The Rise of Distributed Solar in Iraq: A Lucrative Opportunity Amid Grid Collapse

Iraq's electricity grid is in freefall. With peak demand projected to reach 55 gigawatts (GW) in 2025—far outpacing the 27 GW of actual generation capacity—the country's chronic energy shortages have become a daily reality. Widespread outages, antiquated infrastructure, and rampant gas flaring (equivalent to 33 GW of lost potential) have created a crisis that is both systemic and existential. Yet, in this collapse lies an unexpected opportunity: distributed solar power.

The Crisis as Catalyst

The failure of Iraq's centralized grid has spurred organic demand for decentralized solutions. Households and businesses, long reliant on costly and polluting diesel generators, are increasingly turning to solar. By 2025, distributed solar capacity in Iraq has reached 42 MW, with projections of 12 GW by 2030. This growth is driven by necessity, not policy. The government's inability to meet demand has left private actors with no choice but to innovate.

Solar's appeal is clear. Iraq's solar irradiance levels are among the highest globally, with 14+ hours of sunlight in summer. The cost of solar photovoltaic (PV) systems has fallen sharply, making them competitive with diesel generators. Off-grid and hybrid systems are now cheaper than fuel-based alternatives over their lifecycle, even without subsidies. For rural farms and urban households alike, solar offers not just energy but a hedge against the volatility of the national grid.

Regulatory Gaps and Investor Hesitation

Despite this potential, Iraq's solar market remains underpenetrated. The regulatory framework is fragmented, with inconsistent enforcement and a lack of clear incentives. While the government has introduced tax exemptions and soft loans, these measures are often delayed or poorly communicated. The absence of a feed-in tariff or net metering policy further limits scalability.

Yet, the market is not without momentum. In 2025, the Central Bank of Iraq launched a $760 million distributed solar initiative, disbursing loans to citizens for rooftop installations. TotalEnergies and UGT Renewables have committed to 7 GW of solar projects, including a 1 GW plant in Basra. These projects are supported by international financiers, including the U.S. Export-Import Bank and UK Export Finance.

Navigating the Risks

Investing in Iraq's solar market is not for the faint of heart. Political instability, security threats, and bureaucratic inertia remain significant hurdles. The government's reliance on Iranian energy imports—disrupted by U.S. sanctions—adds another layer of uncertainty. Moreover, entrenched private generator operators, which dominate the current energy landscape, may resist solar's rise, lobbying against reforms that threaten their profits.

There are also technical challenges. Iraq's grid is ill-equipped to handle distributed generation, with transmission losses exceeding 40%. Without modernized infrastructure, integrating solar into the grid will remain problematic.

The Path Forward: A High-Risk, High-Reward Proposition

For institutional investors, the key lies in balancing risk and reward. The Iraqi government's 2030 target of 12 GW of solar capacity represents a $15–20 billion market opportunity. However, success requires strategic partnerships with local entities that navigate the political landscape.

1. Leverage Public-Private Partnerships (PPPs): Projects like TotalEnergies' 1 GW Basra plant and UGT's 3 GW initiative demonstrate the viability of foreign-local collaborations. Investors should prioritize firms with strong local ties and experience in volatile markets.
2. Focus on Off-Grid Solutions: The off-grid segment, which includes solar water pumps and hybrid systems, is less dependent on grid infrastructure and thus less risky. The Iraq Green Farms Program, offering subsidies for agricultural solar, is a promising entry point.
3. Advocate for Policy Clarity: Investors should push for reforms such as feed-in tariffs and streamlined permitting. The absence of these policies stifles growth but also creates a first-mover advantage for those who can influence them.

Conclusion

Iraq's distributed solar market is at an inflection point. The collapse of the national grid has created a vacuum that solar can fill—but only if investors are willing to navigate the political and technical complexities. For those with a long-term horizon and a tolerance for risk, this is a market where necessity meets potential. The rewards are substantial, but so are the challenges. As with any high-growth opportunity, the key is to act early, partner wisely, and remain adaptable in a landscape where the rules are still being written.