• Monday, July 22, 2024
businessday logo


For 30 years, Lagos has been wasting N350m daily on generators, validates need for thriving electricity market

How off-grid electricity is creating business opportunities

Government and private offices, as well as residences in Lagos, spend an astonishing seven hundred and fifty million Naira daily to generate electricity, mostly through generators but experts say if any form of grid power were available on a twenty-four-hour basis, it will cost the city only four hundred million each day.

Energy economists, electricity sector players and other experts that spoke to BusinessDay say they believe the city has been wasting about N350 million daily on this wasteful, inefficient and environmentally hazardous self-generation of power and this has worsened over the last 30 years.

The waste amounts to N126bn yearly and more than N3.6trn over the 30 years period and it supports the theory that Lagos, the country’s commercial capital can sustain a thriving but well-ordered electricity market where all who need it can have round the clock power supply that is clean and at about half what Lagos currently spend.

The sum wasted daily can be better used by residents to fund children education, buy own plot of land or build new homes while the government can do a lot more with what it currently wastes in self-generation of electricity.

READ ALSO: For 30 years, Lagos has been wasting N350m daily on generators, validates need for thriving electricity market

A Dalberg report says there are about 22 million small power generators in Nigeria and it is believed that well over 60% of that is located in Lagos where generator usage accounts for over 6.1m metric tonnes of C02 emission yearly according to data from the World Bank.

The diesel usage data is mind-boggling. In 2019, data from PPPRA, the regulator suggest that more than one billion litres of diesel was sold directly via B-B channels and of this total about 80% was guzzled up by power generators.

Add this to another 270 million litres sold at gas stations and of which under half is accounted for by generator use.

That is about N220bn which can be saved in current import cost for petroleum products annually and it could taking out up to 1,000 diesel trucks every day from the streets of Lagos where the population has grown from under 5 million in 10980 to near 21 million according to government estimates.

Several studies including some by the Lagos state government have in the past attempted to dice the huge waste associated with generator use.

One survey in 2014 showed that 260 primary health care centres in the state had a peak demand of 2.8MW and served by a total of 279 generators in 185 locations in Lagos of approximately eight million households.

A government survey of selected highbrow areas of Lagos revealed that businesses and residents in Magodo alone spend on average N2.6m on diesel daily, those in Dolphin Estate spend N3.5m, Lekki N12.3m daily on diesel. Their counterparts in Agindigbi spend N16.8m daily, Ikeja GRA N10.6m. Generator usage swallows N16.99m daily in Oba Akran. In Iponri in Surulere alone, a government count showed there are over 1,627 generators.

This spend has risen over the years and so has energy demand in the state. Demand is expected to reach 29,217MW by 2030 but supply has scarcely improved.

There are over 8.2 million households in the state today and total energy demand is estimated to be about 17,700MW, outstripping national supply five times.

According to the Manufacturers Association of Nigeria (MAN), power generation spend represents 40 percent of the cost of doing business in Lagos.

“It is feasible for Lagos to actually provide its own power,” says Ayodele Oni, energy lawyer and partner at Bloomfield Law firm. “But the Discos need to upgrade infrastructure. With more mini-grids and the embedded generation regulations improved it is workable.”

Oni said that Lagos State needs to work with the regulator, the Nigerian Electricity Regulatory Commission (NERC) to achieve this.

The Lagos state government has always favoured the concept of a government anchored private sector initiative that guarantees 24 hours power for the state.

In 2017, Akinwunmi Ambode, former governor of Lagos state signed a $3billion agreement with investors to deliver 3,000MW of power over the course of seven years.

Tagged the “Lagos State Embedded Power Programme,” the first phase was expected to deliver 520MW additional power, while another 1,070MW was to be delivered by the fourth quarter of 2018. Under that plan, the balance of 1,410MW was to have been completed by 2022.

According to the agreement, the state government was to provide three months rolling bank guarantees to support the Power purchase Agreements (PPAs), which will be signed between the distribution companies and the embedded power providers (EPPs), to enhance bankability of the projects.

In the agreement, the state government was to secure gas supply for the project through a guarantee to gas suppliers using its Ibile Oil & Gas company.

The project was planned to be privately funded with an expected transaction volume of about N4trillion which would have been self-liquidating, employing a series of contingent financial instruments.

In the arrangement, prospective EPPs will generate and inject off-grid power for distribution through the network of Eko and Ikeja DisCos.

Huge investments were anticipated in upgrading distribution infrastructure of the DisCos such as 33/11kv, step down sub-stations, distribution transformers and feeders.

However, politics appeared to have scuttled the process. Olalere Odusote, the current commissioner for energy and mineral resources told BusinessDay in an interview that the government was willing to continue with some of the embedded projects.

“We are continuing with the embedded projects of the previous administration, we don’t believe in starting things all over again, if it makes sense, if the timing is right, we continue with them,” said Odusote.

But this will be harder this time around as political risks from the failed previous negotiations will cloud the project. The state also is not in the same financial situation as it was a few years ago.

“Lagos can’t bankroll such an arrangement now. The option will be to attract private sector across the two Discos and do a hybrid of different options,” said Oni.