Industry Trend Analysis - Hydropower Dominant, But Power Diversification Underway - DEC 2017

BMI View: Hydropower will remain the dominant fuel in Zambia ' s power mix over the next decade, leaving the country still vulnerable to supply volatility , despite success registered with power mix diversification. Tariff reform will also aid diversification efforts over the longer term, as it boosts the attractiveness of the power sector for investment.

Hydropower will remain the dominant fuel source for the Zambian power mix over the next decade, accounting for 87% of total electricity generation by the end of our forecast period in 2026. Our forecasts for 6.2% growth per annum in hydropower generation between 2017 and 2026 are supported by the commissioning of a number of hydropower projects in the pipeline. According to our Key Projects Database, more than 80% of the power project pipeline in Zambia is made up from hydropower facilities - equivalent of nearly 3GW of capacity. Hydropower plays such a prominent role in the project pipeline due to the fact it is perceived as a more affordable option for power generation, with a low levelised cost of electricity. The lower-cost nature of the technology is particularly important in Sub-Saharan Africa (SSA) where there is often an absence of cost-reflective electricity tariffs on offer to developers and purchasing power remains low amongst the population.

This continued reliance on hydropower for power generation will have repercussions for the country's energy security going forward, exposing Zambia to volatile supply as adverse weather conditions hit hydropower output. Drought in 2015/2016 saw hydropower generation contract significantly in the country ( BMI estimates of 10% in 2015, 33% in 2016), resulting in widespread power shortages and detrimental supply disruptions for the heavy industry sectors in particular ( see 'Bleak Outlook For Vulnerable Power Mix', January 29 2016).

Hydropower Dominates Power Project Pipeline
Zambia - Power Project Pipeline By Type (MW)
Source: BMI Key Projects Database

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