• Thursday, April 25, 2024
businessday logo


Why Nigeria needs multiple electricity markets (II)

An “electricity market” is set up and run based on contracts and rules of trade established by suppliers, buyers, transporters and traders, with the operation of its contracts and rules overseen by a single, identifiable regulator, and disputes between market participants resolved either by an independent dispute resolution body or by the courts of law.

An “electricity sector”, on the other hand, is one in which market participants are set up and/or dominated by governments, driven by politically-determined interests and not, as markets are, by the interplay of engineering, technological innovation, economics, law and finance.

In Nigeria, electricity is delivered to customers by the latter, and not the former, method. This has been the case since the Electricity Corporation of Nigeria was formed in 1951, despite a massive reform effort started in 2000 that produced the National Electric Power Policy, 2001 and the Electric Power Sector Reform Act (EPSRA), 2005.

The preference by successive Nigerian governments (both federal and state) to make politically-driven interventions in the electricity sector (recall that dubious but perennial campaign slogan: “we will give you light”), in consequence of which they constantly deliver sub-optimal, sometimes even perverse, outcomes, particularly because governments, which should be policymakers and regulators, are too eager to remain or become market participants, is the reason why Nigeria’s electricity sector has seen a lot of public funds poured into it but has achieved today only approximately 4.4GW/110GWh per day to be shared amongst Nigeria’s acclaimed 200 million people.

On a per capita basis, this is approximately 220watts/5.3kWh per capita per day, barely enough to run a fan and a few light bulbs for each Nigerian.

The Nigerian electricity sector is unlikely to evolve into being a market where a product is made, delivered and paid for as contracted, for as long as the Transmission Company of Nigeria (TCN) remains a 100 percent federal government-owned and operated company, for as long as the federal government seeks to own and control the independent system operator, and for as long as the federal government owns 40 percent of each distribution company (Disco).

In other words, for as long as the federal government alone dominates the entire sector and continues trying to be all things all at once – policymaker, regulator and dominant owner and operator – in the sector, we are unlikely to see the electricity sector evolve into an electricity market capable of delivering reliable supply and universal electricity access to the citizenry.

At least that was the case until a few states, particularly Lagos, Edo and Kaduna, started to recognise in 2020 that electricity delivery is a shared responsibility between the federal and state governments, and sought to establish policy and legal frameworks that would actualise this recognition.

This recognition and the forward-looking steps taken by these states is what has now been given huge momentum by this constitutional amendment, which highlights this shared responsibility and the reality that there are actually two types of electricity markets in Nigeria.

The first type, defined by Paragraph 13(a), Concurrent Legislative List, is the national wholesale market that ought to be constituted by generation and transmission sector players.

Generation sector players are the various thermal and hydro Gencos, whose output is delivered to buyers across state borders. The transmission sector players include the transmission service provider (TSP), which builds and maintains high voltage (330kV and 132kV) transmission networks comprising lines, towers and substations to convey energy from suppliers (the Gencos) to buyers.

The national wholesale market includes the Nigerian System Operator (commonly known as SO), which is to the wholesale electricity market what the Nigeria Inter-Bank Settlement System is to the commercial banking sector. SO manages the flow of energy across the transmission system from suppliers to buyers (Discos and eligible customers).

A fourth player in this wholesale electricity market is the Nigerian Bulk Electricity Trading Plc, a special purpose entity created by the federal government as a financial intermediary to act for a time to insulate the Gencos from the lack of creditworthiness that has historically afflicted the Discos, pending that time when the privatised Discos have been restored to solvency and creditworthiness and would be able to contract directly with the Gencos.

TSP and SO are currently harboured as divisions under TCN, which holds their two separate licences issued by the Nigerian Electricity Regulatory Commission (NERC).

The EPSRA 2005, however, provides for the separation and creation of the Independent System Operator out of TCN as a separate corporate entity, which has not happened yet…purely for political reasons.

Read also: Why Nigeria needs multiple electricity markets (I)

The single characteristic of this national wholesale market is that it does not deal with the electricity distribution, but rather, as provided by Paragraph 13(a), Concurrent Legislative List, with bulk electricity transported across state borders.

From a regulatory standpoint, the primary concerns of this federal wholesale market would be to have a tariff methodology that encourages generation entities to build their plants at the most commercially viable nodes in the most efficient manner possible, and to ensure that the engineering interconnections, with and amongst states or groups of states or within the ECOWAS sub-region are coordinated and established on commercial and technical terms that insulate the federal market from revenue shortfalls and technical mishaps of any kind while ensuring secure, reliable supply to offtakers from the various grids/systems to final customers.

The other type of electricity market is the state electricity market, which it is the responsibility of states to establish by laws made by their Houses of Assembly.

These are distribution markets and the 1999 Constitution makes clear that electricity distribution is the exclusive preserve of the states.

Yet, the reality is that at least since 1979, the federal government has taken on default powers and operated alone as policy- and law-maker, owner, operator and regulator of electricity distribution in Nigeria.

While this may have been unwittingly condoned by states that in many cases did not appreciate the extent of states’ rights, it is now clear that, after 70 years of central, unitary control that has managed to deliver a paltry average 4.4GW/110GWh daily to 200 million citizens, and as states themselves have matured and become more self-aware, Nigeria needs to redesign its electricity sector so as to finally enable the release of our great potential to satisfy both national and sub-continental electricity demand.

What has long been obvious from commercial and engineering points of view has finally been given constitutional recognition via the amendment assented to by Mr President.

· Ekpo is the CEO of Excredite Consulting Limited; former commissioner, Nigerian Electricity Regulatory Commission; past head, Power Sector Reform Team, Bureau of Public Enterprises; and past attorney-general/commissioner for justice, Cross River State