Zambia: Will UAE cooperation revive solar dream after World Bank, China disappointments?

By Chiwoyu Sinyangwe

Posted on Thursday, 26 January 2023 14:15
FILE PHOTO: A general view of the Victoria Falls on the Zambezi River which forms the border between Zambia and Zimbabwe. Picture taken February 27, 2016. REUTERS

Drought-prone Zambia hopes the $2bn direct investment from the UAE will help to reboot its quest for more renewable power sources after previous similar attempts in cooperation with the World Bank and China stagnated on the southern African country’s swelling debt.

According to ZESCO’s official estimations, Zambia, which has the potential to generate up to 5,000MW of solar and wind power, has been pushing to lessen overdependence on hydropower after repeated droughts reduced production at key power stations, triggering social and economic crises.

Currently, Zambia has a total installed generating capacity of about 3,400MW, with 84% hydroelectric power generated by key stations based mainly in the drought-prone southern parts of the country.

Despite having an installed surplus of about 1,100MW, Zambian households are currently being subjected to daily eight-hour power cuts.

Shortage of usable water for power generation affects key generators, while the country also had to sustain its exports of 480MW to electricity-stricken neighbours.

Following the electricity woes at South Africa’s Eskom, Zambia has to increase exports.

Quest for diversification

Historically, Zambia has depended on hydropower power generation. Its biggest power station is the 1,080MW Kariba North Bank Power Station on Lake Kariba shared with Zimbabwe, while the 990MW Kafue Gorge built by Energoprojekt of the former Yugoslavia is the second biggest.

Zambia has been experiencing regular droughts, especially in the Zambezi River basin which was dammed to create Lake Kariba. This has prompted the country to push for diversifying its energy mix.

In the last 10 years, Zambia has attempted to diversify its energy mix but it has been a bumpy ride.

In 2016, Zambia’s Industrial Development Corporation (IDC) signed an agreement with the World Bank to implement the Group’s Scaling Solar Programme in Zambia.

The programme saw Italian multinational renewable energy company, Enel Green Power, build a 34MW Ngonye solar PV south of Lusaka. Adjacent to Ngonye plant, French company specialising in renewable energy production, Neoen installed a 54MW Bangweulu solar power plant which was part of the Scaling Solar Programme.

Both plants were commissioned in 2019.

A further 200MW was earmarked to be procured through KfW’s Global Energy Transfer Feed-in Tariff programme from smaller projects.

However, the plan collapsed after the IFC, concerned with Zambia’s swelling public debt, withdrew financing and letters of credit backed by partial risk guarantees.

Attempts in 2020 to bring on board Power China as a potential replacement for the second round of Scaling Solar collapsed after the reality of Zambia’s indebtedness dawned.

Power China was to construct 600MW solar farms in three provinces in Zambia at an estimated cost of $550m. But later, Power China withdrew at the time Chinese lenders to the 750MW Kafue Gorge Lower hydropower project also stopped sponsoring the project, demanding stronger guarantees at the time.

“Power China has signed three contracts worth $548m to develop 600MW grid-connected Solar PV Power Plants in Chibombo, Chirundu, and Siavonga Districts but later reduced interest in the three sites,” says a ZESCO source familiar with the transaction. “I am not sure why because they did not officially write to us to date.”

High cost

Zambia started looking to solar PV and wind sources after new power projects proved too costly for a country where tariffs have remained at non-economic levels as subsequent regimes fear the political ramifications of raising the tariffs.

In a country of 20 million people, access to electricity rates in Zambia stands at 45% in urban areas and only 5% of the rural dwellers have access to power, according to the Ministry of Energy.

In the last five years, Zambia has for the first time inaugurated thermal power stations as part of the shift to reduce dependence on the vertically-integrated state power utility, ZESCO.

Zambia has also implemented market reforms aimed at refining the 2019 Electricity Act to strengthen private investment in the generation, supply and distribution sub-sectors.

These reforms have seen an emergence of Independent Power Producers (IPPs) and deliberately dilute ZESCO’s monopoly in the generation, transmission and distribution of electricity.

In 2016, India’s Nava Bharat Ventures constructed a 300MW coal-fired Thermal Power Plant in Southern Zambia. In 2017, UK’s GL Africa Energy (UK) started a 105MW HFO-fired plant in Ndola, on the Copperbelt.

Dangote Cement Zambia Limited also exports 22MW to the Zambian grid from its 30MW coal-fired power in Ndola.

However, the coming of private producers has not entirely been a blessing to Zambia.

Currently, ZESCO owes IPPs about $1bn in unpaid invoices. Private power producers sell power to ZESCO at an average of $0.12 per kilowatt-hour whereas the utility retails at $0.06 per kilowatt-hour. The Zambian treasury planned to subsidise retail consumers but its empty coffers had failed to support it.

ZESCO sources most of its agreements with IPPs were signed under political pressure of the previous regime and disadvantages the country. The new regime of Hakainde Hichilema is currently renegotiating tariffs with all IPPs. Maamba Collieries Limited which is 35% owned by Zambia’s ZCCM-IH says it has agreed to reduce by 25% its tariffs to ZESCO. It previously sold at $0.13 per kilowatt-hour.

“In the last year, we have had very close interactions and collaborations with Zesco. We have agreed on a 25% reduction tariff. Notwithstanding that, there are other disputes going on and those have been resolved amicably,” said Cyrus Minwalla, chief executive officer of Maamba Collieries Limited.

Ndola Energy Company was designed to run on Heavy Fuel Oil from Indeni Petroleum Refinery. Until it ceased refining last year, Zambia’s sole refinery had no storage for the HFO, posing a serious environmental hazard.

Despite not producing currently, Ndola Energy Company has continued invoicing ZESCO and it is owed $256m. The new regime has agreed to slash the tariff by half to $0.06 cents without HFO from the Company.

Zambia looks to UAE

According to official projections, Zambia has the potential to generate 2,300MW of solar power but only 76MW have been developed by private investors. The country is estimated to have a potential for 3,000MW of wind power but none is developed.

In 2016, ZESCO signed a Memorandum of Understanding with MASDAR, a subsidiary of the Abu Dhabi Future Energy company for the development of solar and wind power projects but little movement has been made.

The first phase of the project will entail the construction of 150MW solar power plants, with the goal of eventually reaching a capacity of 800MW by 2030.

“Partnerships remain a very important component in the agenda for increasing investments in new solar projects and as ZESCO, we look forward to partnering with MASDAR so that we deliver these projects in a timely and cost-effective manner,” said ZESCO Chairperson Vickson Ncube.

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