The Lagos Electricity Market (LEM) plan of the Babajide Sanwo-Olu’s government will provide a cheaper, cleaner alternative to the inadequate grid power supported by angry generators, and could speed up industrialisation of the state.
Nigeria’s commercial capital currently generates an estimated 15,000mw of power through diesel/petrol generators, but a mix of gas-sourced power with off-grid solutions means that the LEM could potentially double the size of the Lagos economy.
“I think if well implemented, it should reduce the cost of doing business in Lagos, improve employment figures and inextricably increase commercial activities and reduce crimes,” notes Ayodele Oni, energy lawyer and partner at Bloomfield Law Firm.
Lagos will have an autonomous regulatory body and the plan is expected to be owned and operated substantially by the private sector with an Independent System Operator (ISO) to manage new transmission.
However, for this to happen the Federal Government would need to be an enabler of economic development, a role it has sometimes been accused of playing badly.
Lagos is relying on Sections 13 – 15 of the 1999 Constitution that earmarks electricity as an item on the concurrent legislative list, which means that both the Federal and State governments can legislate.
The state government is also making the argument that Lagos can be exempt from the constitutional requirement or expectation that areas covered by the national grid system must be the exclusive preserve of the Federal Government on the basis that the creaking national grid barely delivers 1,000mw of power in the state.
“Considering the Constitutional rights of states to legislate on electricity distribution and aspects of generation, together with a status of Lagos State as the commercial nerve centre of the nation, it is a critical step,” Oni says.
At a consultative forum held on Wednesday virtually, Olalere Odusote, Lagos State commissioner for energy and mineral resources, and industry experts converged said the commercial framework of the LEM built on competitive tariffs, the involvement of private sector operators, and proposal to integrate off-grid energy solutions, make the power plan unique.
The Lagos power plan seeks to use available energy sources in the state – gas and renewable energy sources – to attain at least 18 hours of supply daily over 5 years with growth in peak energy traded in the state from 12,000 -15,000MWh daily in December 2022 to 81,000MWh by June 2028.
This will lead to a significant reduction in backup generator emissions and the fostering of a natural gas market in Lagos through a programme to transit Lagos back up gen-set fleet from distillate fuels to cleaner gas fuels.
It will also incentivise licensees’ adoption of cleanest, commercially viable modern technologies and generation sources to deliver energy to residents of the state and make the state a major global centre for innovation in the provision of electricity access to populations in megacities.
Lagos accounts for almost 70k out of every N1 spent in Nigeria as well as over 53 percent of manufacturing employment in Nigeria, but it is only allocated 25 percent of power supply from the creaking national grid leading to 50 percent capacity underutilisation for industries.
“We get 25 percent supply allocated to us not because that is the proportion of our demand but that is by virtue of the national allocation formula. This means that the fortunes of Lagos will never improve until Nigeria’s fortunes improve in terms of power supply,” Odusote said in an interview with BusinessDay.
With over 20 million residents, Lagos is perhaps Nigeria’s most populous state but receives less than 1,200mw of power supply from the national grid.
Reforms that were driven by the Federal Government since 2000 focused on instituting a single, national electricity market, unbundling of NEPA and establishing the Nigerian Electricity Regulatory Commission (NERC) and the Rural Electrification Agency (REA).
According to Eyo Ekpo, managing director, Excredite Consulting Limited, consultant to the state government, in a presentation at the consultative forum after the power sector privatisation in 2013, “it bequeathed the country an insolvent single buyer market that cannot flow cash for maintenance, let alone marshal adequate capital expenditure thus leading to ‘insatiably sucking up public funds.
“The outcome has been suboptimal results over the past 21 years and supply that has not gone much beyond a national average of approximately 4,000mw/48,000mw/h per day since 2015.”