The importance of power evacuation infrastructure in the electricity value chain globally cannot be over-emphasised. The transmission network is vital to the sustenance of the power sector and the socio-economic development of any nation. Countries leverage clean and reliable electricity supply for economic growth and the transmission network guarantees that energy reaches the consumers.
Following the unbundling of the sector in November 2013, the generation and distribution subsectors ware privatised, while the transmission subsector remained a fully-owned Federal Government entity under the Transmission Company of Nigeria (TCN), which is comprised of three functional departments, namely: Transmission Service Provider (TSP), The Market Operator (MO), and The System Operator (SO).
While the TSP is responsible for the development and expansion, and maintenance of the transmission infrastructure and expands it to new areas, the Market Operator oversees the Nigeria Electricity Market’s administration (NEM). The System Operator can best be described as the ‘soul of the grid’, performing several functions. The SO undertakes control of the physical operation of the electricity system for which they are responsible. The SO is saddled with managing the transmission grid lines, ensuring their reliability, and maintaining the grid’s technical stability through its operations of planning, dispatch, and control of the grid. As stipulated by the regulator, these roles are in line with the roles as defined by the extant laws governing the sector. In more precise terms, the role of the SO borders on enforcing compliance with the Grid Code and Market Rules, as well as the management and monitoring of grid operations.
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The Situation in Nigeria’s Transmission
Notwithstanding the high level of performance expected of the transmission subsector, the existing transmission network has proven to be poor, erratic, and fragile. The deficiency of the power evacuation entity, which has remained underdeveloped with predominantly manually controlled network devices, explains the instability in the transmission network. This situation hinders industrialisation in Nigeria as it requires an adequate power supply through the grid. This infrastructural paucity calls for a desperate need for revamping, requiring huge investments, which TCN has maintained that it lacks the funds to do.
Just as worrisome is the inadequacy of the SO to deliver on its mandate in the sector. The SO relies on radio and telephone communication to control the grid due to its inability to deploy Supervisory Control and Data Acquisition (SCADA) and the failure to implement generation dispatch tools. This poor communication mode accounts for the continued system outages experienced in the country to a large extent. Furthermore, there are also challenges relating to the lack of ancillary services. The Free Governor mode of operation and the SO’s constant instructions to the GENCOS ramp up and down when in full operation jeopardise the generating units and increase cost, while reducing maintenance intervals.
The solution to the issues primarily lies in the deployment of real-time grid management and control mechanisms. However, being subsumed under the TCN, the SO will continue to be hindered in effectively accomplishing its functions. The current issues are the catalysts to drive the unbundling of the SO into an Independent System Operator (ISO) to subvert intrusion by TCN.
Functions of the Independent System Operator
From Section 26(7) of the EPSR Act, it can be deduced that the transfer of the functions of the SO to the ISO is subject to the terms and conditions imposed by the Commission and upon the transfer, the ISO assumes the powers and roles of the System Operator. Therefore, the functions of the ISO in the NEM are in the same circles as that of the SO. More so, section 100 of the Act categorically defines the ISO as a SO not affiliated with any entity holding a transmission license.
In other jurisdictions, the functions of the ISO have evolved. For instance, in the United States, the ISO exercises some functions such as tariff administration and design, congestion management, ancillary services, OASIS, and total transmission capacity (TTC) and available transmission capacity (ATC), market monitoring, planning expansion and interregional coordination.
In New England, the ISO has three critical roles: grid operation, market administration, and power system planning. One major factor to be noted is that regardless of the jurisdiction, the functions are interwoven. However, some critical functions cut across every electricity market, chief of which is grid control.
Irrespective of how broad or limited the functions of the ISO in the various jurisdictions are, the core functions of the ISO though not limited to the following, can generally be surmised to include:
• Real-time grid control
• Operational and expansion planning
• Tariff administration
• Congestion management
• Ancillary services management
• Transmission capability assessment
• Market monitoring
• Interregional coordination
• Settlement of energy, capacity, service, and imbalance charges
• Invoicing of service charges and imbalance charges
Models of Independent System Operators Worldwide
The ISO is a model practised in electricity markets globally. The model guarantees confidence in the electricity market amongst investors and other stakeholders, including consumers. From research, five key models of transmission system operators have been identified across the world.
1. The independent transmission system operator (ITSO): Under this model, the SO functions are combined with the ownership and maintenance of the transmission system. The advantage is that the investment is fully integrated with the long-run planning and short-run dispatch of the system. The ITSO usually has an incentive to grow transmission capacity to aid trading and competition. An example is the National Grid in the UK.
2. The legally unbundled Transmission Operator (TO): This model includes actual separation of transmission operation from the other aspects of the sector, leaving the transmission assets under the same ownership as generation/production or retail. The French electricity transmission company uses this model. It remains owned by EdF, the former monopoly utility. Having been unbundled from the rest of the system, it owns and operates the transmission assets.
3. The ISO: This model is said to be ‘asset-lite’ SO, where the SO does not own the transmission assets. Instead, its ownership is unbundled, operating independently of the transmission system. Such an ISO arrangement can operate at a multijurisdictional level. The Pennsylvania, Jersey, Maryland (PJM) Power Pool operates this model. The organisation held the position as the world’s largest competitive wholesale electricity market until the development of the European Integrated Energy Market in the 2000s.
4. Hybrid model: The ISO and the TO are unbundled from the rest of the transmission system. The ISO is asset-lite, while the TO has no system operation function. This model is practised in Chile and Argentina, where it was observed in the context of rapidly expanding systems.
5. The vertically integrated utility: Energy market reforms have tried to move away from this model. However, it is still recognised in many electricity and gas markets worldwide.
Coming home to Nigeria and considering the models vis-à-vis the Nigeria Electricity Market, the best applicable model is the ISO model. ISOs have a reasonably long history in the US, which has helped them reach their present development phase. The US has mostly worked with the ISO model to realise this.
Primary attributes of the ISO model include:
• A non-profit entity without ownership of the transmission assets.
• Independent boards and stakeholder committees.
• Responsible for operating the network reliably and economically.
• Manages FERC Open Access Transmission Tariff, OASIS, generator interconnection rules.
• Manages voluntary wholesale spot markets for energy and ancillary services.
• Manages applications for transmission service, allocation of scarce transmission capacity and network expansions.
• Transparent Regional Transmission Expansion Planning process.
• Market monitoring and mitigation programs.
• Coordination with neighbouring control areas, including imports/exports (cross-border trade).
• Regulated Incumbent Transmission.
Part II of this article will feature an assessment of the place of the ISO in Nigeria’s electricity market. Considering the current market status, the author will highlight what should make up the best ISO Ownership/Governance structure and how to actualise and sustain the unbundling.
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