Power policy

Zambia is a politically stable country with a light-handed regulatory framework for energy, although it has non cost-reflective retail tariffs. The country aims to diversify its power mix and improve access to electricity, and its policies reflect this. In mid-2016, Zambia’s Scaling Solar program awarded 81MW in its first round, yielding some of the lowest solar prices in sub-Saharan Africa. Both winning PV projects, the 34MW Ngonye and 56MW Bangweulu, begun commercial operations in 2019. The next Scaling Solar auction round is on hold, pending the completion of a cost-of-service review of state-owned utility, Zesco. Zambia also awarded 120MW of PV capacity under the first round of the GETFiT scheme. Together with the planned dissemination of 500,000 solar home systems and installation of 350,000 solar water heaters, Zambia is moving toward increasing access to modern energy services and meeting growing demand for electricity. Zambia offers a 0% tax rate on dividends and profits for the first five years of the project lifetime for PV and small-hydro plants under certain conditions, and also has customs duty exemptions for most renewable energy projects components, although most of these products are still required to pay 15% VAT. Some solar suppliers have complained about tax exemptions being applied inconsistently, potentially hindering the success of these incentives. Buyers of ‘energy saving appliances, machinery and equipment’, including solar panels and batteries, are exempt from paying VAT. A new plan or renewable energy target is in the works, for the continued development of the energy sector, particularly to improve the security, affordability, supply, and utilization of energy. The NEP 2019 is in line with the political, economic, social, technological, and environmental changes that have occurred in the past decade.

Power prices and costs

Electricity prices in Zambia are historically stable and low due to the fact that they are subsidized. Retail tariffs are below the cost of production, meaning that Zesco faces significant financial pressure. The utility's overall debt is estimated at $1 billion. It has reportedly fallen into arrears on payments to IPPs after a 2015-16 drought led to the signing of emergency PPAs. Zescos's debt to Electricidade de Mozambique (EDM) for importing power under one two-year contract stands at about $70 million. In 2017, average commercial electricity prices were increased as Zesco began moving toward more cost-reflective tariffs, which was also necessitated by inflation. The tariff increase was approved by the Energy Regulatory Board, however, subsequent upward revisions of retail tariffs planned for 2018 were canceled following direct intervention by the president, pending the local election cycle. In 2020, commercial and residential prices were down 29% and 30%, respectively. For renewables, the country’s high solar irradiation and declining technology costs hold strong potential for the development of PV capacity, while wind energy potential in Zambia is relatively limited. Zambia's hydro generation potential is estimated at more than 6,000MW, more than double what it is today.

Power market

Investment in Zambia's clean energy sector has grown in recent years. Between 2017 and 2018, the first Scaling Solar auction round attracted some $91 million of new asset finance. In 2019, Zambia reached $176 million in investment for wind and solar projects, the highest share in a decade. The country has received both international concessional and commercial support, notably from the Export-Import Bank of China that provided $130 million of debt, although the availability of finance from local debt providers has been limited. In June 2020, Zesco and the Power Construction Corporation of China (PowerChina) signed a contract to develop 600MW of solar projects, worth $548 million.

Zambia's power market is dominated by large hydro assets and Zesco, a vertically integrated utility owned by the Zambian government. Zesco generates, transmits and delivers the majority of the country's electricity. However, the sector is diversifying away from large hydro and Zesco’s monopoly on generation, with IPPs capturing most market share in other generation technologies. The share of large hydro in installed capacity fell from 92% in 2010, to 78% by 2018, and 72% by 2019, as IPPs commissioned new PV and fossil fuel plants. There is a pipeline for new hydro projects including the 2,400MW Batoka Gorge Dam power project, and several existing large hydro facilities are also being upgraded by Zesco. There is a large untapped potential for small-scale hydropower, particularly for rural electrification, which may change pending the success of the second GETFiT round. Zambia is largely an electricity-exporting nation, except for years of low rainfall and low hydro generation during which it becomes a net importer.

Doing business and barriers

Electricity demand has increased on robust GDP growth in Zambia, due to the expansion of copper mining and agriculture. Peak demand rose from 1.5GW in 2010 to a record 2.8GW in 2020. Zambia's mining sector has seen copper production almost double following the commissioning of the country's first coal-fired power plant, Maamba, in July 2016. However, Zambia's hydro-dominated power sector has failed to meet growing demand during times of drought. The deficit of power output relative to demand reached around 1,000MW in 2015 and 526MW in 2016, which resulted in load shedding. This had a devastating effect on the Zambian economy, bringing annual GDP growth downward from a mean 7%, between 2002 and 2014, to 2.92% in 2015, which was the lowest since 1998. In 2019, drought conditions have again caused power shortages, with a peak deficit reported at 273MW. However, the country has made significant steps to improving load management with scheduled 4-hour periods of outages per day and exemptions for critical consumers. The national electrification rate is 43% (80% in urban and 13% in rural areas). The government’s plan of 66% national access (90% urban and 51% rural) will likely require mini-grids or off-grid solar, as low population density and affordability can limit the case for major grid extensions to all areas.

Zambia, together with most other sub-Saharan countries, has placed an import duty exemption on all renewable energy equipment and machinery for agriculture, aquaculture, and mining. Zesco operates as a single-buyer monopoly, controlling almost all generation, transmission and distribution of electricity, yet the sector is increasingly open to IPPs. All non-hydro generation plants in the country are privately owned. The presence of the IFC and World Bank was a significant lever for the Scaling Solar auctions, which provides off-taker risk coverage and helps the country to attract investors and lenders and to reduce project tariffs. Power Africa has been working with African governments and private sector partners to remove barriers that impede sustainable energy development.

EV market

The government has yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage.

EV policy

Zambia’s vehicle taxation mechanism showed that the government had already introduced two tax systems to incentivize import of cleaner vehicles.

Buildings market

Zambia is one of nine African countries supported by the Global Fuel Economy Initiative with funding from the FIA Foundation. They are studying all the changes they can make to implement and encourage clean transport

Buildings policy

The government has yet to implement any substantive policy support in this sector and the low-carbon heat market remains at an early stage.