No pay, no power’ grips Nigeria’s electricity sector

It is only the second month in 2024 and Nigeria’s creaking grid has collapsed three times, emblematic of the deep-rooted challenges denying a country of 200 million people stable power.

The instability of the national grid is a function of having few plants – nine plants out of 22 – account for 80 percent of the energy fed into it, as electricity generation companies (GenCos) insist on receiving payment for power generated, according to findings by BusinessDay.

The GenCos, responsible for generating electricity, said they are owed billions of naira in outstanding payment by the Nigeria Bulk Electricity Trading Plc, which buys electricity through power purchase agreements and sells it through vesting contracts to the distribution companies, which then supply it to the consumers.

They argued that the lack of payment makes it difficult for them to secure gas supplies from upstream producers, who are also owed significant debts.

“Gas suppliers have stayed firm for the past three weeks on their demand for payment; payment discipline is a non-negotiable enabler for commercial growth,” a senior executive in the power sector said.

A top official of a GenCo who pleaded anonymity said no payment had been made to gas suppliers for January, compounding the liquidity challenges facing the industry.

“There is an insistence on payment by most GenCos for any transaction now due to the persistent liquidity issues coming from inappropriate tariff regime, poor collections and inadequate funding of government subsidies,” the source said.

According to the Nigerian Electricity Regulatory Commission, there are 22 grid-connected generating plants in operation, which comprise seven GenCos, five independent power producers and 10 generating stations under the National Integrated Power Project with a total installed capacity of 11,053.6 megawatts (MW).

However, of the 22 power plants, findings showed about nine of them account for about 80 percent of generation due to their size and availability.

Analysts say the implication is that the (over) reliance of the grid on the energy supplied by nine power plants may pose a risk to network stability in the event of a sudden loss of any of them unless adequate proactive measures such as spinning reserves are put in place.

Spinning reserves are backup energy production capacities that can be made available to the system operator (for transmission) within 10 minutes of a power system failure and can operate continuously for at least two hours once brought online. It is done by increasing the power generation output of power plants already connected to the system.

“One of the major challenges of the power sector is weak tariff regulation and liquidity crisis, which is borne out of the fact there are a lot of commercial losses and collection losses,” Chinenye Ajayi, an electricity lawyer and team lead of the Power and Infrastructure Practice at Olaniwun Ajayi LP, told BusinessDay.