Enhancing the Renewable Energy Transition in Zambia
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ENHANCING THE RENEWABLE ENERGY TRANSITION IN ZAMBIA POSITION PAPERS November 2018 Contents Position Paper 1 4 Position Paper 2 A feasible roadmap to integrate non-dispatchable renewable energy in the national electric system of Sub-Saharan region 12 Position Paper 3 Best practices for successful auction program: Connecting public sector and investors in emerging RE markets 22 Position Paper 4 Managing local content requirements in renewable energy projects 34 Position Paper 5 Renewable energies, sustainability, and human development: a multifaced relation 44 Position Paper 6 48 Position Paper 7 Managing environmental & social risks to achieve bankability for renewable energy projects in Africa 60 Position Paper 8 Decentralized renewable energy solutions to foster economic development 70 Position Paper 9 RES and energy storage: new opportunities for emerging markets 94 Position Paper 10 Innovation and Africa: an opportunity not to be missed 116 Position Paper 11 Construction models for renewable plants in Africa: 122 Position Paper 12 Leading capacity development: a key driver for the streamlining of ODA funding for renewable in Africa 128 Country pro�ile Zambia This paper has been prepared by: !!!!!!!!!!!!!! Cristian P. Lanfranconi*, Arera - Andrea Renzulli, Poyry - Daniele Paladini, RES4Africa ! ! !!!! ! !!!!!! ! !!!!! Zambia at a glance defeated by the Patriotic Front at the egislative !!!!!!! !!!!! ! election. Today, Zambia is governed by Presi- !!!!!!! ! ! ! !! The Republic of Zambia is a landlocked country dent Edgar Lungu who won the election in !!!!!! ! in Southern Africa region surrounded by 8 2016. !!!! !! :!!!!!!!! countries: Democratic Republic of Congo to the According to the World Bank, Zambia is a re- ! !! north; Tan!!!!!!!zania to the north-east; Malawi to source-rich, lower-middle-income country: !! !!! the east;!!!!!! Mozambique; Zimbabwe; Botswana!!; Zambia’s Human Development Index (HDI) and Nam!!!!!!!!ibia to the south; and Angola to the value !!!!!!!!!!for 2015 is 0.579 - in the mid-range of wes!!!!!!!!!t. With a population of almost 17 million HDI !!!!!!!!rankings - positioning the country at 139 people !!!and with a territory of 752,614!! km2 out !!!!!!!!of 188 countries and territories. In 2017 (three times !!!!!!the size of the United Kingdom) Gross !!!!!!Domestic Product (GDP) was US$25.8 Zambia!! represents the geographical center of billion, !!!!!!!!!equal to a per capita income of around the Southern Africa region. US$1,509.!!!!!! The country has made signi icant @!! !!!! socio-economic!!!!!! progress over the past two Zambia has maintained peace and political sta- � !!! !!!! decades !!!!!!and achieved important average GDP bility from its independence in 1964. 2011 growth !!!!!!!of 7.4% between 2004 and 2014. signed !!!!!!!a peaceful political transition with the !!!!! However, !!!!!since mid-2015, economic growth Movement for Multiparty Democracy (MMD) has slowed considerably to 2.9 percent. Na- ! ! ! ! ! ! !! !! !!!! %%%%%%%%%%%%%%%%%%%%%%%%%%%%%tional economic performances are strongly re- %%%%%% lated with the price of copper considering that *The opinions expressed in this document are those of the author. They do not necessarily represent views or official positions of ARERA and do not com copper mining is the most important activity mit% ARERA to any course of action in the future. ! ! !!!!!!!!! ! ! and accounts for around 85% of country’s ex- The rapid and sustained growth achieved from ports. In 2015 Zambia faced a critical eco- the early 2000s to 2014 has been insufficiently nomic crisis due to the concomitance of the inclusive and despite the doubling of GDP Zam- lowering of the price of copper and a strong bia continues to deal with high unemployment energy crisis caused by a shortfall of rain. rates as well as low revenues of its population. Today the situation has stabilized and macro- As a result, poverty remains widespread and economic outlooks for next years are positive! it’s an urgent priority for the country’s current and optimistic. development strategy. !! !!! !!!!!! !!!!!! ! !!!!! ! !! !!!!!!! !!!!! !!!!!!! ! ! !!!!! !!!!!!! !! !!!!!! ! !!!!! !!! !!!! !!!!!!!! !! !!!! !!!!!!!!! !!!!!! !!!!!!! !! !! !!! !! !!! ! ! e ! !"#$% ' (')&*+"&'&,'&'#-&./0 !! ! Zambia’s Energy Governance Increasing access to energy is a key priority of the national development strategy and the gov- One of the main aspects the government of ernment has set electrification targets at 90 % Zambia is trying to address to improve life-con- for urban areas and 51 % for rural zones by ditions of its population is increasing access to 2030. However, at the current pace, these tar- energy across the country. Access to power in gets are not expected to be achieved. Zambia, especially in rural areas, is dramati- cally low. The overall national electricity access !!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!! The electricity supply industry in Zambia is rate, defined1 as connection rate to the grid, is dominated by the vertically integrated utility around 31 %: 67 % in urban areas, and only company ZESCO Limited (ZESCO). The utility is 1 Project Work – Zambia, Lanfranconi, ARERA, 2018 close! to 4% in rural areas. wholly state-owned through the Industrial De- velopment Corporation (IDC), the holding com- pany! for the majority of state-owned enterprises in Zambia. ZESCO owns and oper- !!!!!! !! !!!!!!!! !!!!!!! !!! !!!! !!! !!! !!! !!! !!!!!!!! !!!!!!!!!! !!!!!!!! !!!!!!!! !!!!! !!!!!!! !! !!!!!! !!!!!!!!!!!!!!! !! ! !!!!!! !!!!!!!!! !!!!!! ! !!!!!! ! ! !! !!!! ! !!!! ates over 90 % of the generation, transmission, crease access to electricity and achieve 2030 and distribution assets in the country and sup- targets. plies electricity to all grid-connected con- sumers, with the exception of some mining Zambia iden grid extension as being the consumers in the Copperbelt Province, which main strategy to expand access to rural areas ti�ies are served by the Copperbelt Energy Corpora- as highlighted in the 2008 in the REMP. It con- tion (CEC), a private company that purchases sists of the following items: bulk power from ZESCO for onward supply to the mines. The electricity sector is overseen by the Min- Rur to 2030; istry of Energy (MoE), which provides policy guidance. • Financialal Electri�ication Plan for Rur Plan up The independent Energy Regulation Board • Policy Recommendatalio nsElectri�ication; for Accelerat ion (ERB) created in 1995 under the Energy Regu- and Dissemination of Rur lation Act to balance the needs of the con- • sumers with the need of the undertakings is al Electri�ication; responsible for licensing, tariff setting, and Development of Comprehensive Rural Elec- quality of supply and service standards for all rogram. • segments of the energy sector (including fuel tri�ication P and electricity) in accordance with the provi- sions of the 1995 Energy Regulation Act as amended in 2003. ERB sets electricity tariffs REA started to implement rural for all consumers with the exception of the projects in 2006. The Rural n Mas- electri�ication mining industry and other large consumers, ter Plan (REMP) is the main strategic guideline Electri�icatio which are set through long-term power pur- of rural projects. A total amount chase agreements (PPAs). of US $1.1 billion (equivalent to US $50 million electri�ication The Rural Elect ation Authority (REA) is re- annually) is required for achieving REMP tar- sponsible for in rural areas and gets. manages the Ruralri�ic Fund (REF), both establishedelectri�ication by the Rural Electr ation Zambia is also interconnected with the neigh- Act No. 20 of 2003. Electri�ication bouring countries by the Southern African i�ic Power Pool (SAPP). The organization created The rural target is based on the in 1995 is playing a key role for the energy sec- of Rural Growth Centers (RGCs) tor of Southern African region. The SAPP has electri�ication through grid extensions, mini-hydro, and solar twelve country members (Angola, Botswana, electri�ication installations as outlined in the Rural Democratic Republic of Congo, Lesotho, cation Master Plan (REMP) of 2008. Malawi, Mozambique, Namibia, South Africa, Electri�i- Swaziland, Tanzania and Zambia) represented Since 2004, REA has been the government’s Special Purpose Vehicle (SPV) for managing the by their utility company. Its aim is to optimize required resources for the rural the use of available energy sources in the re- programme. REA’s primary aim is to provide gion and enhance energy exchange between electricity infrastructure to theelectri�ication rural areas countries by promoting an interconnected re- using appropriate technologies in order to in- gional power market.net !! !!!!!!!!! ! ! Electricity Generation and Demand ! !!! 2015/2016 rainy seasons, which resulted in low water levels for the hydro power plants. Zambia’s generation mix is largely driven by hydro power, which accounts for 84.5 percent As reported also by ERB; “the dominance of hy- (2,388.3 MW) of total national installed capac- dropower generation puts the country at risk ity. Coal generation accounts for 10.6 percent due to changes in climatic conditions; such as (300 MW) of the national capacity, followed by global warming leading to insufficient rainfall diesel at 3.1 percent (88.6 MW), while Heavy and drought. These challenges pose a risk of in- Fuel Oil (HFO) accounted for 1.8 percent (50 adequate water resources available for hy- MW) and solar photovoltaic (PV) for less than dropower generation. Unfortunately, this risk 0.1 percent