Energy Regulation Board (ERB) Director General Yohane Mukabe has said the current electricity tariffs are not cost-reflective and will need to rise by an average of 17 percent between 2020 and 2025.
Speaking during the dissemination of the Electricity Cost of Service Study Results Workshop, Mr. Mukabe said the Electricity Cost of Service Study results shows that a total $14.03 billion is required in generation, transmission and distribution between 2021 to 2040.
Government through ERB has started releasing contents of a specialized study aimed at determining the Zambian power systems full cost of electricity generation, transmission, distribution and supply to different customer categories.
The study has highlighted among other issues load forecast, least cost expansion plan, key findings, financial sustainability of the power sector in Zambia and recommendations.
The overall purpose of the Cost of Service Study was to determine and set tariffs for the Electricity Supply Industry at Generation, Transmission, Distribution and Supply.
Mr. Mukabe said there is a need for investment in the power system to meet growing demand. According to the Study major demand drivers between 2021 to 2040 will be domestic, residential and commercial customers.
He added that the recommended tariff migration is consistent with cost-causation, hence low voltage consumers pay more than high voltage consumers.
“There is a need for investment in the power system to meet growing demand. According to the Study major demand drivers between 2021 to 2040 will be domestic, residential and commercial customers. A total 14.03 billion dollars is required in Generation, Transmission and Distribution between 2021 to 2040. Current tariffs are not cost-reflective and will need to rise by an average of 17 percent between 2020 and 2025 in real dollar terms. If legacy debt by ZESCO is allowed to be carried by the tariff the average increase will be 37 percent. Recommended Tariff migration consistent with cost-causation, hence low voltage consumers pay more than high voltage consumers.Migrating to cost reflectivity will provide for adequate revenue requirement and financial sustainability for ZESCO and other Utilities to operate efficiently and re-invest in the power system. Lifeline consumption recommended at 50kWh per month to balance between social affordability and revenue tradeoffs, cross subsidization between low and high income consumers. Cost of supply at generation,” Mr. Mukabe said.
“Transmission and distribution has been determined consistent with cost-causation. The study has recommended a gradual Multi-year tariff migration path with provision for Automatic cost-pass-through on factors that affect the Energy and capacity 35 9.0 Recommendations from the Study i. The ERB as a client recognises and appreciates the thoroughness and scientific approach with which the cost of service study was conducted and accordingly recommends that the study findings may be used as a sound basis on which a review of the Zambian energy supply industry could be based in future tariff design and migration to cost-reflectivity.”
“The Study has recommended a migration to cost reflective tariffs in trachea of 5 years using a Multi-Year and Automatic cost Pass-through Tariff framework. iii. Specifically, the ERB recommends that the report’s findings that ZESCO is financially challenged as a result of not being able to recover the full costs of electricity generation, transmission and distribution under the currently prevailing tariff regime be accepted and that a review of the tariff regime be undertaken as a matter of urgency. ERB further recommends that the study report’s estimates of the growth trajectory for national power demand over the period 2020 – 2040 be accepted and that investments in the power system to the extent of approximately $14billion will need to be made over that period,” he said.
Mr. Mukabe has since called for a quick implementation of the Electricity Cost of Service Study results.
“Failure to implement the recommendations shall have repercussions in the electricity sub-sector. ZESCO’s financial position may worsen and the utility would be unable to pay its suppliers (Independent Power Producers). Further, the utility would be unable to finance investments in new generation, transmission and distribution infrastructure to be able to meet the forecasted growth in electricity demand. vi. That, further to the foregoing finding, it is recommended that social equity should be integral to future tariff designs; and Recommendations from the Study (cont’d) vi. Finally, it is recommended that a comprehensive review of the Cost of Service Study should be done every five years and there should be a program to build local capacity to undertake such studies. Government to study the findings, conclusions and recommendations of the Study and provide policy guidance. A Green Paper was issued on 26th August, 2022 where the Government presented its preliminary position on the Cost of Service Study Results. The expected output after the Public consultation is the Government final position on the Study,” Mr. Mukabe said.