Introduction
Growing up in a rural village in the Kurdistan Region of Iraq in the early 2000s, I detested the frequent power outages nearly as much as the lengthy political speeches of Saddam Hussein on TV. Both interrupted the precious 15-minute slot allocated to my favorite cartoon. Twenty years have passed since the US-led invasion in 2003 and the Kurdistan Regional Government (KRG) has enjoyed wide latitude in its politics and energy policy during this period, but power outages remain endemic. In the years to come, the KRG will continue to struggle to provide its citizens with an uninterrupted power supply unless fundamental changes are made to the organization of the electricity network. Reimagining the structure of the grid is particularly complex in an era of climate change. KRG policymakers must embrace solutions that both expand electricity coverage in the short-term and lay the foundation for long-term environmental sustainability – an exceedingly difficult set of competing objectives.
The steady and insatiable increase in demand for electricity in the Kurdistan Region presents a major challenge. From 1991 to 2003, the area relied solely on two hydropower stations to meet its relatively limited energy needs. With the opening of the country to international trade after the fall of the Ba’athist regime, power-hungry electrical appliances flooded the market without any restrictions. This caused an abrupt rise in demand. Despite increasing nameplate generation capacity from 649 MW to 6,737 MW, a nearly 1,200% increase in generation capacity, actual generation hovers around 3,500 MW. Meanwhile, demand ranges from 5500 MW in the summer to 7000 MW in the winter.
Impact of power outages
Prolonged power outages profoundly impact the growth of all economic sectors in the Kurdistan Region. Power-intensive businesses and factories are forced to curtail their operations during blackouts or resort to using expensive generators. Onsite electricity production using diesel generators is twice as expensive at current fuel prices for the industrial and commercial sectors compared with the cost of electricity from the public grid. This significantly reduces the competitiveness of goods made at local factories with imports because of increased operation costs.
The KRG will continue to struggle to provide its citizens with an uninterrupted power supply unless fundamental changes are made to the organization of the electricity network.
The residential sector also suffers from power outages. To address this gap, small-scale diesel generators are used in most neighborhoods. These generators power an inefficient and disorganized electrical network and have a carbon footprint twice that of the public grid per unit of energy. Furthermore, neighborhood generators provide electricity based on maximum ampere subscription at a very expensive price, reaching as high as $15 per ampere. Heat cycle AC systems, which form the majority of the residential load, require more power than the generator subscriptions can provide. As a result, households must resort to using inefficient evaporative coolers during blackouts, consuming substantial amounts of water in a region suffering from a water scarcity crisis.
The lack of access to reliable electricity disrupts the smooth operation of businesses and factories, potentially causing the stagnation of the economy. At the same time, the absence of reliable electricity for the region’s residents is an important factor in exacerbating social discontent and fomenting protests. Out of despair, many Kurds increasingly undertake risky attempts to migrate to Europe in search of better life conditions and economic opportunities.
What is causing the problem?
When the Kurdistan Region achieved autonomy from Ba’athist Iraq in 1992, power generation came solely from the Darbandikhan and Dukan hydropower stations, which have a combined generation capacity of 650 MW. During the 1990s, electricity demand remained artificially low due to the Kurdish civil war and UN sanctions on Iraq as a whole, both of which drastically restricted economic development. However, since the US-led invasion in 2003 and the toppling of the Ba’athist regime, the Kurdistan Region has experienced a surge in international trade and economic development. This has increased the gap between electricity supply and demand. Exacerbating the shortfall are high levels of losses in the distribution network and limits on the amount of fuel available for power plants.
Electricity losses are a substantial challenge for the KRG, where the Ministry of Electricity (MOE) claims that 40% of electricity is lost in the distribution network. It is worth mentioning that the majority of this loss is due to theft, non-billing, and non-collection. The MOE also suffers from an inefficient residential pricing scheme. To explain, the current consumption-based billing policy for the residential sector starts from $0.013 per kWh and stops at $0.18 per kWh. This pricing scheme is extremely cheap and only covers 10% of the generation costs. Also, the low incremental increase in cost does not motivate energy conservation as the incremental increase in monthly energy consumption cost is capped at 5,000 kWh. Also, the MOE has said that it has $1 billion worth of unpaid consumer bills, and the residential sector accounts for 70% of the total.
Enforcing a strict billing policy by the MOE is a very challenging task. It might spark widespread protests and resistance from the public for two major reasons. First, the MOE does not provide stable and reliable power during all seasons and blackouts can last for 12 hours per day during high demand periods in summer and winter. The KRG owes public servants a considerable amount of backpay as a result of an austerity program that withheld portions of their salaries between 2014 and 2019. It is unclear when the government will pay back these outstanding debts. Therefore, many consumers are not willing to pay for electricity unless they are forced to do so.
The government’s inability to reduce electricity losses over the past two decades has created a dissonance in the consumer’s mind regarding their influence on the power grid. An influx of inefficient, electrical appliances and building materials like hollow concrete blocks has flooded the market, which has raised peak electricity demand to 7000 MW. To put this into perspective, the average energy consumption per capita in the Kurdistan Region is 3,918 kWh, significantly higher than in neighboring countries like Jordan, where it is 1,539 kWh. The current billing policy discourages the installation of residential solar power systems. At the moment, companies working in the renewable energy sector are struggling to make sales because the break-even point for switching to a solar power system is more than 7 years.
The government’s inability to reduce electricity losses over the past two decades has created a dissonance in the consumer’s mind regarding their influence on the power grid.
Without a sufficient fuel supply, power plants are unable to make up the huge gap between electricity supply and demand. Although the generation capacity of power plants in the Kurdistan Region has grown from 649 MW to more than 6,737 MW since 2003, representing 13.1% average annual growth, actual output stands at just 3,500 MW. Most local power plants run on natural gas, but the nearby gas fields in Khor Mor, which are operated by Dana Gas, can only produce around 500 MMscf per day. This is insufficient to reach full generation capacity. To do so, the KRG and Dana Gas would need to increase the production capacity of Khor Mor to 1,000 MMscf per day and finish a planned gas pipeline between Erbil and Duhok. Currently, the Duhok power plant is only generating 80 MW out of its nameplate capacity of 1,000 MW because it cannot get enough fuel. It is worth mentioning that the Kurdistan Region has proven natural gas reserves of 25 trillion cubic feet (tcf), but disputes between the KRG and Iraq’s federal government over the oil and gas law have made further investment in the Kurdistan Region’s gas fields a risky bet. For example, Dana Gas had initially planned to increase its production capacity at Khor Mor to 750 MMscf per day by April 2023. However, disagreements between the Kurdistan Democratic Party (KDP) and the Shia Coordination Framework (SCF) over the formation of the new federal government in 2022 coincided with the bombardment of Dana Gas facilities in Khor Mor, further complicating talks between the two sides. This prompted a decision to delay the expansion plans.
What are the short and long-term solutions?
Meeting electricity demand in the Kurdistan Region is a substantial challenge, but it can be overcome by modernizing the grid, improving billing policy, and increasing fuel supplies to power plants. The most important step in closing the gap between supply and demand is reducing inflated demand on the power grid. The MOE needs to modernize its infrastructure and improve its pricing scheme and billing policy. Modernizing the grid will allow the MOE to easily pinpoint where electricity is illegally being drained from the network through hooking and theft and enhances its ability to monitor and control electricity flows in real time. After it installed just a portion of the planned 1.5 million smart meters, the MOE claimed that there was a 10% reduction in commercial and technical losses. To eliminate these losses entirely, however, every user must have a smart meter.
A new pricing scheme should be introduced with a higher incremental increase to motivate consumers to reduce their monthly electricity consumption. The government should stop its subsidies for households with an average monthly consumption of over 2,200 kWh and the incremental increase should reflect a consumer’s stress on the grid. The new pricing scheme would mean the government would receive more revenue, without a regressive impact on low-income families with low levels of energy consumption. Modernizing the grid and improving billing policy will also enable the introduction of demand response programs that can shift peak loads and reduce frequent power outage hours. As a result, the MOE would have a better understanding of the actual stress on the grid and help it make well-informed investment decisions about generation, transmission, and distribution.
By incentivizing the integration of solar power systems into the electrical network, the KRG can swiftly expand its generation capacity without increasing emissions.
Increasing the fuel supply to power plants is another approach for closing the gap between supply and demand. Even though the Kurdistan Region has proven gas reserves of over 25 tcf, current annual gas production is just 5.4 billion cubic meters (bcm), which is only sufficient to generate 3,500 MW. To increase gas production, the KRG needs to provide a safe environment for gas operators to expand production capacity and secure the constitutional right to manage its gas fields. Therefore, the KDP and the Patriotic Union of Kurdistan (PUK) need to present a united front in the Iraqi parliament and reach a consensus with the SCF on a national hydrocarbons law. At present, however, political conditions make this difficult. Nevertheless, doing so would attract foreign investment in the development of the existing gas fields at Khor Mor and the untapped ones at Bina and Miran. These steps would increase gas production delivery to the power plants and allow them to operate at their rated capacity of 6,500 MW.
Taking these steps will also put the Kurdistan Region on the right path toward decarbonizing its energy system by lowering the cost of installing residential and commercial solar power systems. The absence of power outages will eliminate the need for battery storage capacity, which would reduce the capital cost necessary to install systems. The new billing policy would also improve the return on investment of both residential and commercial solar power systems. Combined with the current Net Zero billing policy by the KRG, they will become the cheapest and most attractive source of energy. By incentivizing the integration of solar power systems into the electrical network, the KRG can swiftly expand its generation capacity without increasing emissions. Also, the new billing policy automatically forces the adoption of efficient electrical appliances and building materials on the market, reducing stress on the grid and clearing transmission capacity for the electrification of the transport sector in the future.
This article will be in included in the ninth edition of the Iraq Economic Review.
