Zambia: Open Access Regime

Overview

Zambia has recently adopted an open access regime for its electricity market, aimed at fostering a competitive environment, encouraging innovation in renewable energy solutions, and attracting private investment to the energy sector. The open access market enables independent power producers (“IPPs”) and large power consumers to engage in electricity trading by connecting to and utilising the electricity transmission and distribution networks, irrespective of the network’s ownership or operation. This regime is anchored in the Electricity Act of 2019 (the “Act”) and the Electricity (Open Access) Regulations 2024 (the “Regulations”).

Eligibility and participation

Under Regulation 5, the following large consumers (insofar as they are licenced by the Energy Regulation Board and not declared insolvent or bankrupt) are eligible to access the regime:

• electricity trading licence holders with the capacity to trade at least 1 MW;
• suppliers with an installed capacity of at least 1 MW; and
• consumers with a consumption capacity of at least 1 MW.

Under the Regulations, open access may be granted to an identified transmission system or distribution system (“TDS”).

Qualifying participants must apply to the relevant transmission network service provider or distribution network service provider (“TDNSP”). The TDNSP has discretion to approve an application, having regard to (a) the available capacity on the relevant TDS, (b) the utilisation of the TDS by other TDS users, (c) a qualifying participant’s ability to meet its financial obligation, and (d) whether or not system strengthening is required on a transmission network or distribution network for the purpose of providing open access to the qualifying participant.

If and once this initial approval has been granted, within five days, the TDNSP shall notify the system operator, ZESCO Limited (“ZESCO”) (the “System Operator”), of its intention to grant open access to the qualifying participant. The System Operator is required to approve the application if approving the application will not result in congestion on the network.

The application will thereafter be returned to the TDNSP, which is required to reject an application for open access if (a) a qualifying participant does not meet the requirements for the grant of open access as prescribed under the Act and the Regulations, (b) the TDNSP does not have the capacity to grant open access, or (c) the System Operator does not approve the grant for open access. The TDNSP is not otherwise explicitly required to grant approval, but it is noted that in the event of an application rejection, the qualifying participant must be notified of the reasons therefor in writing.

Whilst the Regulations state that the TDNSP must either approve or reject an application within 30 days of receipt, they do not prescribe a timeline within which the System Operator must grant access to the requested TDS following approval. Regulation 12, however, states that the scheduling of open access transactions shall be the responsibility of the System Operator, in consultation with a TDNSP and an open access user.

Regulation 5 creates three tiers of open access: long-term access (more than 5 years); medium-term access (3 months to 5 years); and short-term access (less than 3 months). Priority is given to long-term open access users pursuant to Regulation 11(1).

Benefits of the regime

Currently, the Zambian energy sector is reliant largely on power purchase agreements (“PPAs”). The State-owned utility, ZESCO, controls the majority of transmission and distribution of electricity throughout Zambia, purchasing as much as 80% of the electricity consumed, pursuant to such PPAs. Against this backdrop, one of the overarching benefits and drivers of the Regulations is to attract private investment to Zambia’s energy sector.

Further, the Regulations reflect a policy led initiative toward energy diversification. By granting eligible participants access to the TDS network, the Regulations increase the likelihood that power projects from climate-resilient, drought resistant sources, such as solar and wind energy, will become bankable. This will in turn reduce the likelihood of power outages, and enhance the reliability of the TDS.

For open access users, the ability to trade in electricity pursuant to Regulation 16 should encourage competitive pricing among and between large consumers, thus facilitating reduced energy prices and, in turn, mitigate the credit risks associated with price fluctuations on the open market.

Comparable open access regimes

Open access regimes are not a novel concept. Considerable evidence suggests that open access has a positive impact on power sector performance and diversification (see, for example, World Bank, Energy Sector Management Assistance Program, International Experience with Open Access to Power Grids: Synthesis Report (2013)). In Africa, the concept of open access to electricity transmission and distribution systems is still evolving, as countries pursue different approaches to energy sector reform.

Open access laws are typically designed to allow IPPs and other third parties to use national transmission and distribution networks to supply electricity to eligible consumers, fostering competition and market development. In Africa various countries have made strides in enabling or allowing open access to their electricity systems. A few examples follow.

1. South Africa

South Africa has taken significant steps towards open access in recent years. The 2021 amendments to the Electricity Regulation Act allow for the development of private power generation projects of up to 100 MW without the need for a generation licence. This reform includes provisions for third-party access to the transmission and distribution network, enabling IPPs to sell electricity directly to eligible consumers, provided they comply with certain conditions. Eskom, the state-owned utility, operates the transmission network, and regulatory frameworks, as provided most recently by the Electricity Regulation Amendment Act 38 of 2024, are in place to facilitate third-party access.

2. Nigeria

The Electric Power Sector Reform Act of 2005 opened the market for competition, unbundling the power sector into generation, transmission, and distribution segments. The Nigerian Electricity Regulatory Commission has issued guidelines for open access, allowing IPPs to transmit power through the transmission and distribution network operated by the Transmission Company of Nigeria. Open access has been limited in practice due to challenges with network capacity and reliability.

3. Kenya

Kenya has also made efforts to allow open access in its electricity sector. The Energy Act, 2019 provides a legal framework for open access to the transmission and distribution networks. The Act enables IPPs to access the transmission and distribution networks and sell electricity to eligible consumers other than the utility. Kenya Power and Lighting Company operates the transmission and distribution networks. Regulatory development is, however, ongoing to facilitate broader open access.

4. Uganda

Uganda's electricity market reforms under the Electricity Act, 1999 aimed to liberalise the power sector and promote competition. The Uganda Electricity Transmission Company Limited manages the transmission and distribution network, and open access to the network is legally permitted. However, practical implementation of open access is limited, and the market remains dominated by state actors.

Concluding remarks

Zambia’s open access regime represents a significant step towards a more competitive and resilient energy sector. While the open access framework provides a strong foundation, the success of this regime will hinge on efficient implementation, particularly in managing transmission and distribution network capacity, ensuring regulatory clarity, and minimising delays. As seen in comparable jurisdictions, in order for the benefits of an open access regime to be fully realised, significant adaptations to regulatory, technical, and market conditions are required in unison. A steadfast commitment to addressing these challenges will be essential to unlocking private sector investment, diversifying the energy supply, and enhancing network reliability in Zambia and elsewhere on the continent.

Co-authored with Lucy Robertson, Paralegal, Hunton Andrews Kurth LLP.