Strategic investment decisions in Zambia’s mining sector under a constrained energy system

This thesis studies the challenge of balancing between economic growth and social development that many developing countries are facing. The study sought to understand the impacts that these goals have on each other and how these impacts could be minimised. It looked at how clean energy access is modelled in developing countries and also how growth in Zambia’s mining sector would be impacted by meeting the government’s clean energy access targets in the residential sector. On one hand, increasing access to clean energy would lead to increase in energy demand, which would, in turn, imply increased capital investment in the energy supply system. This augmented investment means increase in energy prices which in turn would limit the growth of the mining sector (the backbone of the economy). Limited growth implicitly means reduced funding for clean energy projects. Thus, in order to adequately capture these complex interactions, three bottom-up models were developed: energy demand, energy supply and mining models. The energy models sought to understand how energy demand would evolve by 2050 and how much capital investment would be required to meet this demand. The mining model focused on understanding how developments in the energy sector would impact strategic investment decisions in the mining sector. It was found that approaches used to study how households transition from one energy fuel to another in developing countries had significant conceptual errors. However, these errors could be minimised by using a bottom-up approach. Furthermore, it was found that while profit margins would reduce as a result of increase in energy prices, the impact of these prices on the firm’s production output was negligible - except if a firm is a marginal mine operation. The output was not impacted because mining firms make decisions based on thresholds and not marginal decrease in profits. Thus, even though reliable energy supply is critical in mining operations, the influence of energy price in investment decision making in Zambia’s mining sector is limited. The key decision variables in the sector were found to be copper price, grade and type of ore