Analysts say State electricity market game is changer

President Muhammadu Buhari on Friday signed into law a constitutional amendment that gives States in Nigeria, the license to generate, transmit and distribute electricity in areas covered by the national grid, which development analysts say will positively impact the sector.

This landmark decision was made in order to address the longstanding power sector issues that have plagued the country for years.

It is expected to change the dynamics of the electricity supply in Nigeria, which suffers from perennial power shortages. It will also provide variant options for energy-starved Nigerians and break the monopoly of the Federal Government of Nigeria to generate and distribute electricity in Africa’s largest economy.

On the other hand, analysts question the chances of States in the country being able to run electricity markets and fear that they might repeat the same mistakes in the power sector.

“I think it is a good step. Although, I doubt that many States in Nigeria, can really run electricity markets. It is not as simple as it sounds. Without understanding the root cause of the challenges in the sector, we will just have several States repeating the same mistakes,” said Ayodele Oni, partner, energy practice group at Bloomfield LP.

According to Oni, some challenges that have hooked the power sector include poor collection, technical and commercial losses. This time, however, replicated over several States. There is also the technical challenge around the role of Nigerian Electricity Regulatory Commission (NERC) and the new State Regulators.

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“How will States deal with issues such as scheduling and ancillary services such as spinning reserves? Those are the first issues to be dealt with,” Oni said.

“A thorough understanding of why the grid has been collapsing amongst others is important. Those should first be understood and dealt with. I struggle to see how states which cannot manage public water supply will manage electricity markets.”

However, they may end up working well with the private sector and use regulatory mechanisms that give a lot of initiatives to the private sector, Oni said.

Nigeria’s creaking national grid collapsed seven times in 2022. Last year, Joy Ogaji, the executive secretary of the Association of Power Generation Companies blamed the intermittent national grid in the country on excessive volatile load mostly through steel mills and the weak Transmission Company of Nigeria’s (TCN) infrastructure, most of which are over 25 years old.

She also cited instability and unavailability of most transmission lines as contributing to the grid collapse, which usually plunges the country into darkness.

Nigeria’s power sector is riddled with multifaceted challenges ranging from operational governance issues, liquidity problems, infrastructural deficiencies, high Aggregate Technical Collection & Commercial (ATC&C) losses, metering glitches and energy theft.

For Chinedu Onyegbula, an energy sector expert and director, Bullox Resources Limited, distribution companies might have conflict especially where their franchises are threatened.

“Transmission networks are still under federal control. It requires significant investment because states might not be able to handle or afford and failure could threaten their financial operations especially where the liabilities are tied to their financial obligations,” Onyegbula said.

“Also, States might be driven by non market sentiments in their operations which might be considered as divisive and unfair.”

On the other hand, Onyegbula said it is a game changer and it allows states to compete. They still have to go through existing platforms. States can go into a joint venture or form a Special Purpose Vehicle (SPV) to facilitate such.

“Transmission is still under the federal government and distribution is still under the privatised entities but they can with the approval of the regulators generate power, transmit it through TCN, and distribute through a ring fence or embedded within a distribution network,” he said.

“Opportunities with this development include, competition, increase in access to power and electricity, influence on infrastructure development and Gross Domestic Product (GDP).”

Onyegbula also said that States can attract investment, and partner with local and international entities to provide power to their communities.