Nigeria’s electricity supply industry is on the verge of growth with abundant opportunities in both on-grid and off-grid, but investors are waiting for clarity in terms of regulation, currency stability and terms that guarantee investment security in order to take position in the sector.
In the off-grid sector, there is over $1 billion financing available from private investors, development finance institutions and multilateral organisations in the form of concessionary debt financing and low-interest loans. New investments are being recorded in the on-grid space including Transcorp’s acquisition of Afam Power.
Investors at the annual BusinessDay Future of Power Conference which held in Lagos on Thursday said the inability of the electricity sector regulator, the Nigerian Electricity Regulatory Commission (NERC), to speedily resolve licensing, mediate in disputes among operators and promote efficient markets is stalling further financial investment decisions on numerous projects in Nigeria.
“Nigeria has a fairly developed regulation for the off-grid market but the challenge is that due to many regulatory hurdles, many people are operating under the threshold of 1MW that does not require regulations,” said Dolapo Kukoyi, partner at Details Commercial Solicitors.
As result of this situation, investors are only taking advantage of providing off-grid power with capacity lower than 1MW which does not require getting a licence from NERC.
But the challenge is that the proliferation of small embedded generation of less than 1MW will do little to dent Nigeria’s energy supply gap.
“These less than 1 megawatt are not large enough to scale, so it is best to pull these smaller projects together,” Daniel Mueller, head, origination and structuring at InfraCredit Guarantee Company, said.
Mueller said the market is now ripe for relatively larger capacities of between 20MW and 100MW in different cities as there is now willingness and ability of the Nigerian customer to pay for power but a lack of currency stability could discourage investors from taking long-term financing decisions.
Jasper Graf von Hardenberg, CEO and co-founder of Daystar Power Energy Solutions, said there are foreign investors willing to put money in the power sector but they are concerned about the currency risk due to high capital expenditure cost, especially in the off-grid sector.
This regulatory inaction is constraining investment opportunities that have been created as a result of recent regulation such as the eligible customer, embedded generation, mini-grid and the Meter Asset Providers (MAPs).
In his speech at the occasion, Saleh Mamman, minister for power, who sent a representative, said there are opportunities for small hydro power plants across 25 dams capable of generating over 30MW. There is also the opportunity to develop large hydro plants across 200 locations in Nigeria. Other areas investors can take advantage of are in solar, wind, biomass and coal.
Analysts agree that the recent minor review of the Multi Year Tariff Order (MYTO), which takes effect from July 2020, is sending out some strong signals to investors and creating a favourable investment opportunity.
Forward-looking companies like Transcorp are ramping investment in energy generation as well as the off-grid sector despite present constraints.
Valentine Ozigbo, president and CEO of Transcorp, said the company’s decision to acquire Afam Power Plant was hinged on the need to provide energy security for the country and their decision to partner with Engie, a French company in the off-grid space, is to take a position in a growing sector.
“There is enough space for all in the power sector,” said Ozigbo. “All that the players and the regulators need to do is to collaborate more so that problems in the sector can be tackled.”
The problems in Nigeria’s grid connected power are enormous. Power plants do not get adequate gas supply which sees at least 8,000MW of their installed capacity of over 12,000MW constrained. Gas suppliers complain they do not receive full payment for gas supplied and pricing is regulated, preventing legacy plants from paying commercial price for gas.
Yet, generation companies who use the gas as feedstock do not get their own market invoices fully settled too by the DisCos. “The situation is so bad that sometimes, we get only 15 percent of market invoice,” said Chiedu Ugbo, managing director, Niger Delta Power Holding Company of Nigeria.
Transcorp Power is owed over N80bn by DisCos and NBET, according to Ozigbo, its CEO. However, the DisCos say the issues are more nuanced.
Sunday Odutan, executive secretary, Association of Nigerian Electricity Distribution Companies (ANED), said that the minor tariff review, though commendable, placed upon them the obligation to settle debts in full even when they are still unable to get the government ministries and departments to pay for energy consumed.
BusinessDay Future of Energy series provides a forum for stakeholders to share ideas to move the sector forward and participants at this year’s programme said they have seen a need to collaborate more and find solutions together.
ISAAC ANYAOGU, STEPHEN ONYEKWELU & DIPO OLADEHINDE
