Gerald Hamuyayi (FMVA)®, Lusaka, Thursday, 15 August 2024 – As Zambia continues in the grips of an almost all-encompassing energy crisis, some frequent refrains have emerged to describe the national power utility: “Disempowering the Nation!” or “Darkening the Nation.” The irony in those jocular punchlines is that Zesco’s official tagline reads “Powering the Nation,” and its rephrasing plays on the idea that Zambia’s electricity supplier has changed its vision from one of empowerment to something altogether more sinister.
The sarcastic critiques depict the frustration and humour Zambians use to cope with the reality of power cuts exceeding twelve hours, resulting from a deficit of over 950 MW. For months on end, Zambia has struggled through an El Niño-induced black swan drought, the worst since hydrological data recording began. This article prints the role of various energy players and collaboration solutions in ending Zambia’s power eclipse and makes some recommendations for energy regulatory frameworks.
Key Players in the Energy Ecosystem
The key players in Zambia’s energy sector are the Ministry of Energy (MOE), Zambezi River Authority (ZRA), Water Resource Management Authority (WARMA), Rural Electrification Authority (REA), and Energy Regulation Board (ERB),
Ministry of Energy (MoE): The MOE is the ultimate overseer of the energy sector in Zambia. It sets the strategic direction, develops policies, and coordinates the activities of other energy sector players.
Zambezi River Authority (ZRA): ZRA manages the Kariba Dam, a critical hydroelectric power source for Zambia. ZRA coordinates the operation and maintenance of the dam, balancing power generation with water resource management.
Water Resources Management Authority (WARMA): WARMA regulates Zambia’s water resources, ensuring their sustainable use for energy generation, agriculture, and domestic consumption. WARMA issues water permits and monitors usage to prevent depletion.
Rural Electrification Authority Zambia (REA): REA implements rural electrification programs, expanding energy access to underserved areas. REA promotes renewable energy solutions and partners with private sector operators to achieve universal energy access.
Energy Regulation Board (ERB): The ERB is responsible for regulating the energy sector, issuing licenses, and enforcing compliance with industry standards. ERB plays a vital referee role, ensuring a level playing field for energy operators and protects consumer interests.
Despite the supposed independence of the ERB, the Electricity Act 2019 has empowered the Minister of Energy to influence major energy decisions, including tariff decisions, private power infrastructure, feasibility studies and import/export regulations. The ERB’s reliance on government funding renders it financially vulnerable, hindering its independence. To ensure independent regulation, a stable financing mechanism is vital to guarantee the ERB’s budgetary autonomy.
An independent ERB terminates bias, fosters transparency and consistency in regulation and facilitates equal growth opportunities for all players. Furthermore, it ensures consumers’ interests are protected and attracts investment due to a stable and predictable regulatory environment. This is key to optimising benefit for Zambians while ensuring an attractive and sustainable energy sector.
The state utility, Zesco Limited, independent power producers and the power transmission network providers interact with consumers in the energy ecosystem. ZESCO, the state utility, generates, transmits and distributes electricity, whilst majority of independent power producers generate electricity for sale to the grid. The power transmission network transports electricity from generation sources to consumers, who purchase electricity from ZESCO or independent power producers
Zambia’s Regulatory Frameworks and Energy Policy
Implementation of a comprehensive and effective energy policy is key to unlocking Zambia’s competitive advantage in a competitive global economy. The policy ought to balance the interests of various stakeholders, including regulators, government, producers, distributors and consumers.
The current energy policy has done little to attract new investments but has, instead, encouraged existing firms to expand their generation capacity, largely due to already incurred sunk costs. A clear and effective electricity policy is essential to catapult new investments into the sector and provide a diverse energy generation mix. In addition, it should aim to set the right equilibrium for the benefit of both buyers and sellers of power. Furthermore, policy should balance affordability and sustainability for the benefit of all stakeholders.
Zambia still seems to lack a standard framework for wheeling charges, connection charges or a proper framework for off-grid technologies. Despite the existence of open access to the grid, one key issue remains – the gap between policy pronouncements and implementation.
Energy policy is crucial for addressing climate concerns, given the interconnectedness of climate policy and energy policy. A crucial aspect often overlooked is that it is not just about addressing climate change through energy transition but also ensuring that our energy infrastructure and systems are resilient and reliable in the face of a changing global climate.
Risk Management for Smart Energy Investments
A stable and predictable regulatory environment is essential for attracting energy investments. The uncertainty of the business environment increases the risk premium for energy projects, resulting in decreased energy project valuations and deterring investment capital.
The state utility’s historical dominance and poor credit worthiness has significantly elevated credit risk, but the introduction of open access to the grid is a positive development. Free delivery exposure, a common practice in energy markets where power is delivered to customers with payment deferred for several weeks, poses a significant credit risk. To mitigate this risk, a power contract clearing house could be established to manage the risk of payment default by the customer. Thus, providing the necessary predictability in power purchase agreements.
Furthermore, standardising power purchase agreements has a potential of sprouting a market for power contracts, tradable on an exchange or over the counter, increasing flexibility, liquidity, and attracting investors. Credit enhancement mechanisms such as guarantees, concessional financing, and capital expenditure waivers such as the duty, fees and other exemption could accelerate energy investments.
The energy sector needs capacity building not only for operational efficiency but also to resist external interference, a major source of bad business, especially for the state utility. This includes empowering players to negotiate and manage contracts effectively, ensuring fair pricing and mitigating potential risks.
Simplicity in Energy Policy & Stakeholder Engagements
To achieve robust growth in the energy sector, a clear and simple legal and institutional framework is essential. This includes clear policies on open access to the grid, transactions, payments, and net-metering arrangements. Additionally, indicative metrics on off-taking prices, payment methods, and dates should be well-defined. Recommended equipment and installers should also be specified.
Policy on Energy Rebates
A concept of energy rebate frameworks adopted in countries such as Uganda, could be a helpful in driving universal electrification. This allows consumers to fund grid extension and recover their investment gradually, accelerating the setup of new developments in off-grid locations. The easing of private investors to implement grid extension projects would accelerate power access to off-grid locations through targeted investments. Overall, clarity and simplicity in the legal and institutional framework would also incentivise consumers to invest in captive power generation, benefiting themselves and their communities through power sales to the grid.
The energy sector is an ecosystem that requires stakeholder engagement to consider diverse interests. This includes evaluating policy impacts on investments, households, and low-income individuals. Effective engagement involves multisectoral conversations across government, private sector, civil society, local businesses and communities. This ensures inclusive, equitable, and sustainable policies, leading to better outcomes for all.
Synergies of Regional Power Integration
Regional power integration offers a remarkable opportunity for Zambia to export excess power and mitigate domestic energy shocks. The Zambia-Tanzania-Kenya Interconnector Project will connect the Southern African Power Pool (SAPP) to the East Africa Power Pool (EAPP), boosting electricity trading, security, and reliability across member states, and unlocking regional benefits.
Zambia’s energy sector requires a multifaceted approach to address its challenges and unlock its power potential. This includes establishing an independent regulator, implementing a comprehensive and effective policy framework, promoting stakeholder engagement, building capacity, fostering regional cooperation, and leveraging public-private partnerships. By adopting a holistic approach, Zambia can transition to a more sustainable energy mix, achieve universal electrification, and drive economic development.
