Electricity crises in Zambia: Estimating the costs of unreliability at firm level

Project Active from to Energy

As Zambia seeks to diversify its economy via growth in the manufacturing sector, rising demand for electricity from manufacturing firms is likely to impose additional constraints on the efficiency and sustainability of Zambia’s energy infrastructure. As a palliative measure, the Zambian government recently announced her decision to waive import duties on backup generators, based on an assumption that tariff removal would reduce generator costs, thereby lowering costs of self-generation and increasing firms’ adoption rates. However, the actual impact of this policy on costs is difficult to estimate because variable costs (which are inherently unpredictable) often constitute the largest proportion of self-generation expenditure.

As Zambia is currently committed to diversifying her economy and improving manufacturing productivity, despite the persisting electricity crisis, it is important to understand how firms are affected by and cope with energy crises, especially in terms of self-generation of energy. Specifically, more data/analysis is needed about:

  1. the overall cost, to manufacturing firms and the economy overall, of power shortages,
  2. the extent to which self-generating capacity meets a firm’s required loads,
  3. the proportion of power shortage costs not mitigated through firms’ response adjustments (e.g., through backup generation),
  4. ownership and the use-intensity of alternative generation and its determinants (e.g. fuel prices), and
  5. the significance of self-generation cost relative to public provision.

In addressing these issues/problems, we plan to collect (through survey administration – see research design for further details) new, innovative and more granular data from Zambian manufacturing firms, and analyse the data by applying robust econometric estimation techniques including heteroscedasticity robust instrumental variables, regression discontinuity and double-hurdle (e.g. Cragg's tobit) models, among others to more accurately identify the factors affecting Zambian firms' energy use and costs. Using this robust body of evidence, we will then focus on policy impact by disseminating our findings to a wide range of Zambian stakeholders with an ultimate aim of informing Zambian manufacturing firms and government entities how better to deal with electricity crises, either via backup generation or via other coping strategies, with an aim not only to benefit manufacturing firms, government and other policy-makers, ultimately to benefit the wider economy and Zambian residents.