Ecnomic value of water for Agriculture, Hydropower and Domestic Use : A case study of the Lunsemfwa catchment, Zambia

Abstract: The Lunsemfwa river catchment is of paramount importance to the Zambian economy, particularly with regards to energy, agricultural and water for domestic, as well as wildlife. Water shortages during dry spells in the area present a huge problem for the various stakeholders in the basin. As the impact of climate variability increases in the basin, water resources managers in the basin are increasing challenged to efficiently allocate decreasing reserves of water resources against increasing levels of demand. This paper attempts to highlight the value of water resources to the earlier mentioned sectors; hydropower, agriculture and households, in order to inform allocation decisions in the Lunsemfwa catchment area of Zambia. The paper uses the SDDP method to investigate the average cost of electricity production, coupled with market electricity prices to ascertain the value of a unit of electricity given reservoir outflow levels. The PF method was used to evaluate the marginal value of water is agriculture, while the value of water for domestic consumers was evaluated using the Contingent Valuation method, particularly the willingness to pay, which essentially uses market prices to represent the consumers’ willingness to pay. A value of US$93/MWh is attached to hydropower produced here, while the marginal value of water in agriculture is estimated to be US$0.068/m3. The willingness to pay for connection to piped water is approximately US$34.13, while the monthly value is US$6.9. The Gross Financial Value (GFV) generated from hydropower, agriculture and domestic water supply is US$24,174,000, US$ 262,083,045.91 and $7,140,000.00 respectively.