SUNNY SIDE UP

Zambia 2017 | ENERGY & MINING | FOCUS: SOLAR

As power demand continues to rise and power production continues to fall behind, it's the same old story for Zambia, still wrestling with an ongoing energy crisis. Public- and private-sector drives are seeking to mitigate this deficit by activating the country's solar industry.

Increasing industrialisation in Zambia, particularly in energy-intensive sectors, has seen the base load requirements for power surging upward YoY. National power demand, registered at 1,600MW at the end of 2009, is predicted to nearly double by 2020 to exceed 2,500MW. Combined with the low rainfall of the past two years, this means Zambia's energy production, still hugely dominated by hydropower (99%), is in the throes of an crisis, facing a power deficit of around 560MW.

However, the end of 2016 has seen both government officials and the private sector driving the diversification agenda with renewed intent. Amidst calls for innovation and investment in geo-thermal, wind, and, of course, hydro-energy, it is the colossal potential of solar photovoltaic (PV) systems that is stealing the limelight.
In May 2016, President Edgar Lungu commissioned a USD1.2 billion project, led by the Industrial Development Corporation (IDC), to construct two solar plants in Southern Lusaka. The two plants will have installed capacity of maximum 100MW, making significant tracks in the IDC's target to eventually develop 600MW of solar power. The plants, installed on approximately 120ha of land at the Lusaka South Multi-Facility Economic Zone (LSMFEZ) and with an estimated cost of USD150 million, are the fruits of round one of the World Bank's “Scaling Solar" program in Zambia.

A World Bank initiative, “Scaling Solar" tackles the challenges faced by those who are new and inexperienced in the market: a lack of institutional know-how in managing power concessions and purchase agreements and drawbacks that may be deterrents for investors, such as lack of scale and competition and high transaction costs.

In June 2016, the country tendered solar electricity at just USD0.06 per KWh, the cheapest-ever solar power on the African continent. Three international companies won bids to build large-scale PV plants across the country. France's Neoen SAS and American PV manufacturer First Solar, who jointly bid at the record low rate, partnered to draw up the blueprints for a 45MW plant. The third company, Italian-owned Enel Green Power, was awarded the tender to build the 28MW Mosi-oa-Tunya PV facility, a project that will require approximately USD40 million in investment. Once the plant begins operations, projected for 2Q2017, Enel Green will sell the generated electricity for USD0.0784/kWh to state-owned Zambia provider ZESCO. Both of these tenders are set at a fixed price under a 25-year PPA.

Zambia's record result sparked a series of even more competitive tariffs in India, Mexico, Peru, and Dubai. The success of the “Scaling Solar" initiative in Zambia so far refutes the preconception that poor countries, with weak institutions and flimsy frameworks, cannot offer competitive rates for renewable energy or a friendly environment in which to do business.

Following the success of this first round, Zambia is proceeding with a second round of “Scaling Solar" auctions and a further 150-250MW of solar PV capacity will be up for tender by end 2H2017. And, once this round is complete, a third auction will serve up another 250-350MW of power to reach the full target of 600MW. Taking inspiration from the program, other international investors are making their first incursions into the industry. The Zambian Development Agency has announced a proposed investment by a German company looking to funnel USD500 million into setting up a plant with maximum capacity of 400MW in two developmental phases. Similarly, Italian energy company TerniEnergia, part of Italeaf Group, was awarded an USD8 million EPC contract to build a 34MW plant in the country.

This year has seen the launch of several home-grown solar projects too, such as Zambian start-up Muhanya solar, which is working in the Zambezi river region to build a 20KW solar-storage microgrid and the USD300 million solar plant in Kazungula earmarked for construction in 2017 by local company GIWU Investment. With this kickstart from the World Bank, prospects look bright for Zambia's solar industry.