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Zambia

Governmental Framework

Governmental institutions

Ministry of Energy and Water Development (MEWD)
The Ministry of Energy and Water Development, which houses the Department of Energy, is responsible for the development and management of energy and water resources in a sustainable manner. The MEWD is responsible for the formulation and implementation of the national energy policy, coordination of stakeholders in the sector, the development of a national energy strategy and plan, the monitoring and evaluation of current policies, and the development of new energy programs. The acting Minister of Energy as of January 2017 is David Mabumba.

 

Office for Promoting Private Power Investment (OPPPI)
The OPPPI was founded in 1999 as a part of the then Ministry of Mines, Energy and Water. Its mandate is the promotion of private investment in the generation and transmission of electricity, but works largely with ZESCO as other private investment opportunities have been limited. The office aims at increasing the efficiency of the sector, the development of hydro potential and the use of least-cost technologies as well as renewable energy. The office manages all planning, procurement and awarding of large electricity projects and manages coordination with other government entities.

http://www.opppi.gov.zm/

 

Energy Regulation Board (ERB)
The Energy Regulatory Board was established under the Energy Regulation Act Chapter 436 of the Laws of Zambia and commenced its work in 1996. The ERB is responsible for the licensing of Independent Power Producers (IPPs), the definition of petrol prices and electricity tariffs, the development of technical standards, investigation of customer complaints, arbitration of conflicts among sector stakeholders, and the promotion of new grid connections with a focus on low-income households. As of January 1, 2017, the ERB began regulating the solar sector by enforcing regulations on import of solar components.

http://www.erb.org.zm/

 

Rural Electrification Authority (REA)
The Rural Electrification Authority was established in 2003. It carries out all public activities in connection with rural electrification, including management of the rural electrification fund; development, implementation and revision of the Rural Electrification Master Plan (REMP); promotion of the use of available energy sources in rural areas; management of tenders for rural electrification projects; development of models for the operation of rural grids, and the development of proposals to the government concerning rural electrification.

http://www.rea.org.zm/

 

Zambia Electricity Supply Corporation (ZESCO)
ZESCO was established in 1970 and is fully owned by the Industrial Development Corporation, a fully state-owned investment holding company, owning all state-owned enterprises. The company operates the electricity grid and is responsible for much of the country’s power generation. Though the sector was formally liberalized in 1995, ZESCO is viewed as a monopoly. ZESCO’s performance is considered hampered by highly subsidized tariffs, which has limited its ability to support the development of the national grid, maintenance of assets and investment in new generation capacity.

http://www.zesco.co.zm/

 

Zambia Development Agency (ZDA)
Established in 2006, the Zambia Development Agency is an important contact point for foreign investors. Its mandate includes the promotion of trade and investments, and the agency acts as a platform connecting investors with information and services supporting market entry. The agency supports investors in the acquisition of land, the subscription to and procurement of water, electricity and communication as well as transportation, application for legal immigration status, and application for sector-specific licenses. It is important to note that as there is no formal and legal differentiation between domestic and foreign investors, foreign investors can invest in all sectors open for private investment. The ZDA recognizes the importance of investment in energy and employs a specific expert for investments in energy.

http://www.zda.org.zm/

 

Zambia Industrial Development Corporation (IDC)
Incorporated in 2014, the Industrial Development Corporation of Zambia is an investment company majority owned by the Zambian government. IDC’s mandate is to play a catalytic role in Zambia’s industrialization through the promotion of job creation and domestic wealth formation in key sectors. The IDC facilitates provision and raising of long term finance for industrial projects. In 2015, IDC signed an agreement with the IFC to explore the development of up to 100 MW solar capacity through the Scaling Solar initiative. The first phase of the program resulted in two utility-scale projects (50 and 35 MW, both projects awaiting financial close) scheduled for construction in 2017.

 

Zambia Revenue Authority (ZRA)
The Zambia Revenue Authority is they key agency governing domestic and customs taxes, including considerations of VAT, import tariffs, and business taxes.
Zambia Environmental Management Agency (ZEMA)
The Zambia Environmental Management Agency advises on environmental policy formulation, makes recommendations for the sustainable management of the environment, ensures the integration of environmental concerns in overall national planning, reviews environmental impact assessment (EIA) and strategic environmental assessment (SEA) reports, and facilitates public access to environmental information in the Country.

 

Zambia Bureau of Standards (ZABS)
The Zambia Bureau of Standards (ZABS) is the national standards body for Zambia, responsible for standards formulation, quality control, quality assurance, import and export quality inspections, certification, and removal of technical barriers to trade. As of 2017, importers of solar equipment must present ZABS with a certification of product quality.

 

Strategies, Policies, Acts, and Regulations Governing Renewable Energy

The Zambian government sees renewable energy as an important part of the country’s future energy mix. The country’s Vision 2030 document, National Energy Policy 2004, and Revised Sixth National Development Plan 2013-2016 each acknowledge a need to diversify generation in the sector and increase electricity access nationally. Since 1995, Zambia’s energy regulations have allowed Independent Power Producers to feed electricity into the grid, but low electricity prices and the resulting constrained financial situation of ZESCO have hampered private investment. Currently, four IPPs contribute 186 MW (7%) of installed capacity to the sector. Otherwise, power supply is a rather centralized and state-owned business. The state-owned utility, ZESCO, operates the power grid and generates the bulk part of electricity supplied.

 

National Energy Policy (Revised 2008)
The National Energy Policy was a crucial step for the development of the energy sector in the last decade. It liberalized the electricity sector by opening all market segments to private operators and set the ground for the establishment of two new key institutions: The ERB, established under the Energy Regulation Act, was later tasked with regulating the operations and pricing of the electricity sector while the OPPPI was created to manage additional investment.

 

Energy Regulation Act 1995 (amended 2003)
The act formally established the ERB and defined its functions and powers as regulating the energy sector in a fair, transparent, effective and efficient way to safeguard the interest of all stakeholders. The ERB is responsible for establishing fuel prices (including electricity tariffs), establishing and monitoring the application of the Zambia Grid Code, and designing standards in regards to the quality, safety and reliability of supply of energy in conjunction with the Zambia Bureau of Standards.

 

Rural Electrification Act 2003
The act established the Rural Electrification Authority (REA) and equipped it with a Rural Electrification Fund. The REA is responsible for implementing the Rural Electrification Master Plan (REMP), by facilitating the creation and monitoring the operation of rural electrification organizations or companies. These organizations and companies (including entrepreneurs, community-based organization and others) are expected to fulfil their obligations and perform in accordance with standards and appropriate tariff structures (jointly set up with the ERB). The Rural Electrification Fund is to be sourced by funds approved by parliament, as well as electricity levies, loans, grants and donations from sources in Zambia, however, the exact size of and procedures related to the fund are not publicly available. Funding from sources outside the country must be approved by the minister.

 

Zambian Grid Code of 2006
The Zambia Grid Code was approved by the Energy Regulation Board in 2007, and was gazetted in August 2013, with the objective of facilitating open and non-discriminatory access to the transmission system. Its aims are to enhance efficiency and more rapid electrification, in line with the country’s liberalization of the sector.

 

Revised Sixth National Development Plan 2013 – 2016
The Revised Sixth National Development Plan for Zambia sets out specific objectives relevant to the renewable energy sector, including:

  • To increase electricity generation capacity by at least 1,132MW and build appropriate transmission and distribution lines;
  • To increase rural electrification levels to 8%, and;
  • To expand the use of renewable and alternative energy in the country’s energy mix.

 

Rural Electrification Master Plan (2008)
Together with the Japanese government, the Rural Electrification Authority has developed a Rural Electrification Master Plan for the term 2008 – 2030. The plan clusters 1,217 un-electrified Rural Growth Centers into 180 project packages, estimating that over $1.1 billion (or $50 million per year) is required to electrify all packages by 2030. The Plan indicates a target of achieving 51% rural electricity access by 2030.

Vision 2030 (2006)
Zambia’s Vision 2030 document references the achievement of universal access to clean, reliable and affordable energy at the lowest total economic, financial, social and environmental cost consistent with national development goals by 2030.

 

REFIT
In 2014, the government commenced the process of drafting a Renewable Energy Feed-in Tariff (REFIT) mechanism with the support of the Power Africa initiative (USAID). The top-up on electricity prices is meant to lower barriers for private sector investment in renewable energy generation, and diversify Zambia’s energy mix. Standardized Power Purchase Agreement (PPA), grid connection guidelines, generation license, and grid connection agreement documents have been developed and are available in draft from the ERB website. FiTs have been proposed for wind, solar, hydro, and biomass technologies, formal implementation of these tariffs are expected over the next few months.

 

 

Laws and regulations governing foreign direct investment

The Companies Act of 1994 governs the registration and administration of companies in Zambia. The Zambia Development Agency Act provides a wide range of incentives, allowances, and exemptions and concessions to companies. It defines investor protections and additionally governs issues related to land use, development, and ownership. Additional laws and regulations affecting foreign investment include the Customs and Excise Act, the Income Tax Act, the Value Added Tax Act, Employment Act, and the Immigration and Deportation Act.

 

Renewable Energy Investment Incentives

Priority Sector Incentives and Micro and Small Enterprises
Investors that invest more than $500,000 in a multi-facility economic zone, an industrial park or a priority sector (the latter including energy), or invest in a rural enterprise as defined under the ZDA Act can receive favorable tax and import duty incentives. Developers may be entitled to zero percent tax rate on dividends for five years from the first declaration of dividends; zero percent tax on profits for five years from the first year of operation; zero percent import duty on capital goods, machinery, and specialized motor vehicles for five years. Projects also receive non-fiscal incentives, including investment guarantees and protections against nationalization. Projects meeting the criteria but requiring between $250,000 and $500,000 of investment may receive the non-fiscal incentives.

Micro- and Small Enterprises in urban areas may be exempt from income tax for the first three years of operation, while those in rural areas may be exempt for the first five years.

 

Rural Electrification Fund (REF)
The Rural Electrification Fund is a crucial instrument to drive energy access in Zambia. The fund is managed by the Rural Electrification Authority. It comprises public budget, consumption tax that is collected by ZESCO and additional contributions. The REA uses the fund to invest in the expansion of rural grids and projects that use renewable energy resources. The agency has realized some mini-hydro power stations, solar power and hybrid mini-grids as well as grid extension. According to the REF Operational Manual, the agency grants budget support of up to 100% for publicly-led rural electrification projects. Privately-driven rural electrification projects are subsidized by up to 50% of the capital costs, with remaining funds to be secured by the developer with a minimum level of 20% of equity, and a minimum internal rate of return of 10% before grants. However, information on access to this fund is not publicly available.

 

Scaling Solar
Zambia’s Industrial Development Corporation (IDC) is holding tenders to bring online 300 MW of solar power, in collaboration with the International Finance Corporation’s ‘Scaling Solar’ program. Projects will be structured in line with the Scaling Solar initiative, – including advisory services, contracts, financing, guarantees and insurance – designed to allow solar power to be developed quickly and transparently. On 27 May 2016, the IDC announced two provisionally successful projects from a NEOEN and First Solar consortium (45MW) at $60.2/MWh and Enel Green Power (28MW) at $78.4/MWh. The facilities will be located in the Lusaka South Multi-Facility Economic Zone, with construction planned to begin in March 2017. Round 2 of the targets a further 250MW of solar PV-based Generation.

 

GET-FiT
The Global Energy Transfer Feed in Tariff (“GET FiT”) Program is an initiative launched by KfW, whose purpose is to fast-track a portfolio of a number of RE generation projects (1 MW-20 MW) promoted by private developers. The GET FiT Program consists of three instruments:
• The GET FiT Premium Payment Mechanism (top up per kWh),
• A Guarantee Facility to secure against off-taker and political risks, as well as
• A Private Financing Mechanism that will offer debt and equity at competitive rates.
GET FiT Premium Payments are additional payments per kWh, above and beyond the regulated REFiT tariff. Initially it is expected that payments will be availed on a grant basis at the beginning of the project cycle. Projects will be selected following a tender process, which will be initiated when the REFiT strategy of the Ministry is in place.

 

Key figures

Available statistics:
Capital
Lusaka
Official language
English
Population (2016 est.)
15,510,711
Population growth (2016 est.), %
2.94
Median age (2016 est.), years
16.7
Urbanization rate (2010 - 2016), % p.a.
4.32
Urban population (2015), % of total
40.9
Rural population (2015), % of total
59
Population density (2015), per km2
22
HDI (2014)
139 of 188
National Currency
Kwacha, ZMW
GDP (2015), USD million current
21,154.39
GDP growth (2015), %
2.9
GDP annual growth rate forecast (2020), %
5.97
GNI per capita (2015), current int’l USD
3,640
Inflation (2016), %
7.5
Inflation Rate Forecast (2020), %
13.07
Foreign Direct Investment, net inflows (2015), BOP current USD billions
1,582
Net official development assistance (2014), current USD millions
994
Budget deficit (2016), % of GDP
-8.1
Ease of Doing Business (2016), rank of 190
98
TI Corruption Index (2016), rank of 168
76
Installed Generation Capacity (2016), MW
2,400
Installed Fossil Fuel Capacity (2016), % of total installed capacity
4
Hydro Capacity (2016), % of total installed capacity
95
Other RE Capacity (2016), % of total installed capacity
<1
Renewable electricity output as % of total electricity output excl. hydro (2016)
<1
Avg. distribution and transmission losses as % of output (2013)
9
Net electricity imports (2014), kWh
13 million
Electrification rate, total (2016) %
28
Electrification rate, urban (2016) %
62
Electrification rate, rural (2016) %
5
Peak demand (2015), MW
Nearly 3,000
Per capita electricity consumption (2013), kWh
731
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