“Challenges and Possible Solutions in the Power Sector”

A PRESENTATION TO THE ECONOMICS ASSOCIATION OF ZAMBIA

R P SISALAMANAGING DIRECTOR

10TH JULY 2008

ZESCO LIMITED

PRESENTATION LAYOUT

1. Overview of Zambian Power Sector2. Outline of ZESCO Power System3. The Power Supply Challenge4. ZESCO System Status5. Strategies to Overcome the Deficit6. Conclusion

1. OVERVIEW OF ZAMBIAN POWER SECTOR

I. MAJOR ECONOMIC ACTIVITIES

Mining Agriculture Tourism Industry & Commerce Construction And Housing

II. POWER SECTOR PLAYERS

ZESCO-PUBLIC UTILITY Public Utility Generation, Transmission, Distribution and Supply

COPPERBELT ENERGY CORPORATION Privately Owned Transmission & Distribution to Mines BSA with ZESCO to Purchase Power and Sell to Copperbelt Mines (Ex-

ZCCM) 80MW Gas Turbines

LUNSEMFWA HYDRO POWER COMPANY Privately Owned Generation Capacity-37MW Some transmission lines into Kabwe PSA with ZESCO for Sale of Bulk Power

2. OUTLINE OF ZESCO POWER SYSTEM

I. ZESCO FACT SHEET

Vertically integrated utility Annual turnover: US$$300million Assets in excess of US$3.0billion Customer base: over 300,000 Employees: 3,900 Sales: 9,450GWh National maximum demand: +1,500MW Customer/employee ratio: 80 Approx. 50% sales to CEC & other mining customers 5% exports to regional markets Access rates-27%

II. GENERATION ASSETS

Kafue Gorge - 900MW (990MW)Kariba North Bank - 600MW (720MW)Victoria Falls - 108MWSmall Hydros - 24MWTOTAL INSTALLED CAPACITY 1,640MW (1850MW)

III. TRANSMISSION ASSETS

330KV - 2,008km220KV - 548km132KV - 85km88KV - 704km66KV - 3,014kmHigh Voltage Substations - 27National Control Centre - 01Regional Control Centres - 03

IV. DISTRIBUTION ASSETS

66kV +3,000km33kV & 11KV+6,500kmMV lines +20,000km In excess of 5,000 substations6 Diesel fired power stations 8MW

D R CONGO

TANZANIA

MA

LAW

I

MOZAMBIQUE

ZIMBABWE

NAKONDE

KASAMA ISOKA

CHINSALI

MPOROKOSO

LUWINGU

MPIKA

PENSULO

SERENJE

CHIPATA

CHIRUNDU

LEOPARDS HILL

KARIBA SOUTH

MUSONDA FALLS (5MW)

LUSIWASI(12MW)

MULUNGUSHI(20MW)

MSORO

LUNDAZI

MFUE

AZELELUNSEMFWA(18MW)

CHISHIMBA FALLS

LUNZUA(0.75MW)

MBALA

SAMFYA

KASHIKISHI

PETAUKE

MOMBUTUTA

CHIENGI

LUAPULA RIVER

To Sumbuwanga

KALUNGWISHI RIVER

MPULUNGU

NAMIBIABOTSWANA

ANGOLA

KALABO MONGU

SENANGA

SESHEKE

SOLWEZI

ITEZHI – TEZHI(120MW)

VICTORIA FALLS(108MW)

MUZUMA

MICHELO

LUANO

KITWE

MAPOSA

KANSUSWA

KABWE

KAPIRIMPOSHI

MPONGWE

LUSAKA WEST

KAFUE WEST KAFUE TOWN KAFUE LOWER(750MW)KAFUE GORGE

900MW(1080MW)KARIBA NORTH(600MW(750MW)

LAKE KARIBA

MAZABUKA

MUMBWA

MANSA

MAMBILIMA

KAFUE R

IVER

ZAM

BEZI

RIV

ER

CHAMBESHI

RIVER

WEST LUNGA at West Lunga River(2.5MW)

KASEMPA CHIKATA FALLS (3.5MW)

MUFUMBWE

LUKULUKAOMA

220kV

22o East

33.5o East

8o

18oKATIMAMULILO

ZAMBEZI

LUANGWA

132kV

88kV

66kV

330kV

EXISTING POWER\SUBSTATIONSAND POWER LINES

PROPOSED POWER\SUBSTATIONSAND POWER LINES

330kV

220kV

132kV

88kV

66kV

HYDRO POWERSTATION

SUBSTATION

DIESEL STATION

PROPOSED HYDROPOWERSTATION

PROPOSED SUBSTATION

PROPOSED DIESEL STATION

CHONGWE

CHAVUMA

KABOMPO

MWINILUNGA

KANSANSHI

LUMWANA (Mine)

KAPUTA

NCHELENGE

CHAMA

KUNDABWIKA (101MW)

KABWELUME (62MW)

KAWAMBWA TEA

MBERESHI

LUSIWASIEXTENSION(40MW)

KARIBA NORTHEXTENSION(600MW(750MW)

BATOKA GORGE(800MW)

DEVILS GORGE(800MW)

BWANA MKUBWA

ROMA

COV.

NAMPUNDWE

MAAMBAKATIMAMULILO

KABOMPO Gorge(34MW)

LuangwaBridge

Mkushi

MkushiFarm Block

Mkushi Central

Kawambwa Town

Chambasitu

SHANGOMBO

MUYOMBE

ZESCO GRID (66 – 330kV)

3. THE POWER SUPPLY CHALLENGE- REGIONAL AND ZAMBIAN PERSPECTIVE

I. MAIN DRIVERS OF ELECTRICTY DEMAND AND THE DEFICIT

Economic Growth of more than 5% in most of the SADC member countries resulting in unprecedented growth in electricity consumption and demand

Driven by increased demand for base metals resulting in high

metals prices on world market

New mining companies established and others expanded

Growth in other sectors such as industry, commerce, agriculture, housing, etc

Country electrification programmes – rural and urban

Inadequate investment in generation and transmission infrastructure over the last 20 – 30 years

II. ENERGY DEMAND PROJECTIONS

EXISTING CAPACITY TO BE EXHAUSTED AROUND 2007/08

BOTH NATIONAL AND REGIONAL DEMAND TO SURPASS CURRENT CAPACITY

NEED FOR NEW POWER PLANTS

ELECTRICITY IS KEY TO NATIONAL ECONOMIC DEVELOPMENT

1998 2007 20102000

Installed CapacityInstalled CapacityFuture demandFuture demand

SAPP DEMAND PROJECTIONS 1998 TO 2010

THE CHALLENGE WAS IDENTIFIEDAND COMMUNICATED BUT NOT ADEQUATELY ADDRESSED

III. CHALLENGES NOT ADEQUATELYADDRESSED

CAPITAL INVESTMENT REQUIREMENTS

- Power projects have long gestation periods- Pre-feasibility & feasibility studies plus EIA - Project packaging and mobilisation of finance- Plus project implementation 5 – 7years- Power sector investments require huge capital outlay - Characterised by long payback periods- But private sector requires short term returns- Power projects compete for capital with more lucrative projects with short term returns

CHALLENGES NOT ADEQUATELYADDRESSED Cont’d

SUB-ECONOMIC TARIFFS

- Tariffs in Zambia too low & not cost reflective - Cannot meet typical investment requirements- Legacy of socialist economy- Topic flavoured by socio-political issues

COMPARISON OF REGIONAL TARIFFS (2007)

UTILITY COUNTRY CURRENCY DOMESTIC (kWh)

COMMERCIAL (kWh)

INDUSTRIAL (kWh)

BPC BOTSWANA USCents/kWh) 6.2 6.1 4.2 CEB MAURITIUS USCents/kWh) 12 18.9 7.2 EDM MOZAMBIQUE USCents/kWh) 11 1.4 5.3 ENE ANGOLA USCents/kWh) 3.7 3.9 2.2 ESCOM MALAWI USCents/kWh) 3.6 6.3 3.9 Eskom SOUTH AFRICA USCents/kWh) 6.1 6.0 2.2 KPLC KENYA USCents/kWh) 9.4 11.4 8.3 LEC LESOTHO USCents/kWh) 6.9 9.6 4.3 NamPower NAMIBIA USCents/kWh) 10.8 10.2 7.0 SEB SWAZILAND USCents/kWh) 6.9 8.4 5.0 TANESCO TANZANIA USCents/kWh) 7.5 8.2 6.3 UMEME UGANDA USCents/kWh) 23 22.6 10.9 ZESA ZIMBABWE USCents/kWh) 0.7 0.5 0.3 ZESCO ZAMBIA USCents/kWh) 2.5 3.7 2.6 REG. AVERAGE SADELEC USCents/kWh) 6.4 8.4 5.0

COMPARISON OF REGIONAL TARIFFS (2007)

REGIONAL TARIFFS 2007

0

5

10

15

20

25

BP

C

CE

B

ED

M

EN

E

ES

CO

M

LEC

KP

LC

Esk

om

TAN

ES

CO

Nam

Pow

er

SE

B

ZES

CO

UM

EM

E

ZES

A

TAN

ES

CO

RE

GIO

NA

L

UTILITY

TAR

IFF

(US

Cen

ts/k

Wh)

DOMESTICCOMMERCIAL INDUSTRIAL

CHALLENGES NOT ADEQUATELYADDRESSED Cont’d

SURPLUS CAPACITY

- Zambia was an energy surplus nation- Economy went through period of stagnation- Did not anticipate high rate of economic recovery-

CHALLENGES NOT ADEQUATELYADDRESSED Cont’d

STAKEHOLDERS AND LOBBY GROUPS- Sector opened to private investment through Electricity Act CAP 433 of 1995- Govt. established OPPI in 1999- Package of incentives for private sector investment in power projects put in place- Future generation projects to be private sector driven- Endless debates on privatisation and/or restructuring of ZESCO but no new Megawatts- Private sector was seen as panacea for future energy requirements but none came to invest- Generation projects taken away from ZESCO-

ZESCO’S RESPONSE- ZESCO recognised that time was being lost in privatisation and other debates about the structure of the industry- Not permitted to invest in new generation projects- Saw that the nation would one day wake up to a power deficit- Need for quick intervention at least to delay day of reckoning- Took the option of changing scope of its Power Rehabilitation Project to include uprating- Uprating of Kafue Gorge and Kariba North Bank to add 210MW of additional capacity at minimal cost- This action delayed project completion but it was worthwhile

ZESCO’S RESPONSE TO CHALLENGES

4. ZESCO SYSTEM STATUS

- PRP in progress at Kafue Gorge and Kariba North Bank power stations

- Total 450MW not available- Available capacity 1,170MW- Current national demand 1,450MW- The deficit is a peak period phenomenon, sufficient

capacity during off-peak periods- Load management otherwise known as load shedding required in order to maintain balance of supply and demand during peak periods

ZAMBIA: CURRENT DEFICIT

TYPICAL LOAD MANAGEMENT SCHEDULE

STATION CAPACITY ( MW)Kariba North 400Kafue Gorge 490Victoria Falls 90Lunsemfwa 30Snel Imports 120

Total Generation 1,130Available Capacity (Less transmission Losses)

1,074

Lusaka allocation 258Ndola allocation 55

C/belt Division allocation 103CEC allocation 470

Kansanshi allocation 75Bwana Mkubwa 12

Others 102TOTAL ALLOWABLE LOAD 1,074

5. STRATEGIES TO OVERCOME THE DEFICIT

I. SHORT TERM STRATEGIES DEMAND SIDE MANAGEMENT

Reduction in peak demand by voluntary load reduction- otherwise power rationing and load shedding by ZESCO

Process efficiencies Use energy efficient appliances equipment e.g.

- replace incandescent lamps with Compact Fluorescent Lamps (CFLs)

Shifting of load away from peak periods- switch off unnecessary appliances during peak periods e.g. electric geysers, swimming pool pumps, borehole pumps- business houses can shift (some) production processes to off-peak and benefit from off-peak tariffs

Power factor improvements- large consumers such as mines, industry and agriculture - carefully selected process equipment- retro-fitting capacitor units on inductive equipment such as electric motors

UPRATING OF EXISTING POWER STATIONS Kafue Gorge - 900MW TO 990MW Kariba North Bank - 600MW TO 720MW Additional capacity: - 210MW

ZESCO to accelerate PRP- complete Kafue Gorge December 2008- complete Kariba North Bank March 2009

Similar projects being undertaken at regional level

SHORT TERM STRATEGIES cont’d

PROMOTING ENERGY EFFICIENCY STRATEGIES - USE OF CFL’s

• Suspension of duty and VAT• Partnerships with retailers• Encourage use by consumers

04/22/23

• Save 80%• USE OF ENERGY

SAVING lamps – Compact Flourescent Lamps (CFLs)..

• Dimmer Switchers

INDOOR LIGHTING:Hotels, Homes

04/22/23

INCANDESCENT VS ENERGY SAVER BULB

TYPE OF BULB

WATTAGE 100W 18W

AVERAGE COST K 2,000.00 K 15.000.00

AVERAGE LIFE SPAN 6-12 MONTHS 5-6 YEARS

AVERAGE ENERGY USED PER MONTH (for 3 bed room home 6HRS/DAY)

144kWh 25.92kWh

COST OF ENERGY USED PER MONTH (CURRENT TARIFF K70/kWh)

K12,384.00 K2,222.64

04/22/23

METER INSTALLATION PROGRAMME

• Prepaid meter installed in Lusaka-22,000• Further 60,000 in Phase 2 of Lusaka• 65,000 in Copperbelt• 70,000 in other urban areas by 2010• Reduction in non-technical losses• Increased Energy savings

04/22/23

ENERGY MANAGEMENT

RESIDENTIAL• SWITCHING OFF APPLIANCES

e.g GEYSERS,SWIMMING POOL PUMPS, SECURITY LIGHTING,DEEP FREEZERS, BOREHOLE PUMPS etc.. DURING PEAK LOAD TIMES

• SET GEYSER THERMOSTART @ 60 DEG.

• CORRECT INSULATION

04/22/23

MANAGING GEYSERS

• Switching off 2kw geysers between 07-21hrs• 24hrs operation-864kWh/Month @ K170,000• 10hrs operation-360kWh/Month@K49,000

Savings-K121,000

• Switching off 3kw geysers between 07-21hrs• 24hrs operation-1296kWh@K276,000• 10hrs operation-540kWh@K138,000• Savings-K138,000

04/22/23

SECURITY/OUTDOOR LIGHTINGHOMES, HOTELS, INDUSTRY

Save 80% by replacing ML 160w with Master Ecotone 45w/65w lamps

COMMERCIAL

• INSTALL ROOM OCCUPANCY SENSORS – to switch off lights & air-conditioning in unoccupied rooms

• INSTALL POWER FACTOR CORRECTION EQUIPMENT (where lots of electric motor are in use)

• REPLACE ORDINARY BULBS WITH ENERGY SAVERS (CFLs)

• REPLACE MERCURY VAPOUR LAMPS WITH METAL HALIDE LAMPS (45W/60W FOR 160W) FOR OUTDOOR LIGHTING

ROOM OCCUPANCY SENSORS

• INSTALL IN EACH ROOM

• SWITCHES OFF LIGHTS & AIRCONS IN UNOCCUPIED ROOMS

INDUSTRIAL

• INSTALL ELECTRIC MOTOR OPTMISERS ON BIG MOTORS

• USE Variable Speed Drives (VSDs) for pulley coupled drives

• INSTALL POWER FACTOR CORRECTION EQUIPMENT(CAPACITOR BANKS)

• DO NOT START ALL YOUR MACHINES AT THE SAME TIME TO AVOID CREATING LOCAL PEAK LOADS

• ARREST ALL COMPRESSED AIR LEAKS• INSULATE ALL STEAM PIPES CORRECTLY

• Intelligent because it matches power input to shaft load

• Saves up to 40% energy• Has inbuilt soft start/stop• Reduces inrush currents

04/22/23

INTELLIGENT MOTOR CONTROLLERS

Floor mounted Capacitor Bank

• Power factor correction

• Reduces KVA input• Save up to 15%

energy

VARIABLE SPEED DRIVES (VSD)

• SAVE UP TO 15% ERNEGY

STREET LIGHTING:USE METAL HALIDE LAMPS

• REPLACE THE INEFFICIENT MERCURY VAPOUR LAMPS WITH METAL HALIDE LAMPS

• 400W/250W MV LAMPS WITH 160W METAL HALIDES

• METAL HALIDES HAVE INBUILT SENSORS TO RUN DIM WHEN NO TRAFFIC ON ROAD

• ENHANCED BRIGHTNESS

REVISED SAPP PROJECTIONS 2005 TO 2020

Committed - Rehabilitation - Short Term

36000400004400048000520005600060000640006800072000

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Year

MW

Capacity Planned Capacity Required Peak Demand after DSM

INCREASE GENERATION CAPACITY BY BUILDING NEW PLANT Zambia has an estimated hydro power potential of 6,000MW of which less than 2,000MW has been harnessed. Sites yet to be developed include Kafue Gorge Lower, Itezhi Tezhi, Kalungwishi, Mambilima, Batoka Gorge, Devil’s Gorge, Kabompo, etc

II. MEDIUM TO LONG TERM STRATEGIES

In Zambia planned projects include the following ZESCO projects:

Itezhi Tezhi- Capacity120MW- Cost US$250Million- Implementation 2008 – 2012

Kariba North Bank Extension - Capacity: 360MW- Cost: US$300Million- Implementation:2008 – 2012

MEDIUM TO LONG TERM STRATEGIES cont’d

INCREASE GENERATION CAPACITY BY BUILDINGNEW PLANT

Other planned projects in Zambia include:

Kafue Gorge Lower 600 – 750MW Maamba (Coal fired) 300 – 450MW

Similar projects planned or in progress at regional level

MEDIUM TO LONG TERM STRATEGIES cont’d

REGIONAL INTERCONNECTIONS TO OTHER UTILITIES (TO SHARE REGIONAL GENERATION CAPACITY)

Existing- Zambia – Zimbabwe: 2 x 330KV- Zambia – DRC: 1 X 220KV

Planned- Livingstone – Hwange (Zimbabwe): 1 x 330KV- Livingstone – Katima Mulilo (Namibia): 1 x 220KV(Phase 1 on Zambian side complete, phase 2 in Namibia in progress)- Kafue – Livingstone: upgrade existing 220KV to 330KV- Zambia – DRC: 1 x 330KV- Zambia – Tanzania – Kenya: double circuit 330KV

- Planned interconnectors between Other planned projects in Zambia include:

Kafue Gorge Lower 600 – 750MW Maamba (Coal fired) 300 – 450MW

Similar projects planned or in progress at regional level

MEDIUM TO LONG TERM STRATEGIES cont’d

Map of Southern Africa

10 40

Equator

45

6. CONCLUSIONPower sector crucial to dynamic economic

growthMassive investments required in power

sectorCost reflective tariffs an important element

in all effortsDemand Side Management crucial to

manage deficitThe task is heavy but not insurmountableNeed for all stakeholders to play their part

THANK YOU