• Tuesday, September 26, 2023
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Why generation is not the problem of the electric power sector

Why generation is not the problem of the electric power sector

In the drive towards the actualisation of a liberalised power sector in Nigeria, major policy directives were introduced by the Federal Government (the “FG”) to underscore the FG’s commitment to instituting a liberal, commercially viable and performance-driven electricity sector. Primary among these policies included the National Electric Power Policy, 2001 (“NEPP”) and the Nigerian National Energy Policy 2003 (“NEP”). The fundamental thrust of the NEPP was to expand the power sector in Nigeria through the injection of private investments under the instrumentality of the National Council on Privatisation (“NCP”).

The NCP set up an Electric Power Sector Reform Implementation Committee (“EPSRIC”) which defined the three (3) principal phases for achieving the reform goals of a reliable and sufficient electricity supply system. The first step aimed at the privatisation of the vertically-integrated behemoth, the National Electric Power Authority (“NEPA”) at that time, was the introduction of Independent Power Producers (“IPPs”) as well as private emergency power producers.

The second step focused on increasing the competition between market participants, reduction of subsidies (i.e. payment of full fuel prices) and sale of excess power to electricity distribution companies (“Discos”). During the last phase, the market and competition would even be more intensified by full-cost pricing of supply, liberalised selection of suppliers, beyond the local Discos, by larger customers and fully competitive market trading.

The NEPP is considered the harbinger of the reformed power sector in Nigeria as we know it today. The general aims and objectives of the reforms as gleaned from the NEPP encompass- the establishment of an independent regulator to oversee the affairs of the sector; the promotion of competition, transparency and efficiency within the Nigerian electricity supply industry; increasing private sector investments in the electric power sector; meeting current and future electricity demand of the populace; and the establishment of new market structure/rules and trading arrangement(s).

The NEPP also defined the three (3) principal phases for achieving the reform goal of a reliable, dependable and sufficient energy system. The provisions of the NEPP were largely integrated into the Electric Power Sector Reform Act No. 6 of 2005 (the “EPSRA”). Despite the reforms and the privatization of the electric power sector, the average Nigerian does not believe that the sector has improved substantially. There have been blaming and counter-blames across the value chain from generation down to distribution. I am, however, of the view that generation is not the problem of the sector.

Some may argue that generation is the problem in the electric power sector in Nigeria. That is, however, in my view, a wrong diagnosis. The problems are from the transmission & distribution segments. If we solve the issues bedevilling those two, then generation will be great.

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In simple terms, generation companies (“Gencos”) generate electric power. But to generate, they will need fuel, among other things, and the main or primary fuel for electric power generation in Nigeria at the current time is gas. Hence, Gencos will need to pay for gas, generate electricity, pay to connect to the transmission network, and have the electricity generated, evacuated and dispatched. The transmission services provider which is the transmission company of Nigeria (TCN) then wheels the electricity generated to the Discos.

In many cases, the TCN cannot take all the available power generated by the Gencos (wheeling deficit), because of poor infrastructure occasioned by long-term neglect etc. There have also been issues of poor maintenance, poor planning and execution by the TCN, lack of the right personnel, and adequate training among others. Consequently, the Regulator – Nigerian Electricity Regulatory Commission (NERC) issued the guidelines for the implementation of economic merit order dispatch and other related matters 2020 (the “Guideline”) which seeks to regulate and sanction the TCN and the Discos over wheeling deficit and load rejection (which entails the right of Discos to take or reject power supplied to them by the TCN). The query for the Guidelines is whether it is effective or efficiently implemented.

More importantly, the Discos who are supposed to send the power received to the last mile – final consumers – and collect money (tariffs) don’t collect all the tariffs. At best, – they collect between fifty per cent (50%) to sixty per cent (60%) of the tariffs for power supplied to final consumers. In some cases, they collect even less. The Discos also lose some of the power received from the TCN and those losses are referred to as the ATC&C losses.

The Discos are supposed to collect funds for the whole industry. Those funds are to settle everyone across the value chain. If the Discos then collect little, together with the fact that they lose some of the power, then the funds available will be insufficient to settle the payments due to the TCN, Nigerian Bulk Electricity Trading Plc (NBET), and the Gencos.

If Gencos get only thirty per cent (30%) of their tariffs, they can’t pay for gas or meet their other obligations. No gas means, no generation, and no supply through TCN/ NBET and the Discos. It means the Gencos can’t raise funds and are thus not bankable!
Some Simple Solutions to the Endemic Problems

Discos should be forced to invest in their networks & substantially reduce ATC&C. Sub-franchising should also be forced as their franchise areas are very large in many cases. Metering is also a critical part top solving the problem. Continuing overall improvement and expansion of the grid.

Decentralisation, which is promoting energy federalism to reduce pressure on the grid leading to a robust energy mix is also a part of the solution. The Siemens deal would be key to improving infrastructure across distribution and transmission. Proper grid planning, scheduling and the right personnel are also fundamental and need to be done.

Nothing really needs to be done around generation. If we resolve these other aspects, the generation aspect will thrive. I also think casting aspersions on the owners of generation companies smacks of ignorance of the real problems

If other aspects of the value chain- transmission and distribution are great, generation projects will be bankable, will raise more than enough financing, will be able to pay for gas, maintain their facilities and supply power efficiently.

Ayodele Oni is a solicitor who specializes in international energy (oil, gas & power) investment law and policy.