Zambia's Crippling Energy Crisis

Natasha Lloyd, Lusaka, Thursday, 27 June 2024 — Zambia's energy sector has been consumed in a severe crisis for several years, and the situation has taken a dire turn in 2023 and 2024, according to reports from the Ministry of Energy and international organisations. The country's overdependence on hydroelectric power generation has rendered it highly vulnerable to the adverse effects of climate change, leading to recurring power shortages and increasingly prolonged load shedding periods.

In a devastating blow to businesses and households alike, load shedding in Zambia has now escalated to a staggering twelve hours per day, crippling economic activity and disrupting daily life on an unprecedented scale. This extreme measure, implemented by the Zambia Electricity Supply Corporation (ZESCO) in a desperate attempt to preserve the limited water resources available for power generation, has had far-reaching consequences on Zambia's economy, with small businesses bearing the brunt of the impact.

The Hydropower Dilemma and Plummeting Electricity Generation

?According to the Ministry of Energy's 2023 report, Zambia's electricity generation is heavily dependent on hydropower, with the Zambezi and Kafue River basins serving as the primary sources for the country's major hydroelectric power stations. These stations include the Kafue Gorge Power Station (KGPS), Kariba North Bank Power Station (KNBPS), Victoria Falls Power Station (VFPS), Itezhi-Tezhi Power Station (ITPS), and Kafue Gorge Lower (KGL).

?Due to the annual rainfall patterns in Zambia, the water reservoirs that feed these power stations typically reach peak capacity between April and June each year. However, in recent years especially 2022/2023, erratic rainfall patterns and prolonged droughts have led to significantly reduced water levels in these reservoirs, severely impacting hydropower generation. The 2023/2024 rain season was by far the most devastating with most parts of the country experiencing little to no rainfall.

?The Kariba dam's water accumulation remained below 40% of its designed capacity, mainly due to lower water inflows during the 2021/22 and 2022/23 rain seasons, this was according to the ERB 2023 sector report.

?The World Bank's 2023 report on Zambia's energy sector highlighted the alarming decline in electricity generation. The total electricity generated in 2023 plummeted to 18,972.82 GWh, an overwhelming 2.1% drop from the previous year's 19,372.92 GWh. This steep decline was primarily attributed to the reduced generation from the KNBPS and KNBE power stations, which experienced critically low water flows during the 2022/23 rainy season.

Small Businesses on the Brink of Collapse

The crippling energy crisis and the extreme load shedding measures have had a devastating impact on small businesses across Zambia, as reported by the Economics Association of Zambia (EAZ) in their 2023 and 2024 assessments. These enterprises, which form the backbone of the nation's economic fabric, have been forced to endure daily power outages lasting up to twelve hours, severely disrupting their operations, and hampering productivity.

According to the EAZ, small businesses that rely on conventional energy sources have reported production declines ranging from 20% to 60% in 2023, while those using alternative sources have experienced a confounding 15% to 30% drop in production. The impact on profitability has been catastrophic, with businesses facing increased production costs due to the need for alternative energy sources, overtime payments for employees working extended hours, and unplanned maintenance costs for machinery damaged by power fluctuations. On average, production costs have skyrocketed by 20% to 25% per month in 2023 and 2024, severely hampering the competitiveness of small businesses in Zambia.

The prolonged power outages have also taken a severe toll on the daily lives of entrepreneurs and their employees. With electricity unavailable for up to half of the day, essential tasks such as communication, record-keeping, and inventory management have become increasingly challenging, further compounding the difficulties faced by these small enterprises. The EAZ warns that if the situation persists, a significant number of small businesses may be forced to shut down permanently, resulting in widespread job losses and a further contraction of the economy.

Economic Slowdown and Dwindling Government Resources

The energy crisis in Zambia has been exacerbated by the country's broader economic challenges, creating a perfect storm for small businesses. As the demand for electricity continues to grow by an estimated 200 MW annually, the government's ability to address the situation has been severely constrained by reduced revenue and limited resources, as highlighted in the World Bank's report.

Profits in the industrial sector have been decimated, resulting in a sharp decline in government revenue from taxation. This, in turn, has led to drastic cuts in spending on economic and social programs, further hampering the government's efforts to stimulate growth and support small businesses during these challenging times.

Moreover, the mining sector, a significant contributor to Zambia's economy, has not been spared from the effects of the energy crisis. While not subject to rotational load shedding, the mining industry was requested to curtail its load by 30% in 2015 to manage the power deficit. This request has been extended and intensified in subsequent years, leading to reduced production levels, diminished investment in expansion programs, and substantial job losses, further amplifying the economic ripple effects.

Seeking Sustainable Solutions Amidst Mounting Challenges

To address the energy crisis and mitigate its crippling impact on small businesses, a multifaceted approach is required, as emphasised by the Ministry of Energy and international organisations. In the short term, the government has relied on power imports and power rationing interventions to bridge the supply-demand gap. However, these measures are not sustainable in the long run and do not address the fundamental vulnerabilities of Zambia's power sector.

Longer-term solutions must focus on growing and diversifying the country's generation capacity to keep pace with economic growth. The government has embarked on several projects, such as the Kafue Gorge Lower (750 MW) and Kariba North Extension (360 MW), to increase generation capacity and meet the growing national and regional demand.

Additionally, efforts must be made to exploit Zambia's vast untapped hydropower potential, estimated at 6,000 MW by the World Bank. Attracting private investment in this sector will be crucial, requiring the implementation of a tariff strategy that incentivises investment while maintaining accessibility and affordability for consumers.

Zambia is endowed with a wealth of solar energy potential, thanks to its geographical location which gifts it with copious amounts of sunshine. On average, the country enjoys between 2,000 to 3,000 hours of bright sunlight annually.

This natural resource presents a significant opportunity for Zambia to expand its solar power generation capabilities. The intensity and consistency of the sunlight in Zambia are conducive to the development of solar farms and the deployment of photovoltaic systems across the nation. Harnessing this renewable energy source, Zambia will not only meet its own energy demands but also reduce its carbon footprint and potentially become a green energy exporter in the region. The expansion of solar energy infrastructure could stimulate local economies, create jobs in the renewable energy sector, and provide a sustainable and eco-friendly solution to the country's power needs.

Zambia's energy crisis has reached a critical juncture, with small businesses facing an existential threat due to the devastating effects of prolonged load shedding lasting up to twelve hours per day. These enterprises, which are the lifeblood of the nation's economy, are grappling with unprecedented challenges in sustaining operations, maintaining productivity, and ensuring profitability.

As the government struggles with the challenges posed by bad rainfall patterns, aging infrastructure, and limited resources, small businesses are caught in the crosshairs, enduring production disruptions, increased operational costs, and the daily hardships of extended power outages. The warnings from the Economics Association of Zambia and international organisations paint a grim picture, with the potential for widespread business closures and job losses if immediate and effective measures are not taken.

Addressing this crisis will require a multi-pronged approach that combines short-term interventions with long-term policies aimed at diversifying and expanding Zambia's generation capacity. Already Ndola has been restarted but must be kept running as further interventions are sought Harnessing the country's vast hydropower potential through private investment and implementing tariff strategies that balance affordability and investment incentives as well as expanding more on other sources such as solar will be crucial steps toward achieving a sustainable and reliable energy supply.