AN ECONOMETRIC ANALYSIS OF ZAMBIAN INDUSTRIAL ELECTRICITY DEMAND

The purpose of this thesis is twofold: to examine the electricity use in Zambia’s mining industry by focusing on own-price, cross price and index of mining production elasticities of demand and on structural changes in demand patterns over the time period 1980-2008; and to expose any energy efficiency development in Zambia’s mining industry. In this respected the study tested three hypotheses: (i) Electricity own-price changes have no significant impact on mining industrial electricity demand, (ii) diesel prices changes have no significant impact on mining industrial electricity demand; and (iii) there was no energy efficiency developments Zambia’s mining industry during the period 1980-2008. Data on three independent variables or predictors (average electricity prices, the diesel price and the index of mining production) and the independent variable (total annual electricity used by the mines) were collected from various databases (mainly from Zambia Central Statistics Office, U.S. Energy Information Administration, and the Zambia Energy Regulation Board). Also, interviews were conducted with respondents from four mines in Zambia (Lumwana Mine, Konkola Copper Mines, Kansanshi Mine, and Sino-Metals). Both statistical and non statistical methods were employed to analyse the data. The Statistical Package for Social Sciences (SPSS) was used to estimate the long-run mining industry electricity demand equation for Zambia. The study finds long run electricity own price elasticity of -0.06; cross price elasticity of 0.031; and index of mining production elasticity of 0.154. The signs on all three elasticities are as predicted by theory. Both cross-price and index of mining production elasticities are found to be statistically significant at pre-selected regression alpha of 0.05. However, own price elasticity is statistically insignificant. The coefficient of determination of 0.518 entails that model is useful and the small p-value (0.000a) makes the model statistically significant. Whereas electricity own-price have insignificant long run impact on mining industrial electricity demand, diesel price have long run significant impact on mining industrial electricity demand. The study also finds that there were minimal developments in the efficient use of electricity in the mining industry during the period 1980-2008. These included removal of import duty on energy efficient equipment; introduction of incentive pricing policies, load management programmes, electricity reduction programmes, information dissemination of demand-side management, and changes in machinery or equipment by the mines in order to comply with Zambia environmental standards. The major barrier to energy efficient developments in mining industry during the period 1980-2008 seems to have been the absence of both national policy on energy efficiency and mine policy on energy efficiency