CEC - Kitwe

The positive side of Zambia’s energy crisis

Zesco Head Office
Zesco Head Office
Few would disagree that Zambia needs to find sustainable, innovative ways of generating more electricity for both domestic and industrial users, and that this is arguably the most urgent task facing the country.

However, what is often less understood is that this energy crunch has a positive side to it, for it shows that the country is developing both economically and socially – that is why it needs the additional electricity.

“As countries develop and living standards improve, energy demand grows rapidly,” says a 2016 report, International Energy Outlook, by the U.S. Energy Information Administration.

It’s no coincidence that Zambia’s electricity consumption started climbing around 2000, when mining investment picked up again, and new investors in the previously nationalised mining industry poured billions of dollars into expanding and modernising the country’s mining base.

“The new mine owners invested massively in the mines, and there was a sudden economic upturn, not only on the Copperbelt but in the country as a whole, with the mining industry as a pivotal contributor,” according to a paper Copper Mining in Zambia – history and future, published in June 2016 in the journal of the Southern African Institute of Mining and Metallurgy.

Domestic and industrial users are partners in energy consumption
This wave of investment boosted economic growth. New businesses were created, people were employed throughout the economy, and disposable incomes increased. Figures by the World Bank show that from 2000 to 2013, Zambia’s GDP per capita – which measures the average income of the population – grew more than fivefold, from $340 to $1 840 – the biggest and fastest increase in average incomes since independence.

Industrial investment and increased production drove energy consumption by industrial users (whose mines and factories are powered by electricity) and kickstarted an economic boom, which led to increasing demand from domestic users (whose lighting, geysers, kettles, fridges, washing machines and other appliances are powered by electricity). So, far from being in competition for power, domestic and industrial users are actually partners in energy usage, as their increasing consumption goes hand in hand, and taken together is a sign of overall national development.

However, the current power supply constraints threaten to undo all that. Indeed, the reduced availability of power last year acted as a brake on production at Zambia’s mines, at the same time as low prices were squeezing margins. So the big question now is this: how does Zambia ensure a plentiful, reliable, affordable supply of energy into the future?

The scale of the problem is apparent when one realises how far behind the country has fallen in the task of renewing its energy infrastructure.

A 2015 report by the World Bank Group, entitled Powering the Zambian Economy, says: “Until 2006, Zambia had surplus power, and this partly explains why, prior to the 360MW Kariba North Bank Extension that was completed in 2015, the last major plant to be commissioned was the Kariba North Bank in 1977. The history of surplus has also contributed to low tariffs, which have been one of several barriers to investment in the grid and new generation capacity to meet rising demand.”

With the problem posed so emphatically, the answer to Zambia’s energy crisis would seem straightforward – build more power capacity and raise tariffs.

Additional capacity is already on the way. The World Bank report notes there are at least six power plants at various stages of preparation and development, some of which have been in the pipeline for more than a decade. There are “good prospects” for solar generation, and also “potential” for thermal power generation by Independent Power Producers, if potential revenues are sufficient to attract interest, and “other constraints”, such as weak management of the tendering process, can be addressed.

The issue of tariff increases, however, is less straightforward, because of the potential effect on both domestic and industrial users. If tariffs are set too low, the incentives for investment are reduced; if they are set too high, they put both businesses and households at risk, and compromise the continued economic growth on which both depend. That’s because electricity costs are an important proportion of the monthly running costs of a household, and a significantly higher proportion for industrial users such as mines. This is not a peculiarly Zambian problem: energy affordability is a hot-button issue in most of the world, including developed countries.

Ultimately, the cost of electricity to domestic and industrial consumers in Zambia cannot be divorced from the cost of producing it; the one informs the other.

There are many elements to this cost. The electricity has to be generated, then transmitted, distributed and ultimately supplied to customers. These costs are not the same for all users – for example, bulk users such as mines access their energy in “purer” form earlier in the process, while smaller businesses and households need their electricity to pass through additional stages so that it can be made safe for use. Obviously, the greater the number of stages, the higher the cost of supply.

Because of the political and economic consequences of adjusting power tariffs, one needs to be absolutely certain that it is necessary to do. Therefore, the first question that should be asked is whether Zambia’s electricity is currently being produced in the most cost-efficient way, and how we compare with other countries.

It is no doubt with such questions in mind that a Cost of Service Study is being commissioned by the Energy Regulation Board (ERB), and will probably be undertaken in the course of next year by an independent consultant. The last time such a study was done was in 2007, and it is now long out of date. This new study will, it is hoped, be penetrating and wide-ranging in its analysis, and bold in its conclusions and recommendations as to how Zambia can achieve a sustainable, affordable and reliable electricity supply well into the future. Both domestic and industrial users would argue there should be no holy cows, and that all options should be considered for the good of the country.

In the meantime, Zambia can be proud of the fact that it has actually produced enough economic growth over the past 15 years to make energy supply such as an important issue. Without that growth, we would probably be in surplus now – but would also be a lot poorer as a nation.

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