• Monday, July 15, 2024
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Powering Nigeria: Past, present, prospects (1)

Lagos shoots for improved power with new electricity Law

BusinessDay recently hosted a highly impactful conference titled “Powering Nigeria’s Energy Future: Addressing Infrastructural Challenges for Sustainable Energy Development.”

Historically, the power sector operated highly opaquely, with minimal public understanding of the intricacies involved in power generation, transmission, and distribution. This lack of transparency has changed significantly, leading to greater public engagement and awareness. The sector has seen a surge in national consciousness and discussion, indicating progress toward more informed and active public involvement.

The event brought together industry experts, policymakers, and stakeholders to discuss the pressing issues facing Nigeria’s energy sector and to explore sustainable solutions for its advancement. Esteemed sponsors supported this pivotal gathering, including Azura Power, Mainstream, Tetracore, and Olaniwun Ajayi LP.

Significance of Sustainable Energy Development

A prominent theme throughout the conference was the critical importance of sustainable energy development. Nigeria, blessed with abundant natural resources, has the potential to build an energy system that meets current needs without compromising future generations. The focus on sustainable energy is not just about protecting the environment but also about fostering an ecosystem that supports economic growth, climate adaptability, and the overall well-being of Nigerians.

Read also: Empowering communities: sharing knowledge and opportunities in Nigeria’s energy landscape

Comparative Analysis and International Benchmarks

Minister of Power, Adebayo Adelabu, in his keynote address, highlighted success stories from other countries to illustrate the potential of Nigeria’s energy sector. With a population of around 48 million South Korea generates, transmits, and distributes 130,000 megawatts (MW) of power.

This stability has propelled South Korea into a global manufacturing powerhouse. In contrast, with over 200 million people, Nigeria struggles with generating 4,000-5,000 MW. The message was clear: Nigeria can only achieve meaningful economic growth in critical sectors with a stable power sector.

Challenges in Nigeria’s Energy Sector

Numerous challenges were identified as impediments to the sector’s growth:

Inadequate Infrastructure: The ageing and overburdened power infrastructure, including outdated substations and transmission lines, severely hampers efficiency. Many components have been in use for over 50 years without significant upgrades, leading to increased technical losses and decreased reliability.

Adelabu emphasised the ageing infrastructure, with many transformers installed over 50 years ago. These transformers, still bearing the logo of the Electricity Company of Nigeria (ECN), are maintained by personnel much younger than the equipment itself, often without access to maintenance manuals. The deteriorating state of power lines, fallen poles, and looted transformers are significant obstacles to stable power supply.

The address underscored the necessity of prioritising infrastructure to achieve stable electricity. It was noted that past administrations had not focused on the power sector as intensely as the current government. President Bola Ahmed Tinubu’s administration has been commended for its emphasis on the power sector, as evidenced by the President’s New Year message, where 50 per cent of the address focused on power issues.

Regulatory Bottlenecks and Corruption: Complex regulations and pervasive corruption increase operational costs and discourage investment. Past administrations have often shied away from addressing these controversial issues, leading to stagnation.

Developing a comprehensive national policy to support innovation and sustainable development in the energy sector is critical.

Liquidity Issues: Ensuring that tariffs reflect the cost of production to attract investment and maintain sector viability.

Security Issues: The quality and reliability of gas supply are compromised by issues such as pipeline vandalisation and low pressure, especially in regions like South-West Nigeria. Addressing widespread issues of infrastructure vandalisation, theft, and illegal connections which disrupt service and increase costs is pivotal.

Dependency on Oil: Nigeria’s heavy reliance on oil exports for foreign exchange earnings is unsustainable, especially with fluctuating global oil prices and the rise of alternative energy sources.

Industrial Decline: The lack of stable power has driven many industries out of the country. Once-thriving industrial areas have been transformed into warehouses and churches, underscoring the need for reliable energy to revive local manufacturing.

Labour Relations: Balancing the legitimate demands of labour unions with the need to protect critical national infrastructure.

Path to Sustainable Development

The conference outlined several strategies to overcome these challenges and unlock the sector’s potential:

Infrastructure Investment: Modernising the energy infrastructure is paramount. This includes upgrading transmission networks, installing new transformers, and ensuring reliable gas supply through better maintenance and anti-vandalism measures.

Regulatory Reforms: Simplifying regulations and tackling corruption head-on will create a more attractive environment for investors and improve operational efficiency.

A major highlight was the signing of the amended Electricity Act of 2023, less than a month into President Tinubu’s tenure. This landmark legislation decentralises the power sector, allowing subnational governments and private sector investors to play significant roles in power generation, transmission, and distribution.

This shift from a centralised model to a decentralised one aims to reduce dependence on the national grid and empower local governments and states to manage their power supply more effectively.

The new legislation mandates the development of a national integrated policy on electricity and a strategic implementation plan within a year. Stakeholders have been engaged in multiple discussions and retreats to finalise this policy. The goal is to present the National Integrated Electricity Policy and Implementation Plan to the Federal Executive Council for approval by September. This will include an Integrated Resource Plan, addressing infrastructure needs, human capital development, and future electricity generation plans.

Diversification: Nigeria must diversify its energy mix to include renewable sources like solar, wind, and biofuels. The government’s target of achieving 30 per cent renewable energy by 2030 is a step in the right direction.

Local Manufacturing and Export Promotion: Encouraging local manufacturing through a stable power supply will reduce import dependency and increase exports. This will help stabilise the currency and strengthen the economy.

Consumption Management: Educating the public on efficient energy use can help reduce overall consumption, making more power available to a greater number of people.

Enhancing Generation Capacity

The government is committed to enhancing current generation assets and investing in new power plants, focusing on hydro and solar resources. The addition of the 700 MW Zungeru Hydroelectric Power Plant has already expanded generation capacity. Efforts are also underway to resolve outstanding debts to gas suppliers to ensure an efficient gas supply, which is crucial for maintaining and increasing generation capacity.

When the current administration took office, the generation capacity was between 3,500-4,000 MW. Due to outstanding debts, this dropped to 2,500-3,000 MW in early 2024. However, with proactive measures, including the integration of the Zungeru Power Plant, the generation capacity reached a record 5,000 MW on May 3, 2024. The target is to achieve 6,000 MW by the end of the year.

The minister of power highlighted the underutilisation of government-owned power plants under the Niger Delta Power Holding Company (NDPHC). Despite having a combined capacity of over 5,000 MW, these plants operate at less than 10 per cent capacity due to a lack of firm gas supply contracts and inadequate maintenance funds. Additionally, a 225 MW plant in Kaduna, 95 per cent completed, has been inactive for six years due to legal issues, leading to facility degradation.

Transmission and Distribution Network Upgrades

Key initiatives to upgrade and modernise the transmission and distribution networks are underway. The Presidential Power Initiative aims to expand the transmission grid to handle increased loads from various generation sources. Recent achievements include:

Increased Transmission Capacity: An additional 463MW of transmission evacuation capacity has been added to the grid in the past year.

Siemens Project: Revived under the current administration, this project is crucial for upgrading transmission infrastructure. Despite delays due to COVID-19 and the passing of key proponents, the initiative has resumed with significant progress, including the import and commissioning of power transformers and mobile substations.

Addressing Power Generation Issues

To stabilise and enhance power generation

Installation of Transformers and Substations: Recent improvements in power supply are attributed to the installation of new transformers and mobile substations, rather than external factors like rainfall.

Mobile Substations: These provide temporary solutions to maintain power supply during infrastructure upgrades.

Metering Initiatives

Addressing the metering gap is critical for accurate billing and reducing revenue losses. Efforts include:

World Bank Distribution Support Recovery Programme: Injection of 1.5 million meters into the sector.

Presidential Metering Initiative: Aiming to procure two million meters annually for the next five years, totalling 10 million meters. This initiative seeks to rectify past procurement issues and ensure better metering coverage.

Renewable Energy Projects: Recognising the potential of renewable energy, the government is promoting:

Distributed Assets Programme: Supported by a $750 million facility from the World Bank to increase access to electricity through solar home systems and mini-grids.

Ongoing Projects: Several renewable energy projects, including off-grid solutions for educational and healthcare facilities, are near completion.

Dafe C. Akpeneye, commissioner, Legal, Licensing & Compliance at Nigeria Electricity Regulatory Commission, also took the stage and made insightful submissions based on data. He started by giving some historical context.

Historical Context and Challenges: Reflecting on the state of the sector in 1999, Akpeneye noted that Nigeria’s installed capacity was less than 3,000MW, primarily serving major cities like Lagos, Abuja, Kano, and Port Harcourt. The reforms initiated by President Obasanjo aimed to address these inadequacies, particularly focusing on generation issues. However, the current challenges stem from insufficient investment in infrastructure and the need to close the grid loop nationwide.

Investment and Infrastructure: The power sector requires significant capital investment, with estimates suggesting $1 million per megawatt for generation and similar costs for transmission lines $1 million per kilometre of transmission line. The critical need for private sector financing was highlighted, emphasising that investment would follow only with assured returns and minimised government-related risks.

Regulatory Reforms: The conference discussed recent regulatory advancements, including the Electricity Act signed by President Bola Tinubu and constitutional amendments enabling state involvement in power generation and distribution. These changes are designed to foster a more decentralised and efficient power sector, with states like Enugu, Ekiti, Ondo, and Imo ready to issue transfer orders for state-level regulation.

Tariff Issues and Financial Sustainability: A key point of contention has been the tariff system. The introduction of banded tariffs aims to align costs with service quality, addressing both consumer affordability and the need for cost-reflective pricing. The regulator’s role in balancing these interests was emphasised, aiming to ensure only prudent costs are passed through the value chain.

Judicial Interventions: The impact of judicial decisions on the sector was noted, particularly how legal challenges to tariff reviews had previously stalled reforms. Ongoing capacity-building initiatives for the judiciary are aimed at fostering a better understanding of the sector’s complexities, ensuring more informed rulings in the future.

Summary of Panel Sessions

The panel sessions at the conference were set against the backdrop of the minister of power and commissioner at NERC’s addresses and of Frank Aigbogun, publisher of BusinessDay who said West Africa’s most authoritative and multiplatform provider of business news and intelligence supported the privatisation.

The minister highlighted the capital-intensive nature of the power sector. Building a power plant costs between $500,000 to $1.5 million per megawatt, while constructing 330kV transmission lines costs about $1 million per kilometre. Investment certainty is crucial, and to attract financing, a stable regulatory and policy environment is necessary.

This investment need is important to keep in mind because the first panel was themed – “Modernising the Electricity Infrastructure: Addressing Nigeria’s Inadequate Infrastructure and Developing Efficient Systems.”