ENERGY SERIES | ARTICLE No.#7

"TACKLING LOAD SHEDDING IN ZAMBIA: A MULTIFACETED APPROACH TO POWER STABILITY"

Zambia is grappling with chronic power shortages and load shedding, which have far-reaching implications for its economic growth and quality of life. The root causes are multifaceted, including ageing infrastructure, reliance on hydropower, and financial instability ofZesco Limited, the national electricity utility. 

Among the proposed solutions, tariff reforms and a fuel pass-through mechanism are critical measures to stabilise and improve the power sector.

THE CASE FOR TARIFF REFORMS

One of the most pressing issues facing ZESCO is the non-cost-reflective nature of current electricity tariffs. For years, tariffs have been kept artificially low due to socio-political pressures. This pricing strategy has resulted in substantial revenue shortfalls, preventing ZESCO from investing adequately in infrastructure maintenance and upgrades. Aligning electricity tariffs with the actual cost of production and distribution ensures that ZESCO can generate sufficient revenue to cover its operational and capital expenses. 

This approach not only improves financial stability but also attracts private investments by creating a predictable and stable market environment.

The strategy involves negotiating with stakeholders, including the government and consumer groups, to gradually increase tariffs to reflective levels. This could be phased over a period to mitigate the immediate impact on consumers while providing ZESCO with the necessary revenue boost. To protect low-income households from tariff hikes, targeted subsidies can be implemented. These subsidies ensure that vulnerable populations are not disproportionately affected while still moving towards cost-reflective pricing for the broader consumer base. 

Establishing a robust framework to identify and subsidise eligible households can help balance financial sustainability with social equity. This might involve cross-subsidisation where higher tariffs for industrial and commercial users offset the cost of residential subsidies.

MUCH ADO ABOUT A COST-PASS-THROUGH MECHANISM

A cost pass-through mechanism allows ZESCO to adjust electricity tariffs based on changes in operational costs, particularly those related to fuel prices. This mechanism ensures that fluctuations in fuel prices are directly passed on to consumers, rather than being absorbed by the utility. Given Zambia’s heavy reliance on hydropower and the increasing dependence on thermal power plants during dry periods, implementing a cost pass-through mechanism is essential for maintaining financial stability.

The implementation of this mechanism begins with establishing a regulatory framework that allows for periodic review and adjustment of tariffs based on cost changes. Transparent communication with consumers about the rationale and benefits of this adjustment is crucial. This approach has been successfully adopted in several countries, including Kenya, where the Energy and Petroleum Regulatory Authority (EPRA) has implemented a similar mechanism to stabilise the financial performance of utilities and maintain a more reliable power supply.

The benefits of a cost pass-through mechanism are significant. It ensures financial stability for ZESCO by allowing the utility to avoid financial distress during periods of high fuel prices. This approach attracts investment by creating a predictable financial environment and encourages efficient cost management as utilities are incentivised to manage operational costs effectively. Furthermore, consumers benefit from lower electricity bills when fuel prices decrease, promoting fair and transparent pricing.

LEARNING FROM SUCCESS STORIES

Globally, several countries have demonstrated best practices in eliminating power shortages and managing load. For instance, Ghana, with its economic and infrastructural similarities to Zambia, has made significant strides in improving its power sector. Ghana has successfully implemented various strategies, including demand response programmes, to stabilise the grid and reduce load shedding. Ghana’s approach has involved engaging large industrial consumers in demand response initiatives, investing in smart grid technologies, and implementing cost-reflective tariffs to ensure the financial viability of its power sector.

Another relevant example is Zimbabwe, where the Zimbabwe Electricity Supply Authority (ZESA) has faced similar challenges. Zimbabwe has begun implementing demand response programmes and investing in smart grid technologies to enhance load management and reduce power outages. These initiatives have shown promising results, indicating that Zambia can achieve similar successes by adopting tailored strategies.

THE ROAD AHEAD…

Addressing load shedding in Zambia requires a multifaceted approach that includes tariff reforms, the implementation of a cost pass-through mechanism, and the adoption of best practices from other countries with similar economic conditions. These strategies can help stabilise Zambia’s power supply, attract investment, and ensure a sustainable energy future. Implementing these changes will not only mitigate the immediate impacts of load shedding but also provide long-term solutions to the country's energy challenges. As Zambia takes these critical steps, the collaborative effort of the government, ZESCO, and international partners will be essential in turning the tide against load shedding and driving economic growth and development.

The successful implementation of these reforms will depend on robust regulatory frameworks, clear communication with stakeholders, and sustained political will. Learning from the successes and challenges of other nations, Zambia can build a resilient power sector that supports its development goals and improves the quality of life for all its citizens.