• Saturday, December 02, 2023
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Hurdles facing Lagos electricity market plan

Hurdles facing Lagos electricity market plan

The recently launched Lagos State Electricity Policy will contend with wresting control of licensed utilities from the Federal Government regulator, convince the public to pay competitive tariff rates, create a functional market from scratch, convince operators to be re-issued licences, and set up competing networks out of the national grid system.

During the launch of the policy last Wednesday, Olalere Odusote, Lagos commissioner for energy and mineral resources, harped on the state’s constitutional right to generate and distribute power in Lagos.

Analysts have said the issues are more nuanced.

When the electricity policy consultation paper was unveiled in August, Odion Omonfoman, energy policy expert and CEO of New Hampshire Capital Limited, told BusinessDay that the hurdles before the electricity market were largely constitutional and regulatory.

The constitution is silent on the definition of a ‘national grid system, Omonfoman said, saying, “Thus there may be a constitutional interpretation of this provision, particularly if Lagos State intends to incorporate and regulate the operations of existing DisCos and TCN within the planned Lagos State electricity market.”

The policy unveiled by Babajide Sanwo-Olu, governor of Lagos State, last Wednesday, proposes just that. Relying on Section 13 and 14 of the 1999 Constitution, which empowers a state assembly to make laws regarding the power distribution within the state, the government plans to control the two distribution utilities in the state.

The state is also relying on the National Electric Power Policy, 2001, which defines the role of the states in the Nigerian Power Sector to include developing off-grid non-centrally dispatched electricity operations including generation, transmission and distribution, wholly limited to state boundaries.

Read also: How CBN’s interventions can address N1trillion electricity subsidy – Experts

The Lagos government considered eight factors as key requirements for a viable Lagos Electricity Market (LEM). These are: an enabling constitutional and legal framework; collaborative Federal and State Government support for market growth/customer satisfaction; an autonomous, credible regulatory body and an integrated resource plan.

Others are a competitive and transparent procurement of generation resources; a bankable commercial framework; well-funded, well-managed generation, transmission and distribution players and an Independent System Operator.

Lagos is betting it can secure an exemption from the constitutional requirement or the expectation that only 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 1,000 megawatts (mw) of electricity to the state with over 20 million people.

The NESI is regulated by the Nigerian Electricity Regulatory Commission (NERC), a creation of the Electric Power Sector Reform Act, 2005, (EPSRA), and Omonfoman said the EPSRA has certain provisions that would prevent Lagos or any other states from licensing or establishing transmission and distribution entities other than those licensed by the NERC.

The Lagos government is banking on a cordial relationship with the Federal Government but as the general elections draw closer, which political party ends up occupying Aso Rock has a significant bearing on the success of the project.

Some analysts say gas is an important consideration. “Access to natural gas may be a problem, as the Federal Government recently reduced the price of natural gas for the power sector much to the chagrin of gas producers, who already have an affinity for gas for export,” said Olufola Wusu, energy lawyer and partner at Megathos Law Practice.

The market argument for its own electricity market is hinged upon redirecting an estimated N5.2 trillion currently spent generating 15,000mw of power through dirty generators by businesses and homes in the state to cleaner solutions. But for a public that largely sees power as social service, getting them to pay market rates will present its own unique set of challenges, some analysts say.

How the grid connections will work in the plan may present another challenge, though the grid effectively covers about 31 percent of the state.

“The draft Lagos IRP load forecast estimates that 31 percent of households in Lagos were connected to the national grid in 2020 based on the total number of registered customers. This implies that currently, 69 percent of households in Lagos are effectively unconnected or off-grid,” notes the government’s plan.

The Transmission Company of Nigeria (TCN) with two licences from the NERC, operates the Transmission Services Provider (TSP) responsible for the construction and maintenance of the 330kV and 132kV transmission grid, and for System Operations concerned with safe operation of the grid.

Even though TSP’s Lagos Transmission Region covers five generating companies (Gencos) at three sites, Egbin, Olorunsogo and Papalanto, Lagos State has just Egbin Power plc but constitutes the single largest sub-market in the country, with four of Lagos Region’s five sub-regions and 33 (26x132kV and 7x330kV) of its 38 sub-stations dedicated entirely to the state.

Since Lagos accounts for more than half of TCN’s business, collaboration with TCN is crucial for the LEM to work.

“We believe that this engagement and this policy will be a significant milestone towards improving electricity. I believe that this electricity policy will be a working roadmap that will lead to proper execution,” Sanwo-Olu said.