Located in Lusaka’s Kabwata area, Kabwata market has been a place where anyone who goes there can find anything they are looking for ranging from, food, clothing, hardware and toys. The market provides a platform for many individuals to provide income for themselves as well as provide the necessities of their households, this in turns helps contribute to the overall growth of the economy of Zambia. Many of the traders in Kabwata market are dependent on electricity to carry out their routine activities.
During the second half on 2015 Zambia began to experience power cuts in order to alleviate the increasing demand for power from users across the country. The traders in the market were not excluded from the interruptions in power supply.
Where there is a deliberate or purposeful rationing/cutting of power to some parts of the established network can be referred to as load shedding. This practice was necessary in order to try and sort out the emergency that took place.
Even though it was common practice to cut power for a few hours, the load shedding experienced after 2015 was beyond the expectations of many citizens. The increase in power cuts both in duration and frequency was attributed to the low rainfall recorded in the 2014/15 farming season. As a result of reduced rainfall there developed an imbalance between the supply and demand for electricity supply, thus this caused the Zambia Electricity Supply Company (ZESCO) to ration the electricity and cut power to households as well as businesses to about 8-12 hours a day. The second half of 2016 saw a decrease in load shedding hours allowing the average user to use electricity at 90% of the time and in some cases no load shedding at all. The problem has however began to resurface with areas of Kabwata including the market seeing times without electricity supply.
1.2 Statement of the problem
In order for business owners as well as those looking to alleviate the problems of load shedding through charitable donations to fully understand the impact that load shedding has on their businesses they need reliable estimates of the cost involved in running alternative power. This will aid in their decision making on what other factors aside from the national economic factors.
1.3 Objective of the study
SME’s account for a vital role in promoting economic growth in Zambia, however, there have not been any estimates and figures that ascertain the exact value or cost that is being lost by the SME traders in the market due to load shedding. Throughout the searches of published media, it was noted that on hard evidence results were made when studying the case of how SME’s are affected by the constant interruptions in power supply. Most of the studies undertaken were only addressing the causes of load shedding and how ZESCO can diversify its power management system to improve the supply of electricity. When we look at how important the SME industry is when it comes to providing readily accessible goods and services to the general public as well overall to contribute to the nation’s gross domestic product (GDP), it is no wonder that an imperative need to understand the cost related to load shedding in the market.
The proposed research paper will try to get an understanding of the cost of the power cuts to the markets SME’s, this will aid in setting up policies on which policies and decisions and actions to take in the future.
1.3 Research question
There is a clear knowledge gap between what is understood on the impacts of load shedding on traders in the market and what the real issues are. In order to make informed decisions traders looking to trade in the market as well as investors seeking to provide funding to these traders need to have an understanding of what the impacts of load shedding to the traders.
It has been understood in general terms that load shedding has a direct negative impact on the SME’s trading in Kabwata market, however, the magnitude of the impact of the effects has not really been concluded. I will expand on the current understanding of the qualitative matters that a faced by the traders due to the frequent power outages as well as the quantitative costs that are directly attributable to load shedding. I propose the following questions to assist me address my current objectives.
– How does load shedding affect SME’s in Kabwata Market?
– What are the direct economic cost of load shedding to the traders in Kabwata Market?
1.4 Significance of the study
I am choosing to study this topic because the frequent interruptions in power supply mean that traders are no longer able to produce or carry out their work in a manner that is in line with their business objectives. This in turn means that they are not able to contribute to the GDP efficiently as compared to when they could produce without any power cuts.
As part of our sustainable development goals number 8 and number 11 ‘decent work and economic growth’ and ‘sustainable cities and communities respectively’, it become imperative that we consider the impact load shedding has on SME’s that foster economic growth. This project should fit in well.
‘
Chapter 2
2.1 Literature Review
One of the most essential components in modern day economies is electrical power. Many operations such mining, manufacturing using heavy duty machines, traffic light that control the flow of traffic, welding and many other repetitive jobs are all dependent upon electrical power. We have become very dependent on electrical power to carry out our daily activities so much that without it, we can do little to no activities. The question that arises is how we can measure or quantify the value of what is lost by a trader to society when there is a power cut?
The question above has been considered in various literature under the concepts and the dependability of electricity supply. Energy security is a vital aim of energy policy in most countries across the globe. The three main focuses of the European Union’s energy policy are efficiency, sustainability and security of energy supplies. Even though there has been a high degree of importance attached to energy security in policy, there are other authors that point out that the term is not defined clearly (Winzer, 2012). Loschel (2010) attributed to the fact that ‘the concept of ‘security of energy supply’, or rather in the shorter way ‘energy security’, seems to be a quite vague. Other have also agreed to the fact that there is no common interpretation (Checchi et al 2009). This is because that term is used in various contexts.
In the proposed research the particular interest will be the aspects on electricity supply security that design and maintenance of an electrical network l provide availability of electricity to customers. The goal when analyzing costs associated with power cuts, is to identify the costs incurred by the traders when there is no supply of electricity (Balducci et al 2003). It is important to ascertain and understand the costs with interruption of power supply and how it is associated with economic growth in the relationship between reliability of supply and increased investment in a power supply system. Information on the costs lost as a result of power cuts can be a vital element in assessing the economic efficiency of investments in the power system which enable investments to be targeted in the most beneficial system improvements and quantify risks that are associated with different operating and planning strategies (Cheng and Venkatesh 2014). When planning power system reliability using a cost benefit approach information on the cost of interruptions become vital elements (Sanghvi 1982) this can be used to assist in assessing the potential benefits of investment in improving the reliability of the power supply system (LaCommare and Eto 2006).
Literature has identified two distinctions concerning the cost of power disruptions. The first being the types of impact that come as a result of power disruptions and the second being the types of power disruption that will be studied.
2.1.1 THE RESULTS OF POWER DISRUPTIONS
The costs that are associated with power disruptions can be divided according to the types of impacts that come as a result of the power disruption. A cost can be viewed as any loss that results due to there being a power disruption. Because of its nature, electricity has the ability to affect the lives of individuals economically and therefore, result in economic costs to the society and its members. The nature of the costs will also depend critically upon a wide range of factors such as the harshness of the blackout depending on time and frequency, the size of the area affected and the extent of prior notification by regulatory authorities (Sanghvi 1991). What will be important in considering the topic will be assessing how the affected traders handle the power outage. Linares and Rey (2013) identified and grouped the impacts of power disruptions by using three main headings which are direct economic impacts, indirect economic impacts and Social impacts. The direct economic impacts are loss of production, restart cost, equipment damage considering that some disruptions causes damage to electrical components and raw material spoilage such as perishable items. The indirect economic impacts are the cost of income being deferred or being received at a later date and the financial cost of losing the market share which in this case can be the regular customers. Finally the social impacts can include uncomfortable temperatures, loss of leisure time for those who try and catch up to a full 6-8 hour shift a day despite power being restored at a later time and risk to health and safety.
One of the most challenging tasks is to quantify the indirect effects of power disruptions even though these carry significant economic costs. In one case study designed to measure the economic costs of the ‘1977 New York City Blackout’ it was discovered that there were indirect impacts such as looting, arson and many other disorders (Frum 2000). These were responsible for more than half of the total economic losses that were linked to the black out (Assistant Secretary for Energy Technology 1978).
With regard to the Zambian economy one of the biggest economic impacts on the power supply disruptions is the change in the investor confidence. With electricity supply being at the heart of whether the industry will develop or not, the price and the reliability of supply of electricity can influence whether investors are willing to make an investment in SME’s in regards to their profitability. At the present time of this proposal the situation has somewhat improved with some areas getting relatively low or no electricity disruptions, although this is the case the current lack of consistency in the supply of electricity has a great impact on whether investors are willing to invest money to the SME’s. Even if the investors were to invest in the SME’s it would come at a greater cost in order for them to factor in the risk of inconsistent power supply thus making the obtaining of loans and support very expensive.
To be able to capture all the results and costs of power disruptions would practically be unattainable because there will be some impacts such as decline in investor confidence that do not lead to quantification. The scope will be limited to measuring the direct economic costs of power disruptions in the market. Next is a review of methodologies found in the literature to measure the cost of power disruptions.
2.1.2 TYPES OF POWER DISRUPTIONS
The second point of discussion in this literature is concerning the cost of power disruptions and how their nature can be investigated. There are two types of power disruptions that were classified. The first type being the studies that were carried out in high income countries where the supply of electricity is highly reliable at an order of 99.98% (Sanhvi 1991) and understand the effects of isolated and sporadic fault incidences in the electrical networks. Part of these studies were funded and supported electric utilities in order to refine the reliability and cost of supply that is provided to their customers (Cheng and Venkatesh 2014) (woo et al 2014) (Lacommare & Eto 2006) on the other hand there were other studies that were carried out to understand the implications that the policies have on managing energy policy (leahy and Tol 2011) (Linares and Rey 2013) (De Nooij et al 2007)
In Germany, a county that is considered to have one of Europe’s most reliable supplies of electricity there is a reason why the cost of power disruptions has become an area of particularly high interest. For instance considering the ‘Energiewende’ which is translated as energy, the government has scheduled to decommission all its nuclear power by 2022 and set a target of producing 35% of the country’s electrical supply requirements from clean and renewable sources by 2020 (Growitsch et al 2014). Some of the greatest challenges in this approach to energy transition for electricity supply is in the growing number of progressive inconsistencies between the supply and consumption of electricity (Praktiknjo 2014). Since there will be an increase in the amount of power supplied through renewable sources, some challenges may arise such as the uncontrollable nature of the energy sources. For example it is difficult to control the amount of sunlight produced by the sun for solar energy at a given time, this may lead to conditions where the demand for energy is not being met. There are forecasts that show that as Germany head towards using renewable energy sources there will be cases where the supply is lower than the demand thus necessitating load shedding.
A second type of load shedding is directed at medium and low income countries. Sometimes technical faults may occur but these may not be responsible for the bulk of power interruptions. In medium and low income countries where there is an operational deficit that may result in a serious lack of supply. The economic impact of power disruptions are very different from those discussed above. For example, in Cameroon the supply of electricity is disrupted on a regular basis where the average total time per week is almost 35 hours (Diboma et al 2013). Electrical supply in Africa has been stained by low generation, meagre supply and recurrent power cuts (Oseni 2012). In one paper that focused in the costs of power disruptions in medium to low income countries, particularly India and Pakistan, Sanghvi states that the objective of the paper was to draw attention to the short and long term economic impacts of power supply inadequacy in developing countries and to discuss some of the policy implications related to this issue (Sanghvi 1991).
In countries that have medium to low income scales, the nature of the power disruptions is such that they occur frequently and have become a part of the economic conditions of doing business in the economic environments of those countries. The impacts of these frequent power disruptions go beyond just the short term losses in production and inconvenience to households, they tend to have long term effect on the business confidence and greatly sway investment decisions.
Due to the differences established in the types of power disruptions and differences in the bearings resulting from power interruptions that were studied in both high income and medium to low income nations, it is then vital to ensure that the methodologies used within the type of economy that we will study Zambia.
Chapter 3
Methodology
3.1 Introduction
The proposed methodology that will be used to achieve my objectives of understanding the impact of load shedding on SME’s in Kabwata Market will be a mixed method design consisting of the following three studies.
1. To qualitatively assess the most relevant impacts of load shedding on SME’s in Kabwata Market, semi structured interviews with the traders themselves will be conducted.
2. To contribute towards the quantification of the cost of electricity supply variability to the SME sector, primary data will be collected directly from some of the traders using a questionnaire that will be delivered to individual traders to qualitatively measure the economic impact of load shedding on the SME’s. This study will be based on the subjective evaluation methodology.
3. To aid in making the estimates that will be found in study 2 more thorough, secondary data from traders will be collected. The secondary data will inform of estimates of the marginal costs of backup electricity supply which will be assumed to be a representation of the minimum economic impact of load shedding on SME’s
3.1.1 Study 1: Qualitative Impact of Load Shedding
Based on a review of the current literature the researcher was unable to discover any studies that explored the impact of power disruptions on the emerging markets. Even if a vast knowledge of literature exists for determining the impact of power disruptions it was felt that many of the issues about the issue were not fully understood. The use of exploratory research is such that the researcher discovers general information about a topic that is not clearly understood by the researcher (Saunders and Lewis 2012). Inductive research would involve developing a theory as a result of analyzing data already collected (Saunders and Lewis 2012).
As such an indicative study to explore the impact and effects of load shedding on SME’s in Kabwata Market will be appropriate. The usage of grounded theory to repetitively build theoretical framework from the qualitative data collected will be the primary means of analyzing the data.
3.1.2 Population and Sampling Technique
The relevant population for this research will be the traders in the market. The unit of the analysis will be the representative of the business where they operate in a form of a partnership as the aim of this study will be to understand how load shedding impacts their businesses from both financial and operational aspects.
Quota sampling will be used in order to ensure that all the categories of the businesses operating will be represented in the final sample. The sample size that will be used will depend on when I will reach saturation.
3.1.3 Data collection procedure
Data will be collected through semi structured interviews while meeting the traders during their normal operating hours. A list of questions detailed by a guide will form the direction of the interviews.
The interview guide will not be sent in advance to the participants because I expect that some of the respondents may not have time to go through it in advance but rather only to encourage them to describe the issues they face and the impacts that they count as most pervasive to their business. All interviews will be recorded and later recorded for further analysis.
3.2 Quantitative Impact of Load Shedding
The two studies that followed the first one will be quantitative with a descriptive design. The descriptive design will enable us to produce a precise representation of people, events and situations (Saunders and Lewis 2012). Many do agree that there are adverse impacts of load shedding on traders in the market, however, these effects are not the same. This proposed research will possibly provide us with reliable impact estimates across the fields of study by using a thorough approach that is firmly grounded in theory and established as an appropriate approach.
The definitive result of the studies should enable us to get a monetary value of the costs of load shedding. As discussed earlier, there exists a wide variety of methods that have been developed in literature to ascertain the cost of power disruptions (Benatal and Ravid 1982) (De Nooj et al 2007) (Oseni 2012) (Corwin and Miles 1978).
Linares and Rey (2013) considered the impacts of load shedding to fall in three categories Direct economic, Indirect economic and Social impacts, however for this study the focus will be on the direct economic costs. Even though the other categories may have a large share in terms of cost they will not be relevant for the study because they do not lead to a quantification of the cost of load shedding.
3.2.1 Unit of Analysis and Population
The unit of study will be one hour of real time during the first three months of 2018. This will be used to understand the impact of an hour of load shedding on traders. For the third study, the area of focus will be on the amount spent on backup equipment in comparison to the size of the shop being rented or the estimated work area.
The population for the second case will be all the hours spent in the market during the first three months, for the third study the population will be shop space size.
3.2.2 Sampling Method and Size
The sampling method proposed will be stratified random sampling, where the population will be subdivided in smaller groups known as strata, from each of the strata simple random will be used. The sample size will not be in excess of 100 samples this will be so in order for the results to stay relevant.
3.2.3 Data Collection Process
The data will be collected primarily through a questionnaire the will be delivered and will rely on the traders evaluation of what they consider to be the cost of power disruptions to their business. Where there will be direct economic losses will prove to be very valuable as this will help in determining the cost associated with load shedding (Sanghvi 1982). To follow up on the third study, interviews with the traders will be conducted and requests made for cost associated with making alternative sources of power.
APPENDIX
I. References
http://www.zm.undp.org/content/zambia/en/home/sustainable-development-goals.html
Frum, D., 2000. How We Got Here: The 70's. Basic Books.
Assistant Secretary for Energy Technology. (1978). Impact Assesment of the 1977 New York City Blackout. New York City: The U.S. Department of Energy.
Balducci, P., Roop, J. M., Schienbein, L. A., Desteese, J. G., & Weimar, M. R. (2003). Electric Power Interruption Cost Estimates for Individual Industrues, Sectors, and The U.S. Economy. Proceedings from the Twenty-Fifth Industrial Energy Technology Conference, (pp. 109-118). Houston.
Bental, B., & Ravid, S. A. (1982). A simple method for evaluating the marginal cost of unsupplied electricity. The Bell Journal of Economics, 13(1), 249-253
Checchi, A, Behrens, A., & Egenhogfer, C. 2009. Long-Term Energy Security Risks for Europe: A Sector-Specific Approch
Cheng, D., & Venkatesh, B. (2014). Literature Survey and Comparison of Consumer Interruption Costs in North America and Europe. Electrical and Computer Engineering, 1-7.
Corwin, J. L., & Miles, W. T. (1978). Impact assessment of the 1977 New York City blackout. Final report. Arlington, VA (USA): UDOE System Control.
De Nooij, M., Koopmans, C., & Bijvoet, C. (2007). The value of supply security. The costs of power interruptions: Economic input for damage reduction and investment in networks. Energy Economics, 29(2), 277-295.
Diboma, B. S., & Tamo Tatietse, T. (2013). Power interruption costs to industries in Cameroon. Energy Policy, 62, 582-592.
Growitsch, C., Malischek, R., Nick, S., & Wetzel, H. (2014). The Costs of Power Interruptions in Germany: A Regional and Sectoral Analysis. German Economic Review, 1-17.
LaCornmare, K. H., & Eto, J. H. (2006). Cost of power interruptions to electricity consumers in the United States (US). Energy, 31(12), 1509-1519.
Loschel, A., Moslener, U., & Riibbelke, D. T. (2010). Indicators of energy security in industrialised countries. Energy Policy, 38(4), 1665-1671.
Leahy, E., & To', R. S. (2011). An estimate of the value of lost load for Ireland. Energy Policy, 39(3), 1514-1520.
Linares, P., & Rey, L. (2013). The costs of electricity interruptions in Spain: Are we sending the right signals? Energy Policy, 6/, 751-760.
Oseni, M. 0. (2012). Power Outages and the Costs of Unsupplied Electricity : Evidence from Backup Generation among Firms in Africa. Proceedings of the USAEE 2012. Austin: Internation Association of Energy Economics. Retrieved April 15, 2015, from http://www.usaee.org/usaee2012/submissions/OnlineProceedings/IEE%20 PAPER%20FRST%20YEAR%20EDITED%2OLAST%201%2OLATEST.pdf
Praktiknjo, A. J. (2014). Stated preferences based estimation of power interruption costs in private households: An example from Germany. Energy, 76, 82-90.
Sanghvi, A. P. (1982). Economic costs of electricity supply interruptions. Energy Economics, 4(3), 180-198.
Sanghvi, A. P. (1991). Power shortages in developing countries. Energy Policy, 19(5), 425 440.
Saunders, M., & Lewis, P. (2012). Doing Research in Business & Management. Essex, England: Prentice Hall.
Winzer, C. (2012). Conceptualizing energy security. Energy Policy, 46, 36-48.