CHALLENGES IN POWER GENERATION SURMOUNTABLE
THE electricity sector globally is undergoing an unprecedented transition. In the past, the sector provided affordable, secure and reliable electricity by attracting investors with low risk, stable returns. In the last decade however, significant declines in the cost of renewable technologies, combined with new sources of natural gas, have offered the opportunity to simultaneously decarbonise the sector while also increasing energy security and reducing dependence on imported fuels. The Organisation for Economic Co-operation and Development (OECD) countries have invested heavily to achieve this, spending US$3 trillion on new renewable and conventional power plants, transmission and distribution (T&D) infrastructure, and energy efficiency measures. This investment has helped reduce carbon intensity per unit generated by about 1 percent per annum and increase energy security by reducing imports of fuels by about 4 percent. According to the World Economic Forum, success in the electricity sector has long been defined by ensuring a secure and reliable supply of electricity at a low cost, enabled by investment attracted to low risk, stable returns. However, in the last decade, the global consensus on the importance of reducing human-made carbon emissions has highlighted the need to also decarbonise the electricity sector, the second largest contributor to carbon emissions after transportation. The Zambian electricity power system is operated as part of an interconnected power system linking South Africa, Zimbabwe, and the Democratic Republic of Congo (DRC). The Zambia electricity supply industry was predominantly a market run by a single state-owned company, Zesco prior to the liberalisation of the sector through an Act of Parliament in 1995 so as to attract private sector companies to participate in the generation, transmission and distribution of electricity in the country. In order to promote this policy, Government set up two new institutions; the Energy Regulation Board (ERB) and the Office for the Promotion of Private Power Investors (OPPPI) to regulate operations and pricing, and promote new players to the electricity market respectively. Currently, there are three major players in the energy sector including which generates, transmits, distributes and supplies electricity throughout Zambia, the Copperbelt Energy Corporation (CEC) based in Kitwe which is a net transmitter of electricity purchased from Zesco at high voltage and distributed to the mining industry based on the Copperbelt. The other player is the Lunsemfwa Hydro Power Company based in Kabwe which is an independent power producer that sells its electricity to under a power purchase agreement. There is also the Rural Electrification Authority (REA) which deals with the cause for increasing access to electricity in the rural areas and the ERB which is the regulator of the energy sector in Zambia. Other participants in the industry include small-scale generators and solar based energy services companies supplying power to some rural areas. Due to poor rainfall in the 2014/2015 season, Zambia’s power deficit slumped by 42 percent by December 2015 as the Kariba Dam,drained to record breaking levels, leaving the country with a staggering deficit of about 1,000 megawatts of electricity. Zesco was then forced to embark on a countrywide power rationing mechanism to preserve the limited water available but this worsened the situation even further as sectors such as mining and agriculture which are the mainstay of the economy, suffered irreparable economic damage. Mines were forced to shut down certain operations sending hundreds of employees home while those companies which depended on electricity for irrigating their crops suspended their activities with poultry farmers being forced to source for other sources of energy such as generators to keep their birds alive. Milling companies reduced their productivity. The power deficit, coupled with the depreciating Kwacha and low copper prices on the world market drove the Zambian economy to the wire and increased the cost of living as the prices of all basic commodities skyrocketed. To mitigate the electricity shortage, Zambia started spending US$14.3 million each month to import 148 megawatts from private producers and further contracted a 200-megawatt floating plant from Karpowership which docked off neighbouring Mozambique’s coast as a short-term measure but this too did not salvage the situation. Zesco needed to import power up to December 2015 estimated at US$ 60 million on top of its existing funding gap of US$60 million, pushing the overall financial loss to Government to around US$ 290 million. This power deficit was exacerbated by lack of investment on the part of Zesco as well as lack of private sector participation in the sector, particularly due to non-reflective tariffs obtaining at that time. By 2015, Zambia’s electricity prices remained below cost recovery levels which reduced any incentive for long term investment in generation and transmission. At US$0.03 to US$0.04 per kWh, Zambia had one of the lowest power tariffs in Africa. In order to attract meaningful private sector investment in power generation as well as making Zesco viable, Government scrapped off subsidies in the energy sector and weaned the power utility company from financial assistance in 2016 and as a result, electricity tariffs were revised upwards for up to 75 percent, implemented in a phased manner last year. The favourable tariffs immediately drew interest from companies from other countries who indicated willingness to set up businesses in Zambia. Government also called for investment in other sources of energy such as power, thermal, wind, and more investments in hydropower generation to mitigate the power deficit. Projects such as the Lusiwashi Lower hydropower project in Serenje; Kalungwishi Hydropower Station, the expansion of Ndola Heavy Fuel Oil plant to 100MW; and construction of the 340 MW EMCO thermal powered plant in Sinazongwe were all started. In order to determine the correct price of producing electricity and further determine how much consumers must pay, on Thursday April 13, 2017, then Minister of Energy David Mabumba launched the much-awaited electricity Cost of Service Study (CoS). During the launch, Mr Mabumba said Government was happy that finally the country will have a document that will guide the setting of electrify tariffs based on empirical evidence of the cost of generating, transmitting, and distribution. The study, which was funded by the African Development Bank (ADB), is expected to be completed within months and in order to ensure ownership of the study findings, the minister instructed ERB to ensure that all stakeholders participated at every stage of the study process. Zambia has 2,411 megawatts (MW) of installed capacity, virtually all of which is hydro. In terms of accessibility, the country currently has 25 percent of the urban population and 3 percent of the rural population accessing power. In 1996, Government set a goal for universal electricity access for all Zambians by 2030. In order to increase accessibility of electricity among rural communities, REA was put in place much later through an Act of Parliament to provide electricity infrastructure in rural areas. REA commenced implementation of rural electrification projects in 2006 with a conscience towards the environment by ensuring that only energy sources which do not pollute the environment are used. These projects have been undertaken in all the 10 provinces in Zambia. Since 2006, the REA has implemented a total of 152 grid extension projects valued at an estimated cost of ZMW 600 million. From inception, REA has undertaken a total of 423 stand-alone solar home system projects at various public and social institutions to supply electricity to rural communities. The authority developed its first 60kWp Solar Mini Grid in 2009 at a place called Mpanta in Samfya. This facility provides electricity to 480 households, a school, Rural Health Centre and the Harbour. The project cost USD $1.3 million and was completed in June 2013. Following the success of the Mpanta project, REA commenced development of two more solar mini-grids in 2016 in Chunga and Lunga in Central Province and Luapula Province respectively. The proposed Lunga and Chunga Solar Mini Grid projects will have a capacity of at least 300kWp and 200kWp respectively. These projects will directly benefit public institutions, business entities and private households. It is estimated that 2,170 households will indirectly benefit from these projects. Further, under the solar energy programme the authority also implemented Phase I of the Sustainable Solar Market Packages (SSMP). The SSMP programme involved electrification of public institutions through procuring, installation; commissioning and provision of maintenance services for Solar Home Systems (SHS) by a contractor for a period of five years after the projects are commissioned. Apart from solar power generation, REA also runs mini-hydro power station projects. Mini- Hydro power has high potential in the North Western, Northern, Luapula and Eastern provinces. The REA has undertaken a number of feasibility studies for the development of mini-hydro power stations. Currently, it is working on the 0.64 MW Kasanjiku Falls in Mwinilunga. The 0.64MW power station is being implemented at a cost of at a cost of US$ 8.7 million. The project is expected to benefit the about 12,000 people in the area once completed this year while a feasibility study and engineering design for the 3.5 MW Chikata Falls in Kabompo has been completed. Further, another feasibility study and detailed engineering design for the 1.74MW Zengamina II station in Mwinilunga has been completed. At Chilinga Falls in Nyimba, the feasibility study has been completed but project not viable while feasibility studies for the Chanda/Chavuma station in Chavuma district have been completed and reports handed over to the Ministry of Energy for development to commence. The REA is also exploring wind generated electricity. According to the Renewable Energy Mitigation Programme (REMP) the average wind speed in Zambia is 3m/s at 10 meters height and is only useful for mechanical energy such as water pumping and these are indications that higher wind speeds may exist. As a result, REA commenced wind assessment in Lunga in Luapula Province in 2017 to quantify the wind speed and determine annual power generation potential. This may result in the implementation of a wind/solar hybrid for the district. The study was set to be completed in February 2018. In order to attract the necessary investment, all key stakeholders need to take action and policy-makers need to create policy frameworks that are efficient, stable and flexible, recognizing the inherently uncertain technological and economic environment we live in. There is need to plot the most efficient pathways to policy objectives. Incentivise “no regrets” investments such as energy efficiency technologies, demand response services, and the upgrading of network and generation plant efficiencies as well as exploiting the most efficient renewable resources within and across borders. There is also need to stabilise policy by building in flexibility and working to increase societal support, recognize inherent uncertainties by investing incrementally, communicate the value to society of the investments and reduce investor risk by prohibiting retroactive policy changes. Regulators need to provide clear direction to markets, while minimizing interventions to ensure clear, effective signals, provide a clear, stable market signal on carbon pricing to incentivize decarburization and reward efficiency, reliability and flexibility, encouraging predictable, dispatchable, fastresponding supply to complement growth in demand response solutions in balancing increasingly volatile supply and demand.