Since mid-January 2024, Zambia has been experiencing a devastating 5-month drought that has now impacted nearly half the country’s population.
Exacerbated by climate change and the El Niño weather phenomenon, climate patterns in Southern Africa have changed causing Zambia, Zimbabwe and Malawi to declare a state of national disaster.
Southern Africa’s economic and social environment has plummeted as a result, with the drought hitting a critical phase of the crop cycle. Six million people have been impacted by the drought in Zambia, as well as another one million in Malawi.
Food shortages in Zambia have led to an 82% price increase in some affected areas, impacting 70% of smallholder farmers and leading to over 18 million people in need of urgent humanitarian assistance, according to the United Nations. The El Niño period ended in April, meaning further rain isn’t expected to come again until October.
Zambia has been hit particularly hard by this drought due to its energy sector’s reliance on water. 85% of energy generation is supplied by hydroelectric power, followed by 9% from coal power plants, 5% heavy fuel oil and just 3% solar PV, for a total of 3,777MW of total energy capacity.
The Kariba Dam, built between 1955 and 1959, is Zambia’s largest source of power generation, providing 1,626MW of electricity to both Zambia and neighbouring Zimbabwe. But water availability for energy generation has fallen to just 39% as of May, with the latest figures not known but likely lower.
Consequentially, just 166MW of power is being generated, around 15% of the 1,080MW capacity, and Zambia is expecting to see a power deficit of 430 MWs, potentially reaching up to 520MW by December according to Zambia’s President Hakainde Hichilema.
To cope, Zambia has implemented loadshedding to ration capacity, which was increased by an additional 4 hours in June leaving loadshedding at 12 hours per day, staggered in 6-hour periods across and will last until at least the end of the year. The country is also now importing 188MW of power to close the shortfall, although this is nowhere near enough to make up for the huge gap.
Towercos face exposure to rapid changes in grid availability
12-hour loadshedding and a humanitarian crisis has hit the entire country hard, including Zambia’s telecom tower sector. Despite Africa’s more challenging operating environment, towerco service lease agreements have similar uptime requirements of around 99.8 - 99.9% in line with European or US standards.
Zambia has also previously enjoyed some of the cheapest grid energy in Africa, with marginal power tariffs helping to keep energy prices low. This has meant grid connections and electrification have been the most popular choice for powering sites, and the high percentage of clean energy means that there has been little need to offset this.
A spokesperson from local towerco and datacentre operator Infratel told TowerXchange that the loadshedding has led to a major strain to their operations, with fuel expenditure spiking due to higher diesel generator run-time and much more stress on power equipment which was designed solely to provide back-up power.
Infratel has been moving towards adopting on-site power over the last year, solarising towers and installing hybrid energy solutions to their off-grid and rural sites. However, there was never any plan for meeting 50% on-grid energy generation across the entire 1,200-tower portfolio, and the towerco is now allocating capex to equipment such as battery banks which have a depreciating lifecycle.
All this extra capital means that the money must come from somewhere, and these costs are being pushed onto MNOs to offset this increased spending. But MNOs are facing their own challenges due to the drought. Operators face fines from Zambia’s telecommunications regulator when their network goes down and have seen declining revenues from shrinking enterprise and end-user activity.
Another problem that has risen due to the drought has been rates of theft for telecom towers. As poverty increases and demand for energy equipment and fuel spikes, telecom towers become prime targets for their power equipment and materials.
Lessons from South Africa: how might Zambia’s tower market adapt?
In 2023 we saw one of the continents largest and most active tower markets thrown into chaos. South Africa’s state-owned energy grid ESKOM’s grid availability rapidly plummeted and loadshedding rapidly doubled from 6 to 12 hours per day.
South Africa’s energy crisis mirrors Zambia’s in some ways; towercos have traditionally relied on grid power and have not required a robust energy strategy, and power was mostly a pass-through with MNOs responsible for managing their energy bills. Theft, while historically high in South Africa, also became an even greater challenge as a result.
A year on from this, South Africa’s tower sector looks quite different from before the loadshedding.
Energy has become a staple for South Africa’s tower sector, with major towercos such as American Tower and SBA Communications launching power-as-a-service. MNOs, who like in Zambia have mostly exited from operating their own towers, are now increasingly offloading power management and responsibility to their infrastructure partners.
Even South Africa’s middle market towercos have had to adapt, and while many lack the scale and resources to provide power-as-a-service onsite power installations and energy operations & maintenance are becoming commonplace.
Change also came to South Africa’s energy policy. Like many African countries, state-owned ESKOM had a monopoly on national power generation. Now, new regulation has made it much easier for Independent Power Producers (IPPs) to work with enterprise and end-users, helping off-set overcapacity from the national grid.
MNOs were quick to take advantage of this; Vodacom and MTN both signed virtual power wheeling agreements with ESKOM to allow the MNOs to source their energy needs from renewable IPPs, wheeling the power through the grid.
While no major ESCO activity has officially taken off yet in South Africa, the country has also become a more potential market for potential ESCO growth, particularly with towercos such as IHS Towers who have largely embraced outsourcing energy management to partners, present in the market.
Mini-grids might be the solution to Zambia’s energy woes
Zambia’s reliance on cheap and available hydroelectric power led to underutilisation of the country’s huge solar potential, with just 3% of grid power sourced from solar PV.
However, the government has recently been driving to increase the deployment of solar mini-grids in Zambia to help offset the grid’s inability to service Zambians and address a 31% average national electricity access rate.
In December 2023 at COP 28, President Hichilema announced the 1,000 Mini-Grid Initiative, a plan to dismantle barriers to private power mini-grid development, providing financial benefits to developers to connect both end-user and private enterprises to mini-grids.
In April, the Zambian government launched the Demand Stimulation Incentive, a new financial mechanism to support mini-grid developers led by the Rockerfeller Foundation, Global Alliance for People and Planet (GEAPP) and Sustainable Energy for All (SEforALL). The initiative will provide a grant-based subsidiary to allow mini-grid projects to connect small businesses and public institutions.
Another initiative, the Renewable Energy Feed-in Tariff (REFiT) Strategy, is helping promote private power investments in renewable energy and address barriers to investment into the sub-sector, with support from the KfW (German Development Bank).
Towercos in Africa have started to show an interest in mini-grids over the last few years, but a clear commercial strategy has yet to emerge. Some towercos such as rural specialist AMN, see mini-grids as a complementary vertical, providing energy to local communities via their on-site power system. Towerco of Africa on the other hand has formed a partnership with Madagascan mini-grid developer WeLite to connect towers to mini-grids.
This model, known as the Anchor Business Customer (ABC) model, is proving successful as mini-grids can rely on consistent revenues from an enterprise customer (e.g. a towerco) to mitigate oscillating revenues from end-users. Major mini-grid rollout in Zambia opens the potential for industry partnerships, helping to both solve power provision for towers and the commercial business case for mini-grid projects.
Want to learn more about how towercos are managing Zambia’s energy crisis? Meet Infratel’s executive team at TowerXchange Meetup Africa on 10-11th September in Nairobi, Kenya. (banner / link to website)
