Diversification of Zambia’s Power Sector in the face of Load Shedding Management and Incentives for Solar Equipment

An adequate power supply underpins any successful economy. However, Zambia has struggled to generate enough electricity to meet growing demand as the country has developed. This longstanding issue came to a head in 2015/16 and now in 2019 when poor rains depleted the hydroelectric power stations which provide over 83% of Zambia’s power. The ensuing load-shedding in 2015/16 and 2019 has had severe consequences for the economy, as businesses scale back production, small to medium-sized enterprises struggle and households experience blackouts. As demand continues to grow, it is essential that Zambia gets energy generation right if the country is to fulfill its potential for growth. PMRC has long been an advocate of the Renewable Energy Master Plan to actualize the aspect of a viable energy mix for Zambia. Indeed massive opportunities for diversification do exist in solar and geothermal energy.

While the country appeared to have overcome short-term challenges in electricity generation after power cuts in 2014-15 the fundamental challenge of exponential increases in demand remains as evidenced by the power deficit currently being experienced that has resulted in increased power outages throughout the country. PMRC work in the power sector has highlighted the challenges and modeled power demand by households and economic sectors to demonstrate the need to diversify power sector sources given the country’s below-cost tariffs, complex procurement processes, planning bottlenecks, credit-worthiness of ZESCO Limited and regulatory environment in which the Energy Regulation Board exists. Furthermore, without diversification of power sources, power supply will remain vulnerable to seasonal rain patterns and long-term climate change. Moreover, the Government’s fiscal position in the face of debt obligations owing to massive infrastructure investments limits the scope for direct investment in improved capacity.

Therefore, the key to adequately improving power supply in line with fiscal consolidation is through private sector investment in Independent Power Producers (IPPs) where the country has struggled to attract investments as well as demand-side management measures. The Zambian Government in its efforts to mitigate demand for power has embarked on demand-side management measures through the modification of consumer demand for power using various methods such as financial incentives for using energy-efficient equipment and behavioural change through education. Some of the financial incentives include; the Customs and Excise (Electrical Machinery and Equipment Regulations, 2008 Statutory Instrument No. 32 of 2008 which suspended customs duty on generators and other alternative sources of power such as solar panels. To complement this, Government through the Value Added Tax Act (zero-rating) (amendment no. 2) order 2008 Statutory Instrument No. 33 of 2008, also zero-rated the supply of these items in order to make these affordable to the wider sector of the country. These measures as stipulated in the two Statutory Instruments imply that NO customs duty and VAT should be charged on items such as energy-efficient lighting lamps, solar geysers, solar batteries and generators as specified in the schedule. Added to this, the 2020 Budget further highlighted that in order to mitigate the impact of climate change and promote the use of alternative energy sources, Government has zero-rated the supply of gas stoves, other gas cookers and gas boilers. To ensure that this measure is a success, there is need to engage with gas supply companies so as to have the commodity affordable to most citizens and to allay safety concerns.

However, PMRC notes that the application of SI 32 and 33 has not been consistent with some companies and individuals operating in the market reporting having to pay taxes on occasional imports due exemptions not being well defined and different interpretations at the various entry points. Given the quantum of taxes in import duties and value-added tax this creates significant uncertainty for companies and individuals thereby raising the cost for end-users.

Further, the Energy Regulation Board (ERB) in 2017 revised the licensing regime for solar equipment which made it a requirement for all importers of solar equipment to obtain a license from the ERB and quality certification from the country of origin with each shipment. This measure is meant to protect consumers from poor quality products that have in the past flooded the Zambian market and to protect investments made by businesses that have a high compliance rate towards standards.

PMRC would like to urge the Government to;

• Improve clarity in statutory instruments no. 32 and 33 of 2008 and thereby reduce the scope for misinterpretation and misapplication.
• Explicitly state and distinguish between solar batteries used to store energy from ones used in different applications but using the same technology. There should be a clear categorisation of which specific solar product products are exempted.
• Waive Energy Regulation Board requirements for individuals importing solar solutions for personal or household use by specifying limits on what constitutes application for personal use.
• Scale up the implementation of the IDC Solar Project being set up in the MFEZ.
• Urgently formulate a programme to set up further solar projects across the country under the PPP arrangement. Using Bilateral relations with some of the worlds leading nations in solar installation, we must begin to roll-out a massive solar installment programme.
• Educate citizens on efficient use of power through sensitisation programmes on safety of alternative sources such as gas and gas stoves whose duty was zero-rated in the 2020 budget.
• Provide greater incentives for power-efficient equipment to increase uptake and reduce demand on electricity grid.
• Ensure ZESCO regularly conducts load-analyses and provides accurate information on load management to forestall panic usage. Load management must be applied fairly while giving priority to industry, health facilities, and small medium-sized enterprises.
• Overall there should be regular communication relayed to the nation by the Ministry of Energy, ZESCO, and IDC; explaining measures being undertaken and also clarifying some misconceptions that may arise.

These measures if correctly implemented will help mitigate the power deficit in the medium term while the country strives to increase and diversify its power sector portfolio. PMRC calls on all stakeholders to come together and submit forth viable suggestions and recommendations that would expedite the mitigation of the current power deficit.

In view of climate-smart agriculture: Agriculture and fisheries dubbed as the holy grail of diversification are highly dependent on the climate. Increases in temperature and carbon dioxide (CO2) can increase some crop yields in some places. But to realise these benefits, nutrient levels, soil moisture, water availability, and other conditions must also be met. Changes in the frequency and severity of droughts and floods could pose challenges for farmers and livestock and threaten food safety. Overall, climate change could make it more difficult to grow crops, raise animals, and catch fish in the same ways and same places as we have done in the past. The effects of climate change also need to be considered along with other evolving factors that affect agricultural production, such as changes in farming practices and technology. According to Zambia’s 2018/19 crop forecast, maize production declined from 2,394,907 metric tonnes in 2017/18 season to 2,004,389 metric tonnes in 2018/19 accounting for 16% decline in production due to climate change effects that led to prolonged dry spells. Out of the total production of maize, small and medium scale farmers contributed 94.5% while large scale farmers took up 5.5%. PMRC, therefore, recommends the deployment of climate-smart agriculture practices and the re-alignment of spending in the agriculture sector to focus on key drivers of growth in the sector such as irrigation, livestock and fisheries management, disease control, research and development, and extension services. There is significant Climate Change Research that is being undertaken in Zambia and there is need to coordinate and ensure maximum utilisation of the information generated for effective implementation of adaptation and mitigation measures.

PMRC’s vision to unlock Zambia’s potential was bolstered by domestic and international think-tank exchanges and various stakeholder collaborations that resulted in detailed context of policy development conversations. This year, PMRC hosted the Africa China Think Tanks Forum under the theme "Africa-China Economic Development Agenda-Opportunities for Belt and Road Initiative & FOCAC,” with the sub-theme of “Rebranding Africa as a Premier Destination.” PMRC continues to anchor context, comparative discussions of research agendas, communication strategies and ways of engaging with the Government to achieve successful operations.

These events have provided a unique opportunity for PMRC to promote and encourage good governance and keep the citizenry informed on critical social and economic policy issues. As we look back on some of our achievements and publications produced during the course of the year, we invite you to continue to work with us as we achieve our mission to ‘Unlock Zambia’s Potential’.

We would like to thank you for your ongoing partnership, support, and feedback in all aspects of our work. We will continue to produce high quality, relevant and timely public policy analysis, policy monitoring and reform proposals.

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