• Sunday, March 03, 2024
businessday logo

BusinessDay

Why Nigeria needs multiple electricity markets (IV)

Nigeria only transmits 8,100MW of 13,000MW generated electricity – TCN

With the benefit of experience and hindsight, one can therefore propose that reliable universal access to electricity, which we may define as the delivery of energy to customers who wish to be connected when they want it, where they want it and in the desired quantity, is likely to be unavailable to Nigerians unless there is a rethink of Nigeria’s electricity sector design and a radical departure from the policies, laws and methods of the past.

The constitutional amendment to paragraph 14(b), Concurrent Legislative List, recently assented to by the President, offers the opportunity for this rethink. It does not take an active imagination or genius brain to recognise that the sum of each potential individual state electricity market is greater than the total sum of the whole that is today’s Abuja-controlled national electricity sector.

Thankfully, even before the constitutional amendment took effect, Edo, Kano and Lagos states and, very recently, Anambra State, had all embarked on institutional reform of the electricity sectors in their states, with a view to enabling the creation of electricity markets to serve their residents.

In addition, the 19 states of Northern Nigeria have taken joint action to drive the establishment of solar-powered minigrids in their states. With the calibre of governors elected in other states like Abia, Enugu and Cross River states, it is certain that more states will examine the prospects of state electricity markets and embark on the reform path opened to them by this constitutional amendment.

Lagos State’s socio-economic activity, for example, is powered not by the grossly inadequate plus-minus 900 megawatts delivered daily by the national grid to Eko and Ikeja Discos. Rather, Lagos State, particularly its industrial and commercial activity, is driven by the approximately 20GW of diesel-, PMS- and CNG-powered generators and solar home systems located inside the state to meet actual demand estimated at no less than 7GW.

The difference between the cost of fuelling and maintaining this estimated 20GW baseload capacity (approximately N180-N200/kWh) that runs for no less than 12-15 hours daily and the cost of paying for the needed 7GW even at the highest cost-reflective tariff possible today (approximately N80-N85/kWh), if it were delivered 24/7 by a state electricity market, will provide a good idea of how much Lagosians are paying in excess of efficient costs, for keeping their lights on.

My rough calculations indicate approximately N1.14 trillion per annum in 2022 was literally burnt by Lagos residents in providing their own electricity, not to mention the lost accretion to State GDP and improvement in human development indices that would have come from having a dedicated state electricity market.

Assuming Lagos returns half the revenues generated daily in Nigeria’s electricity sector, we can safely say that the rest of Nigeria burnt a similar amount of money on self-generation in 2022. This excludes the capital cost of new gen sets during the year, not to mention losses in health, the environment, domestic and foreign investments, etc. These are the calculations that we all should be making.

Nigeria needs a comprehensive collective rewrite of the National Electric Power Policy, 2001 and the Electric Power Sector Reform Act (EPSRA) 2005. This is necessary not merely because it is long overdue or to pay lip service to the idea of state markets but also because the time has come to explicitly acknowledge that the Federal Government of Nigeria (FGN) has no business simultaneously regulating and operating in the distribution subsector.

We also need to work out how to manage, in an institutionally-organised manner, the transition that will have to happen over a relatively short time from a monolithic, FGN-driven national electricity sector to a national sector that is structured into a federal-regulated wholesale market, a number of fledgling state markets and a third group of states that prefer to continue to allow the Federal Government to regulate the distribution sector on their behalf for the time being.

The bottom line is to recognise that the restructuring of the National Electric Power Authority, enshrined in the enactment of the EPSRA, 2005, has not reached its logical conclusion and has not achieved its stated policy goals.

To call a spade, what it really is, electricity distribution companies in large, federal jurisdictions that cover groups of states are an aberration. A transmission company that has not decentralised into regional transmission entities is a national security risk.

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

A system operator that is owned and singularly controlled not by market participants themselves but by an overreaching federal government will only encourage the misappropriation of market revenues and continued bad market practices. States in a federal system that have not taken responsibility for designing electricity markets that suit them are unwittingly retarding their development.

A ministry of power that sees itself not as a policy-enabler but more as some kind of group holding company head office that expects every entity in the sector, including the regulator, to be subservient to and take instructions from it, exemplifies the abnormality that has bedevilled Nigeria’s electricity sector.

All these features of Nigeria’s electricity sector, considered together, are a major reason why our country has consistently underperformed its potential and disappointed many who have expected high achievement from us during the past 50-plus years.

The lack of real growth that Nigeria’s electricity sector has experienced during the past nine years-plus since privatisation in November 2013 is proof positive of the consistent, long-running failure of centrally-driven electricity policy and regulation. The recent amendment to the 1999 Constitution is surely no silver bullet to solve all our problems in one fell swoop.

Rather, it is a welcome and long overdue development that encourages a change in our policy perspectives and mindsets. It should enable the creation of federal and state electricity markets that bring Nigeria much closer to achieving reliable electricity supply and universal electricity access across the country.

•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

•This is the final instalment of a four-part commentary