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Accessing the Performance of Nigeria’s On-Grid Power Sector

Accessing the Performance of Nigeria’s On-Grid Power Sector

Introduction

Since the Nigerian Power sector privatisation in 2013, the different stakeholders have carried on their duties in the sector as enshrined in the provisions of the Electric Power Sector Reform Act (EPSRA) 2005. Major players in the on-grid Nigerian Electricity Supply Industry (NESI) include generation, transmission, distribution, and regulation. Generation Companies (GenCos) across the country are responsible for producing electricity. The Transmission Company of Nigeria (TCN) handles wheeling the electricity to the Distribution Companies (DisCos) and international customers. The Distribution Companies (DisCos) retail electricity to local end-user consumers. The power of regulating the NESI rests with the Nigerian Electricity Regulatory Company (NERC), also called “the Commission”.

Background

Generation-

GenCos produce electricity from feedstocks such as water, gas, etc. This follows the principle that energy cannot be destroyed but can be converted from one form to another. In Nigeria, there are about 24 GenCos. Most of these GenCos have an agreement, called the Power Purchase Agreement (PPA), with the Nigerian Bulk Electricity Trading Plc (NBET). This agreement allows the NBET to offtake the electricity and sell it to the DisCos. Some of the power generation plants in Nigeria include Egbin, Transcorp, Azura, Shiroro, Olorunsogo, Sapele, Geregu, Kainji, Jebba, etc. Challenges experienced by GenCos include insufficient access to foreign exchange (Forex) to procure spare parts, gas shortages, stranded electricity generation, huge electricity debts by NBET, etc.

Transmission-

The TCN is responsible for transporting the electricity from the GenCos to the DisCos and international customers like Benin and Niger. The TCN is comprised of the Market Operator (MO), System Operator (SO), and Transmission Service Provider (TSP).

Distribution-

The DisCos are holders of distribution licences and own and operate distribution systems. DisCos are responsible for ensuring the connection of willing customers to their networks and carrying out activities such as installing and maintaining post-paid and pre-paid meters, billing customers, collecting electricity payments, etc. Therefore, engaging in the abovementioned activities by any person or entity without a distribution license is illegal and unlawful. There are 11 DisCos in Nigeria, namely: Abuja Electricity Distribution Company (AEDC), Benin Electricity Distribution Company (BEDC), Eko Electricity Distribution Company (EKEDC), Enugu Electricity Distribution Company (EEDC), Ibadan Electricity Distribution Company (IBEDC), Ikeja Electric (IE), Jos Electricity Distribution Company (JEDC), Kaduna Electricity Distribution Company (KAEDC), Kano Electricity Distribution Company (KEDC), Port Harcourt Electricity Distribution Company (PHEDC), and Yola Electricity Distribution Company (YEDC).

Read also: Jean-Marc Cordier joins NNPC Trading

Analysis

Since 2015, the Nigerian power sector has made significant strides and achievements despite numerous challenges. There have been significant increases in the generation capacities of the generating plants across the country as some power plants, such as Azura Power and Mabon Hydro, came live within the last seven years. Further, in 2016, the NBET initialled PPAs with 14 solar developers to generate about 1,000 MW of electricity into the national grid. However, none of the 14 projects has reached a financial close.

The TCN recorded a milestone achievement in March 2021 when there was a 30 per cent increase in the highest peak generation ever wheeled from 4,500 MW in February 2015 to 5,800 MW. To achieve this, the TCN has completed several abandoned projects and upgraded and repaired its vandalised transmission lines and facilities. However, we have experienced frequent national grid collapses, especially in 2021 and 2022.

Unlike the generation sub-sector, the DisCos have not performed so well, as not much has changed within the last seven years. Some of the challenges the DisCos face include high aggregate technical commercial & collection (ATC&C) losses, inability to meet revenue requirements, high customer apathy, huge Ministries Departments and Agencies (MDA) debts, dilapidated distribution infrastructure, equipment vandalism, and the huge metering gap. Whilst the DisCos have made significant progress in network growth, customer centricity and health and safety, most of them have not met the set targets in performance agreements with the Bureau of Public Enterprises (BPE) upon privatisation. Most DisCos have continued to remit below their minimum remittance obligations to the market. A testament to their abysmal performances is the recent takeover of AEDC, BEDC, IBEDC, KEDC, KAEDC and PHEDC by their lenders.

The Federal Government of Nigeria has had to intervene in the NESI liquidity crisis. The government approved and disbursed N1.3 Trillion (N701 Billion in 2017 and N600 Billion in 2019) Payment Assurance Facility (PAF) to shore up the monthly remittances from the DisCos to the GenCos and their gas suppliers. Prior to this time, the monthly remittances from the DisCos to NBET were less than 30 per cent.

On the regulatory side, NERC has produced and implemented several orders, regulations, and directives to improve service delivery in the country. Some of these include the Order on the Capping of Estimated Billing, The Multi-Year Tariff Order (MYTO) and Minimum Remittance Order, Service-Reflective Tariff, Meter Asset Providers (MAP), and National Mass Metering Programme (NMMP) Regulations. Some other regulations include the Mini-Grid Regulations, Distribution Company Franchising Guidelines, and Embedded Generation Regulations. Through the implementation of the Commission’s minimum remittance order, there has been a significant increase in payment discipline in the electricity market as remittances have improved.

Recommendations

Given that the distribution sub-sector has the most challenges amongst the players in the electricity value chain, it is pertinent that stakeholders collaborate to implement solutions in the sub-sector. Some solutions to improve DisCos’ performance include engaging in aggressive cash-drive activities, prioritising service delivery to Maximum Demand (MD) customers, and improving billing & collection efficiencies. In addition, the DisCos need to smart meter their transformers to curb vandalism and energy theft, monitor meters, train their staff to develop human capital, invest in network upgrades/rehabilitation, etc.

Conclusion

It is clear that amongst the players in the NESI, the performance of the DisCos has not improved, and they still have the same problems that they had pre-privatisation. This appraisal of the NESI has revealed that the performances of the DisCos have affected the entire value chain; hence, the issues affecting them cannot be ignored. There is a need for stakeholders across all sub-sectors of the NESI to explore recommendations to proffer long-lasting solutions to improve the performance of the DisCos. Improved performance in the distribution sub-sector would be a win-win for the entire electricity value chain.