Rural Electrification

Sustainability, Equality, and Effectiveness in Rural Electrification

When it comes to Sustainability, Equality, and Effectiveness in Zambia – the key words of this “alternative news” website – rural electrification is a topic that is often neglected in the mainstream news coverage in the country. This is because few of the people who produce and read and watch news are affected. Almost everyone who has a TV, a computer, or buys newspapers, is enjoying a Zesco connection which provides electricity at a still quite low tariff, and which has recently also re-established some degree of reliability. Lucky we are – in comparison to the 75% of Zambians who live in rural areas with no access to the national grid.

Even with the current increase, Zesco electricity tariffs in the country are still quite low – not only in regional and international comparison, but also as against the marginal cost of generation, and, above all, in comparison to what off-grid folks have to pay for still very poor results. Just imagine the per-kilowatt-hour cost of burning a candle or a kerosene lamp – it easily touches some 2USD per KWh. And this is what the really poor Zambians have to pay for their household energy, while the noisy urban Zambians have successfully lobbied ERB to delay a reasonable adjustment of Zesco tariffs for so many years, pretending that the “poor Zambians” cannot afford a tariff increase. Equality and social justice would require a different approach.

Traditionally, Zambia is proud that 99% of its electricity is generated from hydropower, a renewable source of energy, and certainly sustainable. This is very nice indeed, but it has its limitations. The social and environmental cost of large hydropower reservoirs such as the Kariba dam are in the meanwhile recognized as substantial. It is not evident that such a dam would find international financing today. We shall see whether the Batoka Gorge dam further upstream of the Zambezi will take off, but it will certainly not serve the rural areas. Yet, Zambia has so many more small waterfalls with an enormous potential for additional generation. This is the traditional approach of Zesco and the Rural Electrification Authority (REA), to focus on the exploration of hydro resources. However, most of these beautiful waterfalls are far away from where electricity is needed, and the transmission and access cost make them unfeasible. Therefore, even the 60MW Kabompo Gorge project is currently on hold. Copperbelt Energy Corporation which is serving the mines with electricity has won the concession to build and operate this new dam, already some 10 years ago. But it cannot convince neither the mines, nor Zesco, to pay the 0.16 to 0.18 USD per KWh which it would require to implement the project. And for most of the small hydropower projects, the cost to get them on the grid may even be higher.

And the cost to get the grid to reach a significant percentage of the households in the country is simply unaffordable. Grid extension in a large country like Zambia, with a widely dispersed rural population is extremely expensive, and economically unfeasible. But this is the mainstream solution in Zambia, relying on hydropower and grid extension. Sustainable? Yes, to a certain extent. But effective? Certainly not.

Except for the mines which are exempted, 3% of our Zesco bills is going into the rural electrification levy. However, while this is still very little, this money does not directly go into rural electrification, but is remitted to the Ministry of Finance. From there, the Rural Electrification Authority (REA) receives an annual budget. In recent years, 70% of the financial resources made available for REA have been spent on grid extension projects, while REA solar home projects have only received 7%, although the number of beneficiaries is similar. With its limited resources, REA mainly builds some distribution lines at the end of the current Zesco grid, and then hands them over to Zesco to serve a few lucky customers who are newly connected, also thanks to a Worldbank grant to subsidise the connection fee. Unfortunately, the population increase in off-grid areas is higher than the number of households which can be served in this way. Despite all efforts, electrification rates in rural Zambia have recently even declined, and are lower than 3%.

Therefore, not only a shift in the technical solution approach is required, but also new financing models that allow for more efficiency, more equality, and sustainability in the field of rural electrification.

One element is certainly a cross-subsidy from grid-connected to off-grid households (as is currently being practiced between grid connected Zesco customers along the main grid, and the diesel powered Zesco grids in some isolated areas which all pay the same tariff). Closing the poverty gap between the grid-connected urban and the off-grid rural households, beyond what can be financed by Government or donor funds, definitely justifies an increase of the Zesco consumer tariffs. When considering Zesco´s application for tariff increases, ERB should not only listen to the comments of Zesco customers in public hearings in Lusaka, Copperbelt, and Livingstone, or look at Zesco´s cost of service, but should also take into consideration the actual average cost of electricity for all Zambians, and propose a cross-financing mechanism benefitting all households.

In order to reach a substantial part of its off-grid clientele, REA has to develop appropriate service models with private sector participation. REA should concentrate on developing and implementing new business models for private sector players to serve off-grid areas and clients as energy services providing utilities. For selected rural growth centres with a sufficiently high population density, this could be done by setting-up REA owned mini-grids including the respective distribution network, for which the power generation and operation of the system can be tendered to a private sector operator for a specified time period, at ERB approved tariffs that are somehow comparable to Zesco tariffs. The bidder requesting the lowest public contribution for installing and running the system would get the contract to set up the power generation – in most cases a PV solar array with battery back-up which is eventually supplemented with a biogas or diesel generator in a hybrid system – and the operation of the system for 5 or 10 years.

But most of the rural areas do not allow for the operation of a mini-grid, for the same reason why grid extension does not work. The households are just too far apart from each other. Stand-alone solar systems are the only viable answer to serve the majority of these off-grid areas in the country. Solar prices have come down considerably, and more and more quality products are available, strong enough to even power rural businesses. But despite the substantial reduction in prices for solar systems, stand-alone solar electricity is still much more expensive than grid electricity, at about 0.50-1.00USD per KWh. And, such systems for the “really poor Zambians” are only available through a hefty upfront investment, with no easy or affordable credit facilities available. For these households, one has to develop a financial contribution model which allows private sector companies to provide stand-alone solar systems through a pay-as-you-go model to off-grid customers, households as well as businesses.

An illustration for the basic dilemma of rural electrification in Zambia, and how this can at least partly be overcome, is the planned expansion of the Zengamina hydropower scheme in Mwinilunga district, the first and so far only private minigrid in the country. As the hydropower resource would have the potential for expansion through a second dam further upstream, and many households in the vicinity of the minigrid would hope to get connected, Zengamina Power Ltd. wanted to apply for external financing. However, the investment cost for adding some 500 to 600 new customers into the expanded minigrid would have come to more than 11,000USD per new customer, while at present customers pay on average only about 7USD per month for the electricity. As this is not affordable, an alternative approach was developed.

This approach consists of expanding the current generation capacity through a water retention basin in combination with a 200MW solar array. This replaces the second dam with a generation capacity of another 750KW, at much lower CAPEX (400,000USD in comparison to 1.5M USD). The increased generation will then be used to serve a number of high demand commercial customers, and to expand the current private customer base initially by at least another 1,000 households. These new customers will rather be served through battery swapping services for stand-alone DC home systems, charged through the central hydro-solar hybrid system. For the expansion to the off-grid households, ZPL will dispatch 50Ah Li-ion batteries which will be charged and delivered to customers at a fee of about 1USD per charge, including a delivery service.

The batteries will be charged in initially 20 Hydro Power Kiosks which are to be established along the current transmission lines, each of which will be serving approximately 50 households within a 10km radius. The Kiosk operators, operating as independent service providers under a franchise system, will regularly and upon customer request by SMS exchange the batteries to be recharged. The battery discharging services will be done by means of electric bicycle transport, and oxcarts.

In order to also be able to serve small businesses with substantial temporary power requirements under the scheme, such as hammermills etc., the company intends to also acquire an electric vehicle (EV) with “vehicle-2-load” (V-2-L) capacity. This could be a standard electric vehicle such as the Chinese BYD-E6 which is the most widely used all electric taxi, or a custom-built solution, by turning a standard 4WD pick-up into an electric vehicle that also has such V-2-L capability. In different countries, e.g. in Germany or in the USA, there are small workshops that have specialised in converting second hand vehicles into such EVs.

As this example shows, new innovative service solutions are required, but also financial resources that bridge the gap between the privileged grid-connected, and the poor off-grid Zambians. And it is most likely the private sector which can provide the respective services effectively, but only if the returns on investment are attractive enough. To allow for this new approach, we have to lobby for a wide consensus in society.