Over the last 5 years, how has the energy mix changed, and what have been the key drivers?
Zambia has largely relied on hydroelectric power and diesel generation produced by ZESCO Limited, a state-owned company that operates the electricity market. Over the last five years, the country has seen an increase in the use of coal and heavy fuel oil to produce electricity. In 2019, two grid-connected solar plants were commissioned under the Scaling Solar program, adding to the energy mix. There are also more players interested in developing solar and wind power plants in Zambia over the past few years.
The key drivers for the changes in the energy mix are increased demand for electricity coupled with climate change, which has seen the country experience some of the worst droughts in its history. As such, power generation from the main hydropower plants suffered greatly resulting in the widespread implementation of load-shedding by ZESCO.
The need to meet rising demands for electricity and the threat posed by climate change saw the Zambian government scaling up efforts to diversify energy sources. A number of policy documents were launched, such as the Seventh National Development Plan of 2017 and the National Energy Policy of 2019. These policy documents set out strategies for the development and use of renewable and alternative energy sources, such as solar, wind, biomass, geothermal and nuclear, as a way of diversifying the energy mix and improving supply. Emphasis was placed on the enhancement of generation, transmission, and distribution of electricity through infrastructure development, the promotion of an open access regime, the implementation of a cost-reflective electricity tariff regime and the adoption of the electricity grid code.
In 2019, the government enacted the Electricity Act no. 11 of 2019 (Electricity Act) and the Energy Regulation Act no 12 of 2019 (ERA). These acts allowed the Energy Regulation Board (ERB) to issue single licenses to entities that wish to undertake various regulated activities such as electricity generation, transmission, distribution and supply. They also introduced an open access regime allowing access to transmission and distribution networks distributors, and licensed new players such as intermediary power traders.
What is the outlook for the energy and natural resources sector in the next 5 years? In particular:
Key policy decisions
Major policy decisions regarding the energy sector have already been made and strategies put in place between 2017 and 2019. As such, new major policy decisions in the energy sector are not expected in the next few years.
What can be anticipated is the implementation of the various policy decisions and strategies that have been put in place. Following the enactment of the Electricity Act and the ERA, the government is likely to issue regulations to provide more detail on procedures provided for in the acts. The ERB has, for example, already embarked on a process of developing an open access market framework.
Main policy challenges
Various consultative processes need to be undertaken in order for the policies to be implemented. It is therefore anticipated that the implementation of the policies or issuance of regulations under the legislative acts mentioned above will take a relatively long time to be completed.
The anticipated role that renewables and/or new technologies will play
Renewable and new technologies will attract foreign direct investment and can be used to develop the economy following the negative effects of poor rainfall in the past few years and the COVID-19 pandemic. There has been recent growth in industrial activity which has increased the demand for energy. Renewable energy technologies will help meet the increased demand. Furthermore, climate change and issues of global warming will increase the use of renewable energy technologies in order to help the country achieve its sustainable development goals.
What are the key investment opportunities in the energy and natural resources sectors over the next 5 to 10 years?
As mentioned above, recent legislation has introduced new players in the power sector. There will therefore be investment opportunities for investors to either come in as suppliers, distributors, transmitters or intermediary traders.
The government policies and open access market framework that is being developed will also create opportunities for various energy companies to generate and supply electricity to the grid. It is anticipated this will lead to improved competition and quality of energy products in the sector within the next 5 to 10 years.
The government has also identified some areas as viable for off-grid wind power generation. The development of wind farms is also an investment opportunity.
Further, the government has identified a number of hot springs in the country that can be used in the production of geothermal energy, but the operational costs of constructing power plants on these springs may be prohibitively high.
Zambia’s woodlands and forests cover about 66% of its total land area. It has been suggested that these vast forests can be used to develop biogas digesters that can be integrated at household level. This is a great investment opportunity which will require government support if it is to succeed.
With particular focus on sustainability, and on reducing carbon emissions, how will the energy and natural resources landscape change over the next 5 to 10 years?
The government recently introduced a carbon surtax on emissions from motor vehicles. Zambia’s Intended Nationally Determined Contribution (INDC) commits to reducing carbon dioxide-equivalent emissions by 25% by 2030 compared to 2010 base year emission levels. It is anticipated that this reduction will be achieved through domestic efforts with limited international support. Zambia has also committed to achieving a 47% reduction with substantial international support.
The country has also embarked on household electrification measures to reduce the use of charcoal. This can be achieved as the rural electrification project has already been rolled out and many households now have access to electricity. The government also embarked on the scaling solar project which has so far added 75.7 MW of power to the national grid.
Other investors can also explore areas for oxygen production and carbon capture possibilities around the country.