Exploring the prospects for embedded generation in Nigeria

Introduction

It is common knowledge that Nigeria’s overall quality and quantity of electricity supply are abysmal and have remained so over the years. Nigeria’s residential, commercial, and industrial entities have continually grappled with insufficient service delivery from their respective electricity Distribution Companies (DisCos). It is no wonder that the Nigerian Electricity Regulatory Commission (NERC) has introduced several regulations, including the Nigerian Electricity Regulatory Commission Regulations for Embedded Generation 2012, to improve the quality of service delivery to electricity customers.

Background

According to the Transmission Company of Nigeria (TCN) Operational Report for 19th October 2022, the national peak demand for Nigeria is 19,798MW. Consequently, the installed capacity of the electricity-generating plants in Nigeria is about 13,014MW. However, most of these electricity-generating plants have stranded power which cannot be evacuated due to the TCN’s limited wheeling capacity of 8,100MW. Currently, the highest maximum daily energy attained is about 4,977MW, causing a differential of about 3,000MW, which is presently unutilized in the on-grid electricity market and unavailable for distribution to customers by the DisCos. This has hampered the DisCos’ ability to deliver quality electricity service to customers in unserved and underserved areas across Nigeria. Due to this, DisCos have continually lost their Maximum Demand (MD) customers, who contribute a huge share to their monthly revenue collections, thereby affecting their revenue requirements and their ability to meet their monthly market obligations to the Nigerian Bulk Electricity Trading Plc (NBET), and the Market Operator (MO).

On 1st November 2020, NERC introduced the Service Based Tariff (SBT) regime to improve service delivery to end-user customers. The SBT regime aims to ensure that the electricity tariffs paid by end-user customers reflect the services delivered by the DisCos. This is calculated based on the number of hours of electricity supply per day. Hence, the DisCos must meet their service levels commitments to comply with the Commission’s directives. To meet these service level commitments, the DisCos have to procure additional electricity from other sources, such as embedded generation, also known as distributed generation.

The NERC Regulations for Embedded Generation 2012 define an embedded generation as the generation of electricity that is directly connected to and evacuated through a distribution system. This distribution system is connected to a transmission network operated by a System Operations Licensee. In the regulations, embedded generation is classified into (3) categories, namely:

• The small size units having a nameplate rating greater than 1MW and not more than 6MW with an 11kV Medium Distribution Voltage connection level;

• The large-size units having a nameplate rating greater than 6MW and not more than 20MW with a 33kV Medium Distribution Voltage connection level; and

• The units greater than 20MW with a 33kV Medium Distribution Voltage for every 20MW being evacuated at the connection level.

It is no secret that the DisCos are plagued with numerous challenges, including the lack of funds, inability to meet their revenue requirements, high aggregate technical commercial & collection (ATC&C) losses, and dilapidated distribution infrastructure, equipment vandalism, huge metering gaps, etc. However, what are the possibilities for embedded generation enabling DisCos to improve electricity service delivery?

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The Justification for Embedded Generation

Three countries with widespread deployment and integration of embedded generation to meet their energy needs are Sweden, Germany, and Denmark. In these countries, the early implementation of subsidies and support schemes for electricity generation from renewable energy sources contributed to the successful deployment of embedded generation. As a result, most of the installed generation capacities in these countries are allocated to embedded generation from renewable energy sources such as wind and solar photovoltaic.

Even though in Nigeria, the NERC Regulations for Embedded Generation were published in 2012, unfortunately, the desired objective of the regulations has not been actualized. This is because there has been slow progress in the deployment and integration of embedded generation across the country. As a result, very few DisCos have an embedded generation component within their distribution network systems. The predictors influencing the DisCos’ deployment of embedded generation include dilapidated distribution infrastructure; huge investment costs; negative balance sheets of the DisCos, and fears about their ability to offtake the energy, as well as pay for the bulk energy at point load given their minimum remittance obligations to the market.

The injection of electricity generated from embedded generation into the DisCos’ network will assist the DisCos in providing sustainable quality and quantity of electricity to their teeming customers in underserved and unserved areas. This would also increase their monthly revenues to meet market obligations to NBET and MO, as the generated electricity would be available to high-paying end-user customers and areas such as large estates, industries, factories, and large commercial enterprises. This way, they would be able to meet their service commitment levels of a minimum of 20 hours availability for Band A, a minimum of 16 hours availability for Band B, and a minimum of 12 hours availability for Band C under the SBT regime. Further, the DisCos would benefit from the massive investments in improving and rehabilitating their existing dilapidated distribution infrastructure. In addition, there is a guarantee of energy security as there will be a supply of electricity to the end-user customers even in the event of the national grid system collapsing, which is currently a norm in the Nigerian Electricity Supply Industry (NESI). Moreover, fewer MD customers would consider exiting from the DisCos’ network to either be captive (self-generating) customers or to attain eligible customer status. This would decrease their ATC&C losses and the nation’s overall carbon footprint from electricity generation with fossil fuels.

Conclusion

The merits of the integration and deployment of embedded generation cannot be overemphasized. However, there is a need to explore the factors inhibiting the rapid deployment of embedded generation by private developers and DisCos across the country and engage stakeholders to find viable lasting solutions to promote the adoption of embedded generation in Nigeria. It is envisaged that there would be an increase in embedded generation development if the developers can be assured that the payment for electricity supplied to the DisCos through embedded generation will be a first-line charge or guarantees, such as bank guarantees, letters of credits, etc., can be provided to the developers by the DisCos. Every business aims to profit, so the return on investment (ROI) must be assured.