The Nigerian electricity value chain infrastructure is in a quandary like that of a butcher trying to cut a piece of meat with a meat tenderiser. The harder he hits or more force he applies, the more the meat loses its structure.
The electricity infrastructure is being hit by a multitude of challenges, some regional, some structural, but generally, can broadly be split into security, financing, competency, technology, and regulatory framework. These five factors can be used to characterise the components that create the domino effect of inefficiency within the industry across all aspects of the infrastructure within the value chain. These are the butcher’s meat tenderiser to the electricity industry infrastructure.
Big Electricity Infrastructure and Overview
The value chain infrastructure can be described in terms of the different blocks or system groups. In Nigeria, we have about 81 percent of electricity production from natural gas fuel sources with the rest from hydro-electric and other sources.
Nigeria has 24 generating companies with an installed capacity of about 12,910 megawatts (MW), one transmission company (TCN) which consists of approximately 160 substations across Nigeria with 15,022 kilometers (km) of transmission lines, and eleven distribution companies (DisCos). There are also fossil fuel companies that provide natural gas supply.
It would seem like a sure thing to invest in developing the infrastructure for an electricity value chain where, based on World bank data as at 2018, the percentage of the population that had access to electricity was just above 56 percent of the population. There is a clear social and economic benefit of investing in Nigeria’s critical electricity infrastructure. So why are the local banks not fully signed on and driving financing for Nigeria’s economic engine? Where are the venture capital companies? What of industry participation on the Nigerian Stock Exchange? Was this the plan for the industry and its infrastructure?
Tariff, Losses and Infrastructure
The complaint has been that the current tariff structure is not cost reflective and as such does not fully factor in the rigour of operating and managing the different components within the electricity supply value chain resulting in low liquidity within the industry.
The operational report from TCN for the 30th of August 2020, shows installed capacity of about 12,900MW with only about 4,611MW as peak generation. This vast difference highlights lost income and the need to prioritise stability and predictability of operations. The clear investment priority should be on the stability of electricity supply before expansion becomes a priority.
Eko DisCo is ahead of others with lower ATC&C losses, averaging about 32 percent loss compared to the majority of the other DisCos averaging between about 50 – 70 percent losses. These losses could mainly be due to innovative practices through the adoption of required technology.
The industry’s infrastructure is hugely restricted by financing challenges, a lot associated with the national financial framework within which they operate. The lack of availability of local credit facilities for emergency development, operations, or maintenance stifles execution of ad-hoc functions. The high-interest rates and lack of available long-term low-interest local funding contributes immensely to the cost of operations and the inefficiency associated with tariffs that do not reflect the cost of operating although living wages required to purchase electricity are low.
Investor confidence, Financing and Releasing Infrastructure bottlenecks
Investor confidence is critical to re-energising the industry’s infrastructure and getting a much-needed capital injection. However, various viewpoints usually assume a commercial solution without addressing the factors that make this approach almost impossible to implement, as a number of these circumstances are due to entrenched cultural and lifestyle issues. The idea that foreign investment should be the primary source of funding cannot be the only option available to the energy industry as the United States, China, the United Kingdom and other countries also are seeking foreign investment in their economies. Hence, Nigeria is competing with countries that have a more stable and predictable environment.
The United States, China and the United Kingdom are ranked first, second and eighteenth respectively when ranked based on the World Bank data on foreign direct investment, net inflow. Nigeria is ranked about 68 with 0.64 and 1.2 percent foreign direct investment, net inflow when compared with the United States and China, respectively. It is below fellow OPEC member Saudi Arabia (47th), South Africa (45th) and Ghana (57th).
The initial approach to releasing infrastructure bottlenecks should be to inspire investor confidence through predictability of operations. This approach should be the priority because focusing on the issues of ATC&C losses and a cost-reflective tariff without first addressing the five key factors would be futile. The current approach would be successful only if it indirectly leapfrogs the social factors in the short term while developing a collaborative but technical structure that highlights technological goals.
Presidential Power Initiative to the Rescue
Despite current challenges hindering investment in Nigeria’s electricity infrastructure, the Federal Government of Nigeria has established an agreement with the German Government through Siemens, to revamp infrastructure across the value chain. The Siemens deal, under the Presidential Power Initiative, is a three-phased intervention. Phase one aims to increase operational capacity to 7000MW in 2021, phase 2 aims to enable utilisation of full generating capacity to 11,000MW by 2023, and phase three will expand the system capacity to 25GW.
However, effort should be made to coordinate tasks across the value chain. The approach to successfully achieving the goals of the Siemens deal must involve close coordination and collaboration with all the power plants, distribution companies, and TCN. This close collaboration must include cross-functional teams from Projects, Operations, Maintenance, Protection, and Controls at the least. Extensive effort must be put in the documentation of technical and operating procedures and centralising this process in a knowledge repository across the value chain. The approach must involve a system that institutionalises the operational processes and challenges captured during execution.
What the world is doing and creating the foundations for Sustainable Infrastructure Investment
The developed world and a lot of the developing world is adapting its electrical power systems to be automated. The different system groups within our value chain should be integrated, so that personnel, equipment and revenue collection are aggregated in close collaboration analogous to a single organisation with multiple departments.
The first phase of the Siemens Deal should not only focus on making sure that equipment required for immediate use is available, but should also ensure that equipment includes interfaces for Supervisory control and data acquisition (SCADA)\ Distribution Control System (DCS) communication, asset management and the communication channels are implemented. The grid is meshed and should involve close coordination of the control and protection system.
The value chain infrastructure of the country is entangled in policy, regulation, debt, speculative problem-solving and interests. It does not have an essential piece that would be extremely relevant. It does not have an approach that model’s impact of new policies, regulations, and any other additions to the system. This environment model must be developed to represent the present state of things and attached to the foundations for data-driven decision making. The butcher must first clearly understand why he is cutting the meat and what the cut meat should look like or he will continue to use the meat tenderiser.
