Opportunties For Private Investment In Energy - A Zambian Overview

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Zambia faces a significant energy crisis primarily due to its heavy reliance on hydroelectric power, which supplies over 80% of its electricity, making the country vulnerable to climate-related challenges like droughts. With only 42% of the population having access to electricity well below the Sub-Saharan average there is a pressing need to diversify the energy mix and expand both grid and off-grid solutions. The government has introduced policy reforms, including open access regulations and tax incentives, to attract private investment and support the growth of independent power producers (IPPs), particularly in solar and wind energy. Despite challenges like limited financing, Zambia's abundant renewable resources, growing population, and economic demands, especially in mining, create strong incentives for energy sector reform and expansion toward a more resilient and sustainable future

Zambia Energy Crisis at a Snapshot

Zambia’s renewable energy sector is mainly driven by hydroelectric power, which makes up 82% of its energy, with other energy sources contributing less than 20%. According to the World Bank, the total installed capacity is around 3,871 Mega Watts (MW) power capacity in Zambia. Only 42% of the population has access to power, which is below the Sub-Saharan average of 47%. Urban access accounts for 75% of the overall electrification and rural access just under 12%, most of which is exclusively through the national grid. This gap highlights the need for grid expansion and other off-grid solutions.

The Zambian population has grown to approximately 20 million people with a Gross Domestic Product (GDP) growth of an average of 4%. About 80% of the population depends on hydro power which entails a clear strain on the grid based on population. There has been a shift in the Zambian energy landscape with the emergence of several new generation companies in the renewable energy sector consisting mostly of small-scale solar PV projects which are more climate resilient.

It is important that there is a further development of other alternative energy projects that will play a crucial role in adding significant capacity to the national grid to help to meet the growing demand for electricity in Zambia and across the Southern Africa region.

The energy deficit, of note, goes beyond Zambia. According to the Southern African Power Pool, the total deficit in the region is about 1700MW. Some countries in Southern Africa have declared deficits on capacity inclusive of energy reserves.

Existing Generation Companies

The electricity supply industry in Zambia mainly comprises of the state utility, ZESCO, and an energy service company Copperbelt Energy Corporation (CEC) that purchases power from ZESCO and supplies it to the mines. In addition, one independent power producer, Lunsemfwa Hydro Power Company, and some small-scale solar-based energy service companies supplying power to industries and to some rural areas also participate in the industry.

Why is Electricity Generation Urgent?

Zambia’s goal of producing 3 million tons of copper annually is partially hindered by an unavailability of electricity or other energy sources. As contributing factors, environmental and socioeconomic challenges including land degradation, deforestation and recurring droughts have proved to work against hydro improvements. New generation companies are incorporating different alternative energy sources, diversifying Zambia’s energy mix, which reduces reliance on traditional hydroelectric power and enhances grid stability.

An Overview of the Energy Sector

In 2024, Zambia procured electricity from South Africa and Zimbabwe to mitigate the current energy deficit amidst a heavy load-shedding period. This was triggered by the prolonged drought and subsequent low water levels in the Kafue River and Zambezi basins, with hydroelectricity accounting for the majority of the national grid. Policies in support of independent power producers (“IPPs”) have been introduced, with ZESCO’s monopoly as the main utility entity being restructured.

Government Initiatives to Encourage New Players in the Market

Ø  Zero-rated Value-Added Tax (VAT) on the importation of selected equipment and machinery used in the development of energy generation;

Ø  Suspended customs duty and VAT on generators and items used for solar power equipment until 31 December 2027.

Alternative Energy Opportunities

With the current electricity challenges, therein lies several opportunities to develop small and medium-sized alternative private sector driven energy projects of 1MW up to 100MW. There is now an opportunity for the public sector to create an enabling environment and the right conditions for private investment and to help diversify the current Zambian energy mix. Various organizations have been looking to actively seek to support the development of IPPs; what remains a challenge is the financial capacity to fund these projects and in certain instances the projects themselves.

There has been deliberate action from the public sector to assist create an enabling environment for private investments in alternative energy sources and to enhance understanding on energy sources outside hydropower and infrastructure financing. Alternative energy opportunities in Zambia are fueled by challenges which have been primarily driven by the reliance on hydroelectric power as highlighted.

Further, with the rising demand for electricity, backed by other economic considerations such as the need to increase copper production up to 3 million tons per annum by 2030, it is clear that this is an existing opportunity that continues to develop. Zambia’s abundant resources place the country at the center of discussion and investors can leverage the rising demand for the energy.

In July 2024, Zambia enacted the Electricity (Open Access) Regulations, SI No. 40 of 2024, joining other countries and jurisdictions that have implemented open markets in electricity industries. Open Access allows IPPs to access and use the electricity transmission and distribution system, fostering a more competitive and efficient electricity market.

The introduction of the open access regime is anticipated to positively result in a competitive and encouraging renewable energy IPPs; attract private investment to support IPPs; enhance efficiency; and ultimately improve the overall electricity supply in Zambia. The primary goal of the open access regime is to empower IPPs to generate and sell electricity directly to consumers, by passing the state-owned utility, ZESCO.

It should be noted that Zambia has a lot of renewable and non-renewable energy resources but efforts to utilize these resources have been gradual. The government of Zambia recognizes the need for moving away from hydro as the only energy source as clearly demonstrated through the open access regime. The largest renewable energy generation potential projects exist through solar, thermal and wind.

Solar and Wind Energy

Solar power development has been slow due to lack of capital for large projects by most solar operators. Solar potential in Zambia has average solar insolation of 5.5 kilo Watt hours per square meter in a day, with approximately 3,000 sunshine hours annually providing good potential for solar projects according to available sources. Wind power is also an energy source that continues to be explored in Zambia.

Zambia has been seen switching from conventional and traditional energy sources to sustainable and renewable energy sources and practices, and use of off-grid renewable energy technologies for production use. This can be seen through implemented programs involving diesel, coal or mini-hydro, and the introduction of off-grid renewable energy generation, Solar PV and Wind for large scale production, or power plants.

What Does the Future Hold?

There is a rising need and opportunity for private sector involvement in energy generation. Diversifying the energy mix with renewable and other energy sources will improve Zambia’s climate resilience by reducing the reliance on hydropower. Zambia continues to rely on the private sector to bridge the electricity gap and reducing a strain on the national grid. The opportunity to set up power generation still remains and the opportunity to finance these green field power projects is now greater than ever. A reform in the electricity sector will improve the current social and economic state of the country, and a new face to electricity infrastructure financing.