• Monday, May 27, 2024
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A case for decentralisation of power

Cost-reflective tariff

By Ifeanyi Ukwuoma

I intend to write a comprehensive 3-part series delving into the intricate dynamics of Nigeria’s power sector.

In Part 1, I staunchly advocate that the existing operational framework of on-grid and centralised power generation and transmission serves as the primary bottleneck restraining the development of Nigeria’s power sector. This assertion is not made lightly but is rather grounded in a deep analysis of the systemic issues plaguing the nation’s electricity infrastructure. From frequent grid collapses to erratic power output, the evidence overwhelmingly points to a centralised system struggling to meet the demands of a rapidly growing population.

Read also: How Nigerians can survive new electricity tariff hike

In Part II of this series, we will delve into the nature of cost-reflective tariffs. Recently, the Nigerian Electricity Regulatory Authority (NERC) made headlines by announcing a substantial 300 percent upward review of electricity costs for Band A customers. Rates skyrocketed from N68 per kilowatt-hour to as high as N225 per kilowatt-hour. NERC attributed this adjustment to the concept of “cost-reflective tariff,” indicating a significant shift in the pricing structure.

Part III will shift its focus to Lagos State. As the economic nerve centre of Nigeria, Lagos grapples with acute electricity shortages despite being home to substantial generating capacity. The irony of Lagos generating more power than it receives from the grid underscores the inefficiency inherent in Nigeria’s centralised electricity market. By dissecting the intricacies of Lagos’ energy landscape, including the operations of its resident electricity distribution companies, Eko and Ikeja, we can elucidate the systemic flaws hindering efficient power distribution.

For those unacquainted with my background, I am both an energy policy analyst and consultant. As the Founder and CEO of Powerful Technology Limited, my endeavours have been dedicated to pioneering innovative solutions to Nigeria’s energy deficit, particularly through energy-driven financing mechanisms. This first-hand experience provides me with unique insights into the challenges and opportunities present in Nigeria’s power sector.

There are multiple reasons for certain occurrences, but often, it comes down to one principal causative factor. Much can be said about the reasons why electricity supply is not affordable and reliable in Nigeria, but as I will argue, there is a definitive single reason behind it. This reason might also be why Aba has nearly 24 hours of electricity and could serve as a model for the Nigerian power sector.

The crux of the matter lies in Nigeria’s reliance on a single grid-connected generating and transmission system. This centralised approach mandates that all electricity generated across the country must traverse the national grid before reaching its intended destinations. For instance, the energy generated by the 1,320MW Egbin Power Plc in Lagos State must first funnel into the national grid, with only a portion subsequently channelled back into Lagos. Consequently, Lagos, like the rest of the country, relies heavily on the national grid for its electricity needs, a reliance that often falls short of meeting demand.

This imbalance becomes glaringly evident when juxtaposed against Lagos’s substantial power generation capacity relative to its grid allocation. The irony is palpable as Lagos generates a surplus of 1,320MW while receiving a mere 1,000MW from the national grid. Such inefficiencies underscore the urgent need for a decentralisation in Nigeria’s electricity market structure.

Read also: Time to activate green energy and the Electricity Act 2023 following the electricity tariff hike

Let’s discuss transmission. Electricity transmission in Nigeria is managed by the Transmission Company of Nigeria (TCN), serving as a System Operator. TCN manages the movement of energy across the grid in accordance with the Grid Code. All power, distribution, and substations are interconnected by a transmission network known as the national grid. The entire electricity generated nationwide is pooled into the National Control Centre in Osogbo, from where it is distributed to all parts of Nigeria.

The irony is now clear. We often discuss the devolution of power from the central government to its federating units in political discussions in Nigeria. This is precisely what Nigeria needs in its power sector. However, the imperative for decentralisation cannot be overstated, particularly in the context of empowering federating units such as states to generate their own electricity as a viable alternative to the current centralised model. Yet, realising this vision necessitates a concerted effort to establish an enabling constitutional and legal framework, coupled with an autonomous regulatory body capable of integrating decentralised generation resources into a bankable commercial framework.

Join me in Part II as I delve into the nature of cost reflective tariffs.

Ifeanyi Ukwuoma is an Energy consultant and CEO of Powerfull Technology Limited; a solar financing company based in Lagos, Nigeria.