the better-established track record of GCC countries in power purchase agreements as well as their stronger credit ratings and lower security risks compared to Iraq. 35 Iraq News(2022), China to construct two solar power projects in southern Iraq: https://www.iraqinews.com/iraq/china-to-constructtwo-solar-power-projects-in-southern-iraq/ 14

FRIEDRICH-EBERT-STIFTUNG - A ‡ R ‡ O ”‰ A › D M ‘™ A ‡ P ˜‡ T ”ǡ O P R ”‡ E “ P — A ‹” R E †‡ I ˜ R ‡ A Ž‘ Q ’‹ ’  S P –Š O W E R S – E ™ C ‘” T  O R F ƒ O •– R E ’ N ƒ E ‡• R G Y ‡ T ‡ R A ƒ† N †‹ S –‹ I ‘ T  IO N 3.2 Solar Power and Baseload Demand 3.1. OUTDATED GRID INFRASTRUCTURE AND T&D LOSSES Most of the talk about renewable energy in Iraq, namely solar energy, misses the most important question: how will the national grid, in its current poor condition, absorb additional volumes of power?  of Iraq’s power system Figure 16 Typical daily variation in power demand in iraq during winter and summer months ȋ ͵͹ The national grid has not been revamped technologically where it can absorb thousands of megawatts of solar energy due to its variability and intermittency. For this reason, the national grid cannot evacuate large volumes of non-dispatchable power without energy storage facilities. Scaling up variable generation would require grid expansion and upgrades so that power systems can access high-quality solar resources. Technically, there is a limit on how much variability the existing power system can handle in terms of voltage and frequency variability. Additionally, investments in the T&D(transmission and distribution) sector are highly overshadowed by investments in the power generation. Any serious transformation to clean energy, however, will require developing the T&D networks in faster paces to meet additional generation capacities from renewable sources. 3.2. SOLAR POWER AND BASELOAD DEMAND Traditionally, the baseload of Iraq’s power system has been covered by oil and gas-fired power plants. These plants are characterized by high capital and fuel costs(and they are the main source of carbon emissions). Iraq will still need to have fossil fuel-fired power stations, mainly combined-cycle gas turbines, to provide the baseload generation, while peaking power plants from the solar PV power stations will meet the demand for electricity throughout the day(Figure 16) 36 . I t i • s d ˆˆ‹ i f — f Ž i c ˆ‘ u l Š t f o ƒ“ r t ’ h ‘™ e ‡” I r › a •– q ‡ i p o ”‡ w e  r s ‘ y s ‘ t ™ e Ǧ m ƒ’ƒ t …‹ o r ƒ e …– l ‘ y o ‘Ž n ƒ” l y o –‘ n l ‡ o wc a ‘ p •– a ƒ c i ‡ t Ž‡ y …– f ”‹ a …‹ c –› t o ‡‡ r †• s o ‹ l –Š a ‘ r —– P V t ˆ‡ o …–‹ m e  e ‡” t ‰› c o ‘” n ƒ‰ s ‡ t a ›• n –‡ t  e l e ’Ž c ƒ t ‡ r ͵ i ͺ Ǥ c i t ‹• y n •‘ e eds w — i ˆ t ‡ƒ h •‹ o „Ž u t ‘™ a n e Ž› f f ‘ e Ž› c t  iv e ‡ e ™ƒ n „ e Ž‡• r g y ‡ s ‡– t o ‘ r • a –ƒ g  e s y –” s ‹ t ‹– e m ‡‡† i • n p ’‡ l a ‹ƒ c ŽŽ› e 3 ‘ 7 . It i ’ s ‘™ a ‡ l ” s o ›•– u ‡ n • f e ‹ a –Š s i b ƒ” l ‰ e n ‡ˆ o ‹…‹ w t o r “ e l Š y —• o n ‡ l y …‘ o ‘ n ‹ r …• e n ‘” e w a ƒ• b ‡Ž l ‘ e ƒ† s t o m ’s c e a e se t constant electricity needs, especially for power systems with a large deficit like Iraq. Thus, the economics for t he baseload in Iraq’s case suggests that the natural gas should be available continuously, which appears to be the most viable option (Figure 17). ͵͹ F Š i ƒ g ˜‡ u r ‡ e 1 ‡• 7  — ͵ͺ G l — o ” b a l w e Ͳʹ i ͳ g h ‡ t ‡ e ™ d ƒ„Ž‡ a v ™ e ‡” r a ‡ g ‡”ƒ e –‹‘ i  n s ʹͲ t a ’Ǥͳ l ͳ la t ‹ i  o n costs and lcoe for pv, 2010-2021 6,000 0.45 0.4 5,000 0.35 Installation Cost (US$/kW) LCOE (US$/kWh) 4,000 0.3 0.25 3,000 0.2 2,000 0.15 0.1 1,000 0.05 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total Installation Cost LCOE (Data Source: IRENA) 3.3 Cost of Generation ͵ͻ  Iraq’s higher than the tariff of the world’s largest solar power project, the 2GW Al Dhafra Solar PV ͶͲ 36 Solar energy has low-capacity factor(15-19%), which makes the grid more susceptible to potential interruptions or drops in performance. Solar technologies are notoriously weatherdependent, and they have the lowest capacity factor compared to nuclear power(90.3%) and gas turbine(42.5%) systems—which are most advantageous when operated continuously and at full load: https://www.e-education.psu.edu/eme807/node/667 ͵ͻ 37 Th ͲǤͲ e c ‡ a p a Šǡ c i t ‡ y …Ž‹ f ‡† a c › t o ͺΨ r f – o ™‡ r S Ͳ o ͳͲ l a ƒ r P ʹ V i — s ”…‡ǣ 1 6 % compared to other re ͶͲ n e ‘ƒ w a b ›† l ƒ e  s a n ”” d f ’ o ƒ s ‹ƒ s  i Ǥ l ‡ f • u ’‹ e –‡ l p ”…Š o ‹ w e ‡ƒ r g Žƒ” e n ‘™ e ‡ r a ”‡ t  i ƒ o ‹ n [ ƒ S ‰‡ o u r ƒ c “ e : IRENA (2 021), Renewable Power Generation 2020, p.11: https://www. irena.org/-/media/Files/IRENA/Agency/Publication/2021/Jun/ IR ENA_Power_Generation_Cos ʹ t Ͳ s _2020.pdf 15

ENERGY TRANSITION: CURRENT CHALLENGES 3.3. COST OF GENERATION Although the cost of renewables decreased remarkably in the past decade(Figure 18) 38 , Iraq’s energy sector is driven in a way that costs are always rising due to the high risks of investment in the country. Geopolitical risks, political instability, and the volatile security climate are always adding to the costs of supply chains, logistics, and other related issues. These are among the reasons why some regional investors requested over the past few years a tariff that is five-folds higher than the tariff of the world’s largest solar power project, the 2GW Al Dhafra Solar PV project(USD 1.35 cents/kWh) in Abu Dhabi, UAE 39 . For instance, in 2018, the Saudi Arabian energy conglomerate, ACWA Power, proposed to build two solar power stations, 1,000 MW each, in Saudi Arabia and Iraq. The Levelized Cost of Energy(LCOE) for the Iraqbased project was US¢ 6,5 per kWh compared to US¢ 1.65 per kWh for the Saudi-based one. Figure 18 Global weighted average installation costs and lcoe for pv, 2010-2021 6,000 0.45 0.4 5,000 0.35 LCOE (US$/kWh) Installation Cost (US$/kW) 4,000 0.3 0.25 3,000 0.2 2,000 0.15 0.1 1,000 0.05 0 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Total Installation Cost LCOE ( ‡ D ”ƒ‰ a t a •–ƒŽ S Žƒ o –‹‘ u r ‘ c •–• e : † I R E N A ) 3.4. HIGH COSTS FOR 3.4 High Costs for Replacing Oil-Fired Plants REPLACING OIL-FIRED PLANTS Ͷͳ  – Mos ‹• t o ‰Š f †ƒ† t h e l ’ a ‘™ r ‡ g e ’Žƒ o i ƒ l • f Š i ‘ r ™ e  d p ‹‰— o ”‡ w e r plants in federal Iraq were built more than thirty years ago(except Wasit thermal power station) 40 , with an estimated efficiency of a mere 30%, which is way below the average level of other types of electricity generation. The cost of subsidized fuel for oil-fired plants in Iraq is within a range of 0.64 – 2.43 US¢/kWh(lowest is Wasit and highest is Baghdad South power plant) as shown in Figure 19. Figure 19 Generated energy versus fuel costs for thermal power stations(2019) 3.00 Fuel Cost (Usc/kWh) 2.50 Baghdad South 2.00 Dora 1.50 Nasiriya 1.00 Najibiya Musaib Hartha 0.50 Wasit 0.00 0 5,000 10,000 15,000 20,000 Thousands Generated Energy(MWh) The old ‹‰ t — h ”‡ e r ͻ m  ‡ a ‡ l ”ƒ p –‡ o w ‡ e ”‰ r s ‡” t • a —• t io —‡ n s ‘•– w h ic Š‡ h ”ƒ a r e ‘™‡ f ” o r ƒ e –‹‘ c  a s ʹ t Ͳ e ͳͻ d to sequester 125 million MtCO2e emissions over the next 1 ‡ 0 ‹• y •‹ e ‘ a r ‘ s ˜‡” s h Š‡ o u ‡š l – d b e ƒ”• d e ‘ c — o m m †‡ i ‘ s  s  io ‹• n •‹ e ‘ d o ‘” r r Š e ƒ„ h ‹Ž‹ a –ƒ b –‡ i † li t ‘ a t ‡† e — d t ƒ o r ‡ e  d ‹• u •‹ c ‘ e h — a Š r m f ‹– u ”‘ l ‰‡ e  m i † s ‡ s • i o n s s •— u Žˆ c —” h a ‹† s n i t š r Ȍ o g e ™‡ n o x …ƒ i ” d „‘ e  s (N ‹•• O ‹‘ x • ) , s ‡ u •– l ‹ f  u ƒ r –‡† o x ‘ i ‰ d ”ƒ e  s ( • S O x ‡’ ), Žƒ…‹ a  s w e š‹ l • l –‹ a s ͹ǡʹ c ͲͲ a rb o n ‡” e ƒ m i ™ ss ‡” i o •– n ƒ– s ‹‘ . T h ‘ e e Ǧ s t im ‹ŽŽ‹‘ a  t ed program cost of replacing the existing 7,200 M W …‘”† t ‹ h e –‘ r m a Žƒ l –‡ p •– o w ’ƒ e …‹– r s ‡š t ’ a ƒ t  i • o ‹‘ n s Žƒ i  s a r Š o u n d $ 5 ƒ‹ –ƒ 7 ‹‹ b ‰ i l – l Š i ‡ o n —” . According to the latest capacity expansion plan by the M ‰‡ O ‡” E ƒ L –‹‘ C , …ƒ m ’ƒ a ‹– i › n t ” a i Š n i n ‘— g –” t › h e c ‹Ž u r Ž• r ‘ e n ‹‰ t ‹ p ˆ‹ e ƒ r – c Ž› e n t ”‡ a ƒ g •‡ e o ”„ f ‘ l i ‡ q  u ‹• i • d ‹‘ f • u e l (c  r ‹Ž u Ž‹‘ d  e o i ʹ l, g  a — s ƒŽŽ o ›. il T , hi H s g F oe O s ag a a n ins d t fe d de ie ra s l e Ira l) q’s a p t ro 2 cla 4 m % ation g s o ab a ou l, t t i h m e u p rg l e i n e c s y to a  d ‹– d ‹‰ i ƒ n –‡ g ar o  u ‹• n •‹‘ d • 1 2 ƒ– , 0 ‘ 0 – 0 ”‹„— M W o  f ƒ– o i Š lƒ f  i ‰ r ‡ e d Š‹ p o w Šƒ e ˜‹ r ‰ g e Š‡ n ƒ˜ e › r a ‘Ž t i ‘ o n t o ‘— t – h ”› e e n e ‡ r ‘ g ’Ž y mix by 2050. Although this will raise generation capacity for the country, it will also significantly 3.5 Emissions Laws and Regulations increase carbon emissions by 66.5 million MtCO2e The federal government’s talk about transforming the energy sector to clean annually. This goes against federal Iraq’s proclamations  National Adaptation Plan(NAP) to build the country’s resilience to climate change about the urgency to mitigate GHG emissions that contribute to climate change which is having a heavy toll on the country and its people. 3.5. EMISSIONS LAWS AND REGULATIONS The federal government’s talk about transforming the energy sector to clean and green energy, and its National Adaptation Plan(NAP) to build the country’s resilience to climate change, appear to conflict with its plans to increase generation capacity using fossil fuels. 38 The global weighted average levelized cost of electricity(LCOE) of new utility-scale PV sunk to US$ 0.048 per kWh, a declined by 88% between 2010 and 2021: https://www.irena.org/ publications/2022/Jul/Renewable-Power-Generation-Costsin-2021 Ͷͳ 39 Noam Raydan and Harry Istepanian. Despite scorching heat, solar power remains mirage in ʹ I ͳ ra q, Amwaj.media, 2021: https:// amwaj.media/article/iq-iraqi-oil-ministry-s-latest-solar-powerannoucement-a-new-spin-on-old 40 The total operating capacity of the thermal power stations is 4,678 MW(2019). 16

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION Federal Iraq officially ratified the Paris Agreement— that aims to limit global warming— in 2021 41 to reduce 15% of GHG emissions by 2035 42 . Under the National Determined Contribution(NDC), Iraq“will voluntarily cut 1-2% CO2-equivalent emissions from industry and open a window for US$100 billion investment in green economy, from both the private and public sectors over the next 10 years.” 43 To meet its NDCs, and move towards a green economy, Iraq will have to issue new laws and regulations to limit GHG emissions by large power stations which burn carbon-based fuels, as early as possible. This will include 23% of Iraq’s total generation which is produced using liquid fuel, such as crude oil and heavy fuel oil. Photo 2 Power station in baghdad segment. Low awareness has been found to be a major hurdle for the uptake of RTPV. This lack of information is further compounded by the absence of both skilled workforce and technical training facilities to take charge of the installation, commissioning, and proper maintenance of renewable projects. Technology transfer mechanisms/policies are not nationally supported, and academic/R&D institutes are not technically equipped with testing and certification labs 44 . Moreover, the lack of necessary financing for renewables does not help. Most financial institutions do not have lending mechanisms for RTPV projects, and they are also reluctant to fund them. It is reported that banks traditionally charge developers high interest rates depending on the associated risks, nature of the project, and the credit rating of the borrower. Understanding all the above-mentioned challenges is necessary before devising a plan for energy transition, and which we discuss in the next chapter. The federal government is unlikely to succeed in laying down the foundation for energy transition if it did not embrace serious steps towards resolving these decades-long problems in its power sector. 3.6. LIMITED AWARENESS CAMPAIGNS AND LACK OF FINANCING Limited awareness campaigns have been launched so far to educate the Iraqi society about the benefits of using renewable technologies. For instance, the poor information available to consumers about the benefits of Rooftop Photovoltaic(RTPV) is a major challenge for the uptake of PV projects, especially in the residential 41 As part of the international climate policy regime, Baghdad submitted in 2015 its Intended Nationally Determined Contribution (INDC) to the United Nations Framework Convention on Climate Change(UNFCCC), highlighting its contributions to the global climate change mitigation effort: https://unfccc.int/news/iraqsubmits-its-climate-action-plan-ahead-of-2015-paris-agreement 42 President of Iraq, Barham Salih, approved Iraq›s accession to the Paris Agreement on climate change on January 13th, 2021:https:// presidency.iq/EN/Details.aspx?id=2169 Under the Paris Agreement, Iraq must determine, plan, and regularly report on the contributions it undertakes to mitigate global warming, and is required to communicate contributions as NDCs. 43 As Iraq joins Paris Agreement, UN calls for further support to help the country adapt, December 1, 2021, United Nations: https://iraq. un.org/en/161240-iraq-joins-paris-agreement-un-calls-furthersupport-help-country-adapt 44 In 2008, the University of Baghdad renamed the Department of Nuclear Engineering to the Department of Energy Engineering to include renewable energies in the department’s curriculums. 17

A ROAD MAP TOWARDS ENERGY TRANSITION STRATEGY 4 A ROAD MAP TOWARDS ENERGY TRANSITION STRATEGY Iraq will require financing, technology transfer, and capacity building to jump-start the clean energy transition 45 . Reducing future GHG emissions from the electricity sector and curbing AT&C losses cannot be realized without the following measures which in their turn will hinge on the availability of international financial and technical resources(Figure 20): 1) Introduce a new law for renewable energy and energy efficiency by 2025; 2) Rehabilitate and modernize the distribution network for main load centers, including Baghdad, Basrah and Mosul; 3) Have optimal generation mix with most of the new capacity being Combined Cycle Gas Turbines (CCGT’s), which are the most fuel efficient with strict monitoring of GHG including NOx and CO; 4) Improve the fiscal performance of the power sector and developing efficient and effective sector management; 5) Promote private sector investments in renewable energy through incentives, as well as attract Foreign Direct Investment(FDI) 6) Develop mechanisms and regulations to mobilize financing by local banks and financial institutions, 7) Increase the total production capacity from renewable energy sources, besides solar, at least 33% by 2040— such as wind, biomass, and hydrogen technology, in addition to increasing the share of hydro power in the power generation mix so that it reaches 5% by 2045, so that Iraq would be able to generate around 50% of its total energy from renewables by 2050. 8) Lower the average price basket of tariff by allowing a competitive bidding for new projects whereas all taxes and duties are waived for the import of machinery required for renewable energy projects; 9) Facilitate the development of a domestic manufacturing industry for solar panels and associated equipment by 2035(thereby lowering costs, improving service, generating employment, and improving local technical skills) 46 ; 10) Increase per capita energy consumption from renewable energy sources to improve social welfare especially in low-income governorates; and 11) Revise the national energy policy so that the aim would be to bring an optimal development of electricity generation, transmission, and distribution while bringing an end to the use of liquid fuels. Figure 20 Renewable energy development strategy timeline (2025- 2050) These measures are part of a long strategic plan to achieve renewable energy development by 2050. It would be unreasonable to expect the federal government to embark on all of them immediately, but there are certainly some policies and reforms that need to be adopted in the 45 For the implementation of the United Nations Framework Convention on Climate Change(UNFCCC), the Paris Agreement(Paragraph 5 of Article 4) states that“support shall be provided to developing country Parties for the implementation of this Article, in accordance with Articles 9, 10 and 11, recognizing that enhanced support for developing country Parties will allow for higher ambition in their actions”. 46 In May 2022, The General Company for Electrical and Electronic Industries planned to construct a plant to manufacture solar energy-powered pumps with electrical transformers to cater for the rising domestic demand for these products and reduce the dependency on imports:https://solarquarter.com/2022/05/09/iraqis-planning-to-construct-a-plant-to-manufacture-solar-energypowered-pumps/ 18

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION next few years, and which we highlight below. 4.1. QUALITY OF SERVICE AND COMMERCIAL PERFORMANCE The power sector’s substandard operational efficiency has led to poor financial performance and severely affected the ability to invest in better quality and quantity of electricity services. High technical losses, and a poor bill collection system for instance have removed all incentives for energy conservation and energy efficiency. With respect to the high technical losses, these could be addressed by undertaking necessary investments to strengthen the network infrastructure based on indepth power system planning and modeling studies. Improvements in power supply availability and reliability through enhanced generation of electricity would then need to be complemented by stronger revenue management systems. Once a publicly acceptable level of supply reliability is established, electricity tariff should be reviewed toward a gradual alignment of price with cost estimated at about US¢10/kWh. As tariffs begin to reflect the economics of power production, demand-side management measures could be introduced as customers are then likely to respond. 4.2. ENGAGING THE PRIVATE SECTOR Energy transition would require funding beyond available public resources. Unlike the fossil fuel sector, renewable energy can be largely driven by the private sector to meet the target of producing 33% of total generation by 2030, as set by the government. Federal Iraq will require an estimated investment of US$ 15 – 20 billion in power generation alone, which is expected to reach approximately 33,000 – 35,000 MW by 2030(Figure 21). 4.2 Engaging the Private Sector Figure 21 For ’ e ”‘ c † a —…‹ s ‰ t o f a n ‰‡ n ‡” u ƒ–‹ a ‘ l p Ͳ͵ e Ͳǡ a k p r ‡ o d ˜‡ u ” c ‡ t  i –Ǥ o  ‡ n †‡”ƒŽ 2 0 2 ™‹ 2 —‹”‡ 2 030 (ba ƒ s  e c  a ƒ–‡ s † e )  –  – It is estimated that with a weighted average capital cost for solar energy at US$ 980 per kWp, a target of 11,000 MW by 2030 will require an approximate investment of US$ 10.78 billion 47 . However, given the persistent fiscal constraints of the government’s treasury, the private sector should be incentivized as a key player to drive the renewable energy sector in Iraq. Given the size of the investment required to stir the development of renewable energy, it is crucial to design and promote innovative business models supported by well-designed fiscal and financial incentive structures. These business models, for instance, should be designed to mitigate the existing roadblocks for the larger uptake of developing utility-scale solar PV and RTPV systems, and their diversity is in line with models to promote solar energy deployment in various other countries. Models such as rent-a-roof/lease, community based, and plug-in RTPV have been deployed to varying degrees globally. 4.3. RESTRUCTURE ELECTRICITY AND LEGAL ENTITIES After the new Electricity Law was passed in 2017, the generation, transmission, and distribution entities which belong to the MOELC were supposed to be corporatized, but this has yet to happen 48 . Restructuring the electricity sector and making it efficient and competitive, should be considered an integral part of the energy transition map(Figure 22). Operations are currently vertically integrated within an MOELC-owned monopoly and with very little room for competition and the entry of Independent Power Producers into the power market. Therefore, the federal government needs to commence the corporatization of the state companies, transforming the generation, transmission, and distribution entities into a separate legal body— in other words, separate from the ministry/government, with their own associated rights and obligations, including governance structures, managing budgets, borrowing, procurement, labor employment, payment of taxes and dividends. Annual Forecast Peak Production (MW) 40,000 35,000 30,000 25,000 20,000 22,680 24,033 25,500 26,918 28,380 29,834 31,291 32,722 34,156 15,000 10,000 5,000 0 2022 2023 2024 2025 2026 2027 2028 2029 2030 Ͷͺ ’s treasury, 47 According to IRENA, the global weighted-average total installed cost of Utility-scale solar PV›s projects commissioned in 2019 fell below the US$ 1,000/kW mark for the first time, to just US$ 995/ kW[Source: IRENA(2022), Renewable Power Generation Costs in 202:https://www.irena.org/publications/2022/Jul/RenewablePower-Generation-Costs-in-2021 48 Harry Istepanian(2020), Iraq’s economic White Paper misses a key issue for the energy sector, The Atlantic Council:https://www. atlanticcouncil.org/blogs/menasource/iraqs-economic-whitepaper-misses-a-key-issue-for-the-energy-sector/ 19

A ROAD MAP TOWARDS ENERGY TRANSITION STRATEGY Figure 22 The reform continuum 4.4. ENSURING A JUST ENERGY TRANSITION The three major components which Iraqi consumers would like to see during an energy shift are sustainability, affordability, and reliability of the electricity supply. Additionally, the potential pathway towards green energy would require a just transformation that contributes to job creation, social justice, and a fair transition of government employees from a fossil fuels-based energy sector to a green economy. A just transition needs to minimize the negative impacts of the shift to a green economy and maximize social and economic opportunities for both women and men. Moreover, energy services at affordable prices are considered inevitable for long-run economic growth, productivity, and welfare. The availability of efficient electricity supply at affordable prices is also important to reduce energy poverty especially for households that are deprived of reliable energy and cannot afford costly supplies from private generators. For this reason, the current share of energy expenditure in their total income (‘the energy burden’), which is disproportionately high, should be considered in any energy transition plan. 4.5. INTERNATIONAL SUPPORT Moreover, it is necessary for the government to shift f • r o ‡ m …‡•• a ƒ”› “ s ˆ‘ in g –Š le ‰ b ‘ u ˜‡ y ” e  r  ” ‡ e – l e –‘ c t Š ri ‹ c ˆ– i t ˆ y ”‘ m  a a “ r • k ‹ e ‰ t Ž‡ t Ǧ o buy a er” “ e m le u ct l r t i i c ity m F ar O ket R to ENERGY TRANSITION a“multi Ǧ buye b r” u m ye od r” el ͷ m Ͳ o d “m e u l4 lt 9 i Ǧ . bu A ye “ r” m m u o l d t e il b w u il y l e a r s ” sis m t th o e d g e o l ve w rn il m l a en ss t i t s o t tr t a h n e sition towards As part of the international climate policy regime, Iraq g o ƒ v ” e  r ‡ n m ˆ‘” e n  t …” t ‡ o ƒ•‹ t  r ‰ a n ‘’ s ‡ it ” i ƒ o – n ‹‘ t o ‡ˆ w ˆ‹ a ‹‡ rd  s ›ǡ a c ’ o ” m ‘˜ p ‹ e ‰ t i – t Š iv e •‡ m ”˜‹ a r ‡ k e — t submitted in 2014 its Intended Nationally Determined for increasing operation efficiency, improving the service C ŽŽ• o n ƒ t ‹† ri butions(INDCs) to the United Nations Framework quality to consumers, as it will also create a competitive 50 C o † n vention(UNFCCC), highlighting its contributions to market that will reduce the electricity bills paid by global efforts to mitigate climate change. Iraq’s climate c ƒ o – n s Ž‡ u m –”‹ e …‹ r – s t ƒ o n e ‘ ig  h  b ‘ o † r ‹– h › o o d ’’ g ‡ e † n ‹ e š r a Ȍ t Ǥ o rs. Through such an target under the NDC is to reduce 20% from its projected electricity market, buyers and sellers will treat electricity e • m – is ‡ s  io ns by 2030(review Figure 1). as a commodity(Appendix B). Iraq seeks to achieve the following objectives as part of F ‘ u r t ƒ h ” e ”› r m ƒ o › r e ‹ , •‹‘ I r ˆ a ‘ q l ‡ a ™ ck ƒ„ s t  h ‡ e n  e c ‡ e s s ‘ a — r  y r e ‹ g ˜ u ‡ la t Š o ƒ r y its climate goal: framework for renewable energy investment, as clear and strong regulations and mechanisms are absent. Even the 1) Improve NDC planning, policy, strategy, and Electricity law No. 53(2017) does not carry any vision for legislation, re ‡ n e ‡ w a ‡ b ‡ l ™ e ƒ e „ n Ž‡ e rg ‡ y ”‰ in t  h † e c  o ‡” u ‰ n t r ‘ y  . •‡ G ”˜ iv ƒ– e ‹‘ n  t h ƒ™ at ن th ون e اق c دي u شر rr تو en ةدد t جتملا ةقاطلا government has been expressing its readiness to transform 2) Strengthen an enabling environment for NDC the energy sec tor, it cannot embark on such a mission implementation, ͷͲ w Š‡ i t h o • u t ‘ p  a s ‘ s  in  g ‡” n …‹ e ƒŽ w l  e • g i – s l ‘ a  ti ‡ o • n s . T …‘ h • e k ” e y Ž‡ l e – g ”‹ is ‹– l › a ti — o † n ‰‡ s t ƒ h † a t government’s h a u r g e e s c u u b r s r id e ‹ n ‡• t Ǥ l y missing include the renewable energy and 3) Accelerate the policy coherence and integration to energy conservation law( ةقاطلا ديشرتو ةددجتملا ةقاطلا نوناق ), private achieve the United Nations’ Sustainable Development generators regulatory law( ةيلهألا تادلوملا لمع ميظنت نوناق ), and the Goals(SDGs) in the light of its Sustainable energy regulatory commission law( ةقاطلا عاطق ميظنت ةئيه نوناق ). Development Report 2020(SDR2020); and 4) Enhance NDC measurement, reporting and verification, and transparency of climate action. 49 Currently, the Ministry of Electricity is the purchaser of all energy produced by the IPPs. Although this might protect the IPPs from commercial risks, it comes at a cost for electricity budget and the government’s huge subsidies. 50 The UNFCCC aims to stabilize greenhouse gas concentrations at a level that will prevent dangerous human interference with the climate system, and within a time frame that allows ecosystems to adapt naturally and enables sustainable development: https:// unfccc.int/about-us/about-the-secretariat 20

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION Baghdad stated that the implementation of the NDCs, and the voluntarily reduction of GHGs in the energy sector, will rely on the developed countries’ fulfillment of their obligations in financing, and transferring environmentally friendly technology to vulnerable developing countries 51 . To implement the NDC, however, and receive international financial support, the federal government should undergo several reforms in the power sector, and hasten the adoption of the necessary legislative policies to address energy transition and climate change. New policies and initiatives should include the national renewable energy and energy efficiency policy which will outline Iraq’s plan to increase the use of renewable energy sources 52 . In addition, Iraq requires a renewable energy master plan to outline the framework and mechanisms for increasing the levels of renewables-based electricity generation to 33% in 2030 53 . This would be a major first step towards closing Iraq’s energy deficit by 2030. Once such measures have been taken, or once Iraq has at least prepared the power sector to transition to renewable energy, it will be in a position to attract international climate finance. Climate finance refers to“local, national or transnational financing—drawn from public, private and alternative sources of financing—that seeks to support mitigation and adaptation actions that will address climate change.” 54 The UN Convention, as well as the Kyoto Protocol and the Paris Agreement, call for financial assistance to be provided by country Parties that can assist vulnerable developing countries for the purpose of achieving the objectives of the UNFCCC 55 . For this reason, the Convention established a financial mechanism to provide financial resources to developing country Parties. Among the entrusted operating international entities of the financial mechanism are the Global Environment Facility (GEF) and the Green Climate Fund(GCF), in addition to two special funds, the Special Climate Change Fund (SCCF) and the Least Developed Countries Fund(LDCF), which are both managed by the GEF, and the Adaptation Fund(AF) 56 . Among the countries that have received financial support via these international operating entities are Egypt and Kazakhstan. 51 Ibid. 52 Istepanian, H.(2020), Towards Sustainable Energy Efficiency in Iraq, Friedrich Ebert Stiftung and Al-Bayan Center for Planning and Studies: https://library.fes.de/pdf-files/bueros/amman/16449.pdf 53 https://renewablesnow.com/news/iraq-targets-33-clean-energyby-2030-759029/ 54 Introduction to Climate Finance, UNFCCC: https://unfccc.int/ topics/introduction-to-climate-finance 55 Ibid. 56 Ibid. In Egypt, the Green Climate Fund’s(GCF) investment with the European Bank for Reconstruction and Development (EBRD) has financed a group of solar power projects in the Benban solar park. The GCF’s contribution to this Egyptian project was reportedly USD 154.7 million“in order to unlock private investment by renewable energy providers.” 57 Meanwhile, in Kazakhstan— where more than 70 percent of electricity is generated using coal 58 -- the GCF in 2018 completed what it called“its largest disbursement to date[that year] of USD 86.7 million.” This was part of a project 59 , in partnership with EBRD, to assist Kazakhstan in moving away from old coal plants 60 . Iraq too will require international technical and financial support for its energy transition, with a major contribution from the private sector and foreign investors. But this cannot happen without first reforming Iraq’s electricity sector. 57 Energy transition accelerates with GCF support:https://www. greenclimate.fund/news/energy-transition-accelerates-with-gcfsupport 58 Kazakhstan has set out ambitious and welcome clean energy transition plans but must overcome historical reliance on fossil fuels, IEA review says:https://www.iea.org/news/kazakhstan-hasset-out-ambitious-and-welcome-clean-energy-transition-plansbut-must-overcome-historical-reliance-on-fossil-fuels-iea-reviewsays 59 More details about the project can be found here: https://www. greenclimate.fund/project/fp047 60 Ibid. 21

CONCLUSIONS 5 CONCLUSIONS The electricity sector in Iraq lacks five basic structural reform packages that need to be embraced for a successful energy transition at a later stage: 1. New electricity-related legislations; 2. Independent regulatory entity and energy market; 3. Full corporatization, and full vertical and horizontal unbundling of the MOELC-owned companies; 4. Private sector participation(particularly in generation and retail market); and 5. Commercialization through creating a competitive wholesale power market These need to be incorporated into an energy transition strategy, and for this reason the federal government is required to update its Integrated National Energy Strategy 61 (2013-2030) that would take both immediate and longterm policy measures to manage the transformation of the energy sector. With respect to the immediate policy measures, the government should take steps to operationalize the new electricity law(2017), so that the process of restructuring the MOELC, as we detailed in the report, becomes possible. Furthermore, energy transition in Iraq cannot succeed if the power sector remains unprofitable and completely dependent on the state’s treasury. The federal government needs to start thinking how to make the electricity sector profitable through embracing costrecovery measures, which will depend on the longawaited improvements in the metering and bill collection systems. And all this cannot be achieved without hammering out a legal framework to allow private/ foreign participation/ ownership in the power sector. Preparing and implementing the necessary regulatory framework is an integral step to attract renewable energy investment. Finally, once the federal government is ready to transform the power sector, it needs to ensure that it is a just transition that prioritizes fair social and economic opportunities for all Iraqis. All these fundamental steps will depend on the political and security conditions in the country— which have been volatile since last year, affecting the government’s work and future projects. In the power sector, the delays on the part of the Council of Representatives(CoR) to approve the federal budget for 2022, has stalled the implementation of a plan 62 to develop comprehensive solutions for electricity shortages under the supervision of a joint committee comprised of the electricity, oil, and finance ministries. If such delays persist in the future, federal Iraq will fail to turn its talk on energy transition into effective actions. 61 The Integrated National Energy Strategy 2013-2030(INES), funded by the World Bank, was launched by the federal government in June 2013. The background work was carried out by Consultants Booz& Co. The draft final was issued in April 2012, but only the executive summary of INES was made public: https:// documents.worldbank.org/en/publication/documents-reports/ documentdetail/406941467995791680/integrated-nationalenergy-strategy-ines-final-report 62 Al-Mada newspaper is a joint committee to implement a plan that develops comprehensive solutions to the electricity crisis(07/27/2022). 22

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION REFERENCES Alasady, A. M. (2011). Solar energy the suitable energy alternative for Iraq beyond oil. International Conference on Petroleum and Sustainable Development. 26, pp. 1115. Singapore: IACSIT Press. Al-Douri, Y.,& Abed, F. M. (2016). Solar energy status in Iraq: Abundant or not—Steps forward. Journal of Renewable and Sustainable Energy, 8(2), 025905. https://doi.org/10.1063/1.4947076 Al-Kayiem, H. H.,& Mohammad, S. T. (2019). Potential of renewable energy resources with an emphasis on solar power in Iraq: An outlook. Resources, 8(1), 42. https://doi.org/10.3390/resources8010042 Al-Khafaji, H. (2018). Electricity generation in Iraq: Problems and solutions. Al-Bayan Center for Planning and Studies. Al-Khatteeb, L.,& Istepanian, H. (2015). Turn A Light On: Electricity Sector Reform in Iraq. Washington, DC: The Brookings Institution. al-Khatteeb, L., Alwash, A.,& Istepanian, H. (2018). The Need for Middle East Economic Confederal Union. London: Iraq Energy Institute. Al-Maleki, Y. A.M. (2020, February 20). Overview of Iraq’s renewable energy progress in 2019. Iraq Energy Institute. https://iraqenergy.org/2020/02/20/overview-ofiraqs-renewable-energy-progress-in-2019/ Booz and Co. (2012). Iraq Integrated National Energy Strategy. IEA – International Energy Agency. (2014). Integrated national energy strategy of Iraq – Policies. https:// www.iea.org/policies/5632-integratednational-energystrategy-of-iraq IEA – International Energy Agency. (2016). Iraq renewable energy auction – Policies. https://www.iea. org/policies/6119-iraq-renewableenergy-auction IEA – International Energy Agency. (2017). World energy outlook 2017. https://www.iea.org/reports/ world-energy-outlook-2017 IEA – International Energy Agency. (2019). Iraq’s energy sector: A roadmap to a brighter future. https:// www.iea.org/reports/iraqs-energysector-a-roadmap-to-abrighter-future IEA – International Energy Agency. (2020a). Data and statistics. https://www.iea.org/countries IEA. (2019). Iraq Energy Outlook. Paris: International Energy Agency. Retrieved October 5, 2022, from https:// www.iea.org/reports/iraqs-energy-sector-a-roadmap-toa-brighter-future Iraqi Economists. (2020, December 28). Iraq’s economic White Paper misses a key issue for the energy sector, by Harry Istepanian. http://iraqieconomists.net/ en/2020/12/28/iraqs-economic-white-paper-misses-akeyissue-for-the-energy-sector-by-harry-istepanian/ Istepanian, H. (2018). Solar energy in Iraq: From outset to offset(Publication No. IEI181018). Iraq Energy Institute. https://iraqenergy.org/product/solar-energy-iniraq-from-outset-to-offset-report/ Istepanian, H. (2020). Iraq solar energy: from dawn to dusk. FriedrichEbert-Stiftung. http://library.fes.de/pdffiles/bueros/amman/16324–20200722.pdf Istepanian, H. (2020). Residential electricity subsidies in Iraq: Exploring options for reform.(Report No. IEI90320). Iraq Energy Institute. https://doi.org/10.13140/ RG.2.2.11398.32324 Istepanian, H .(2020c). Towards sustainable energy efficiency in Iraq. Friedrich-Ebert-Stiftung. http://library. fes.de/pdf-files/bueros/amman/16449.pdf Kazem, H. A.,& Chaichan, M. T. (2012). Status and future prospects of renewable energy in Iraq. Renewable and Sustainable Energy Reviews, 16(8), 6007–6012. https://doi.org/10.1016/j.rser.2012.03.058 Latif, H. (2018). Developing Iraq’s infrastructure through a sovereign wealth fund.(Publication No. IEI190318). Iraq Energy Institute. https://iraqenergy.org/product/ developing-iraqs-infrastructure-through-a-sovereignwealth-report/ Ministry of Electricity. (2010). Iraq electricity masterplan(S. 63). http://www.iraq-jccme.jp/pdf/ archives/electricity-master-plan.pdf Ministry of Planning. (2018). National development plan 2018–2022. http://www.iraq-jccme.jp/pdf/archives/ nationaldevelopmentplan2018_2022.pdf 23

Ministry of Planning. (2019).»The future we want«- Iraq vision for sustainable development 2030. https://mop.gov.iq/en/min_publications/view/ list?id=18&lastcontent=474 Qamar Energy. (2018). Iraq: Renewable power potential. Iraq Energy Institute. https://iraqenergy.org/ product/iraq-renewable-power-potential-by-qamarenergy/ RCREEE – Regional Center for Renewable Energy and Energy Efficiency. (2020, December 14). Iraq. https://www.rcreee.org/member-states/iraq/4021 REFERENCES 24

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION LIST OF ABBREVIATIONS SAIDI AT&C ADB BTU CO2e CO CBI CCGT CoR CAIDI FDI GSA GHG GDP IPP IFC IQD INDCs LCOE MW MWp MWh Mt mmscf MOELC MoO NAP NDC NOx R&D RTPV SOE SAIFI TOP tscf COP26 System Average Interruption Dura� tion Index Aggregated Technical& Commercial Asian Development Bank British Thermal Unit. There are approximately 3,412BTU in 1kWh of energy Carbon Dioxide Equivalent Carbon Monoxide Central Bank of Iraq Combined-Cycle Gas Turbine Council of Representatives Customer Average Interruption Duration Index Foreign Direct Investors Gas Supply Agreement Green House Gases Gross Domestic Product Independent Power Producers International Finance Corporation Iraqi Dinar Intended Nationally Determined Contributions Levelized Cost of Electricity Mega Watt Mega Watt Peak Mega Watt-hour Metric tons Million Standard Cubic Feet Ministry of Electricity Ministry of Oil National Adaptation Plan Nationally Determined Contributions Nitrogen Oxides Research and Development Rooftop Photo Voltaic State Owned Enterprises System Average Interruption Frequency Index Take-Or-Pay Tera Standard Cubic Feet The 2021 United Nations Climate Change Conference IEA IMF IRENA UNFCCC UNEP UNOCHA $US EIA WBG The International Energy Agency The International Monetary Fund The International Renewable Energy Agency The United Nations Framework Convention on Climate Change UN Environment Programme United Nations Office for the Coordination of Humanitarian Affairs United States Dollar US Energy Information Administration World Bank Group LIST OF TABLES Table 1 Table 2 Table 3 Table 4 Table 5 Table 6 Table 7 Table 8 Fuel Consumption for Electricity Generation in 2020 Source: MOELC, authors’ Analysis).......................................................5 Annual CO2e per Capita.............................5 Natural Gas Consumption in 2020..................8 Potential increase in the gas production (2022 onward)...........................................9 Electricity Demand and Production in 2022 according to the Regions.............10 Average Costs for Thermal and Gas Turbine Power Station(2018)........................11 Fuel Costs................................................11 Planned Solar Projects(2021)....................14 LIST OF FIGURES Figure 1 Figure 2 Figure 3 Figure 4 Figure 5 Figure 6 Growth of CO2 Emissions of Iraq under Different Scenarios (Authors’ analysis).....................................3 Government Key Strategic Areas..................4 Generation Mix(2022)...............................5 Iraq’s Actual and Forecast of CO2 Emissions(2000 – 2050)...............................5 Projected Impacts of Climate Change on Iraq’s GDP per capita until 2100......................6 Direct Cost of Electricity Shortage on Iraq’s GDP(2007 – 2020)(Authors’ analysis)...........7 25

Figure 7 Iraq Electricity Peak Supply and Demand(2003 – 2021)..............................7 Figure 8 Iraq Electricity Annual Budget (2007 – 2021).............................................8 Figure 9 Crude oil production in Iraq (2003-2021)...............................................8 Figure 10 Average monthly electricity consumption for middle-high income households..........9 Figure 11 Forecast of Annual Peak Demand for Power(2022 – 2035)....................................11 Figure 12 TransmissionandDistributionAT&C...............11 Figure 13 Iraq T&D Losses Compared to neighboring countries(2003 – 2014)..................................12 Figure 14 MOELC Electricity Revenue in 2018..............12 Figure 15 Actual and Forecast Peak Demand (2009 – 2022)............................................12 Figure 16 Typical daily variation in power demand in Iraq during winter and summer months........15 Figure 17 Global Weighted Average Installation Costs and LCOE for PV, 2010-2021................15 Figure 18 Global Weighted Average Installation Costs and LCOE for PV, 2010-2021................16 Figure 19 Generated Energy versus Fuel Costs for Thermal Power Stations(2019)....................16 Figure 20 Renewable Energy Development Strategy Timeline(2025- 2050).............................18 Figure 21 Forecast of Annual Peak Production 2022- 2030(Base Case)........................19 Figure 22 The Reform Continuum.............................20 LIST OF PICTURES Photo 1 Photo 2 Iraq neighborhood electricity supply wires....................................................10 Power Station in Baghdad.......................17 LIST OF FIGURES 26

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION A ppendix A –I raq E lectricity E nergy S chematic 27

A ppendix B- I raq E nergy M arket M ulti -B uyer C onceptual D esig Appendix 28

FRIEDRICH-EBERT-STIFTUNG - A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION ABOUT THE AUTHORS: IMPRINT Harry Istepanian is an independent consultant based in Washington DC. He has more than 35 years of experience in the energy and water sector, including technical and economics of energy and water projects in the Middle East and South East Asia. He is, amongst others, a Chartered Engineer in the United Kingdom, a Member of the Institution of Professional Engineers New Zealand, and a certified Project Management Professional(PMP). Friedrich-Ebert-Stiftung| Amman Office P.O. Box 941876| Amman 11194| Jordan https://amman.fes.de To order publications: amman@fes.de Istepanian holds a Bachelor of Science in Electrical Engineering and a Master’s Degree in Engineering Management from the University of Auckland in New Zealand. Commercial use of all media published by the FriedrichEbert-Stiftung(FES) is not permitted without the written consent of the FES. His work has been published in various media outlets, as well as international journals, such as the Power Engineering International, and the Electricity Journal of Energy Economics and Policy, in addition to think-tanks that include the Brookings Institution and the Atlantic Council, amongst others. He’s currently a Senior Fellow at the Iraq Energy Institute. Noam Raydan is an independent energy researcher and consultant living and working in Baghdad since 2019. Her work has been published by various media outlets, including Forbes.com and Energy Fuse. In 2021, she took charge of preparing an investigative report and a documentary on Lebanon’s energy imports sector, including the country’s efforts to import oil products from Iraq. Her latest investigative work and research can be found on her newly launched publication THE CHOKEPOINT. Prior to that, she was a geopolitical analyst at ClipperData (now Kpler), a New York-based energy market research firm, covering the MENA region. She assessed how political and macroeconomic developments affect energy markets. She also has extensive experience covering political and security developments in Syria, Lebanon, and Iraq for media outlets like the Wall Street Journal and the Financial Times. Special thanks to Dr. Luay Al-Khatteeb, the distinguished fellow at Columbia University and the former Energy Minister of Iraq for reviewing the work and his valuable comments. The views expressed in this publication are not necessarily those of the Friedrich-Ebert-Stiftung.

A ROADMAP TO PREPARE IRAQ’S POWER SECTOR FOR ENERGY TRANSITION The various clean energy and environment-focused events which the federal government has joined so far, may create the illusion that Baghdad is already on a serious path towards energy transition. However, talking about energy transition before preparing the relevant policies and regulatory framework to ensure its success, puts the cart before the horse. The electricity sector in Iraq lacks five basic structural reform packages that need to be embraced for a successful energy transition: new electricity-related legislations, independent regulatory entity and energy market, full corporatization and full vertical and horizontal unbundling of the MOELC-owned companies, private sector participation(particularly in generation and retail market), and commercialization through creating a competitive wholesale power market. As part of immediate policy measures, the government should take steps to operationalize the new electricity law (2017), so that the process of restructuring the MOELC becomes possible. Furthermore, energy transition in Iraq cannot succeed if the power sector remains unprofitable and completely dependent on the state’s treasury. The federal government needs to start thinking how to make the electricity sector profitable through embracing cost-recovery measures, which will depend on the long-awaited improvements in the metering and bill collection systems. And all this cannot be achieved without hammering out a legal framework to allow private/ foreign participation/ ownership in the power sector. These fundamental steps will depend on the political and security conditions in the country— which have been volatile since last year, disrupting the government›s work and future projects. If such obstacles persist in the future, federal Iraq will fail to turn its talk on energy transition into effective action. Further information on the topic can be found here: https://iraq.fes.de Al-Bayan Center for Planning and Studies