Zambia needs more electricity generation capacity. A drought in 2014/15 led to unprecedented load shedding that raised the issue in the public consciousness. Since then the energy policy community has debated how best to meet demand increases of approximately 3 to 4 per cent per annum in the context of changing weather patterns linked to climate change.  

Since 2014 a number of new generators have come on line, including Zambia’s first coal power station and several diesel and heavy fuel oil generators. These have reduced the dependence on hydro power but have increased operating costs as fuel costs for thermal generators must now be factored into the cost of supply. 

An alternative vision for the energy sector was discussed at an event in Lusaka hosted on May 15, 2018 by IISD and CUTS Lusaka. What if renewable energy sources could replace these fossil fuel generators, power further expansion and deliver electricity without the risk of locking Zambia into expensive fuel contracts? And if so, how could the capital costs of renewable energy be funded? 

Research by IISD and CUTS suggests that one solution may be to free up resources by phasing out subsidies to fossil fuels and to reallocate some of these funds to support development of renewables, a subsidy SWAP. Chenai Mukumba, Centre Coordinator of the CUTS International presented three options for subsidy SWAPs that could be developed in Zambia to reduce subsidies and promote clean energy:

1. Phase out diesel generators and replace with cheaper solar energy. Recent auctions show that prices for solar may now be lower than diesel generation, so a transition would reduce costs for the national utility ZESCO;
    
2. Reduce access to subsidized electricity in the mining sector. Some of the additional revenues generated could be allocated to fund energy efficiency and clean energy projects to further improve mining sector efficiency;
    
3. Transitioning from blanket lifeline tariffs to targeted cash transfers could help to better target subsidies to maximize impact and reduce waste.

These options are all designed to reduce the costs of subsidies to fossil fuels and electricity either by cutting the tariff, reducing overall energy consumption or by offsetting fossil energy with renewable generation. The research was welcomed by Lloyd Chinjenge, Assistant Director, Energy Ministry. Assistant Director Chinjenge went on to express support for proposals that could help drive investment in renewable energy in line with government policy. 

I highlighted examples of SWAPs from other countries. Explaining that, in India, pressure to reduce spending on subsidized kerosene had led the government to look at options for subsidy reform and the promotion of solar lights, a cleaner and cheaper lighting source that is currently being held back by the availability of low-cost kerosene.

Similar reforms in Zambia would offer a way to improve electricity sector cost recovery and increase generation capacity without a big increase in polluting coal or diesel generation. Further work is needed to develop these concepts into practical policies that are acceptable to energy sector stakeholders.