• Thursday, April 18, 2024
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BusinessDay

Gas-rich Nigeria faces blackouts as supply shortage worsens

Why Nigeria’s electricity grid collapses and how to shore it up

Three years after launching an ambitious plan to power its entire economy with gas by 2030, most of Nigeria’s gas-fired power plants suffer from a low fuel supply. This development is keeping many Nigerians in darkness.

BusinessDay gathered that the gas supply shortage has driven down electricity generation, leading to low allocation to distribution companies (DisCos).

“There has been a gradual decrease in an available generation into the grid due to gas constraints to the thermal generating companies, which has impacted the quantum of bulk power available on the transmission grid for onward transmission to the distribution load centres nationwide,” Ndidi Mbah, general manager, public affairs at the Transmission Commission of Nigeria (TCN), said on Thursday.

“Consequent upon the current load on the grid, load distributed to the distribution load centres has also reduced, as TCN can only transmit what is generated,” she added.

She said TCN was doing everything possible in collaboration with stakeholders in the power sector to ensure that it kept the grid intact despite the current low power generated into the system.

Eko Electricity Distribution Company, one of the DisCos in the country, told its customers that it was not getting enough allocation from generation due to gas shortages and other related issues.

“Kindly be informed that the present reduction in power supply across our network is due to gas shortages and other related issues arising from the generating companies. We sincerely apologise for the inconvenience this has caused even as we work with our partners for a speedy resolution,” the company said in a post on its social media handles.

Data from the Nigeria Electricity System Operator showed power generation on the national grid stood at 4,242.44 megawatts as at 6am on Thursday.

Many experts have lamented that a country that boasts Africa’s largest proven gas reserves of 203 trillion cubic feet and 600tcf unproven gas reserves has continued to struggle with a shortage of gas for domestic use.

Other stakeholders say the breakdown of power plants as a result of gas shortage is a perennial challenge bedevilling the Nigerian electricity supply industry, even as financial liquidity cripples the ability of electricity generation companies (GenCos) to fund government-controlled gas pricing systems.

Data obtained by BusinessDay showed the GenCos recorded a N136 billion monthly deficit as of July 2023.

The government-owned Nigeria Bulk Electricity Trading Plc (NBET) buys electricity in bulk from GenCos through power purchase agreements and sells it through vesting contracts to the distribution companies, which then supply it to the consumers.

The GenCos were paid N69 billion out of the total invoice amount of N123.36 billion for July 2023. In the first quarter of 2023, the power producers got N171.67 billion out of the N235.92 billion due to them, according to NBET.

NBET’s data also revealed GenCos were paid N245.98 billion out of the total invoice amount of N299.81 billion for the second quarter of 2023.

“The liquidity squeeze on the market and the inability of NBET to handle payments to the GenCos by the power purchase agreements is something worthy of pondering,” Joy Ogaji, CEO at the Association of Power Generation Companies, said at an industry event.

She said the “impacts of this dire situation for the GenCos are that they are faced with: Lack of necessary funding for their operations, such as acquiring spare parts and equipment for the power generation stations”.

Discontinued investors’ confidence and market settlement have continued to nosedive gradually with every passing month, Ogaji added.

Data from the Nigerian Electricity Regulatory Commission (NERC) showed gas supply constraints and mechanical faults remained the major factors affecting the amount of energy generated by gas-fired thermal plants.

“Lack of reliable gas supply to the plants due to gas infrastructure constraints on the national gas network and the absence of fully effective Gas Supply Agreements,” NERC said in its Q3 report.

A Gas Sale and Aggregation Agreement, which is typically between GenCo, gas supplier and the gas aggregation company, stipulates contractual framework, rights, obligations and risk allocation for gas supply to GenCo.

The most prominent case was the gas supply deal between Calabar GenCo and Accugas Ltd, forcing the federal government to keep paying over $10 million monthly with or without gas supply to the plant.

Other analysts said producers have been cautious of investing in gas infrastructure in the country as a result of low gas prices, lack of cost-reflective tariffs and lack of assurance or guarantee of payment from the GenCos.

A cost-reflective tariff reflects the actual cost of supplying electricity. It removes the reliance on government subsidies to cover the variance between the current tariff and the actual cost of supply of electricity.

This is as the federal government paid a total of N375.8 billion as subsidy for electricity consumed in the country from January to September 2023, following the inability of DisCos to collect the total amount billed to customers in the period.

On December 31 2023, NERC dismissed widespread rumours of an increase in electricity tariffs starting January 1, 2024.

Experts said the above development indicated rising electricity subsidies for Africa’s biggest economy.

Adetayo Adegbemle, executive director of PowerUp Nigeria, a power consumer advocacy group, said bridging the gap between the cost-reflective tariff and the allowed tariff has become a significant burden on government finances, raising concerns about its sustainability.

“The electricity subsidy in Nigeria has become a financial burden and is no longer sustainable. Urgent action is needed to address the disparities in subsidy distribution, prevent further strain on government finances, and redirect resources to areas where they can have a more significant impact,” he said.