RESOLVING THE POWER SECTOR CONUNDRUM

RESOLVING THE POWER SECTOR CONUNDRUM

SYNOPSIS

One of the greatest impediments to the country realizing its full economic and social potential is the current comatose state of the power sector. There is currently a huge gap between demand and supply of electricity, made worse by the fact that less than a third of the installed grid generation capacity is wheeled to consumers, necessitating a reliance on captive sources and millions of micro plants scattered all over the country. Power Africa, the US Government initiative for the sector in Africa estimates that total installed capacity is about 16.3GW, which appears to be within range of the figure of 18GW given by the Power Minister recently in an interview. The claims also corroborated a study by the international consulting firm KPMG, that Nigeria currently generates about 8GW of energy in total. It is however important to note that this figure includes grid, embedded and captive sources and presumably excludes the ubiquitous microplants, which would be impossible to estimate.  Of the total installed capacity of 18GW, about 77% or 14GW is from the generating companies with the balance of approximately 4GW from embedded and captive sources. Though available grid generation is often estimated at 8GW, the wheeling capacity is estimated at 5GW, representing about 36% of the installed capacity of the generation companies (Gencos) . However, only an average of about 4GW was wheeled out in 2021 according to the Nationan Electricity Regulatory Commission (NERC). 

It is pertinent to note that in credit to the present administration, the available generation capacity increased by over 93% in the 7 years or so to October 2020, from 4,214MW to 8,145MW, quoting figures by KPMG from the Association of Power Generation Companies, also buttressed by the Minister of Power. No doubt most of this increase rides on completion of projects begun by previous administrations but it should by no means detract from the fact that they were seen through by this administration. It is however of little comfort to the consumer that he has hardly felt the impact of this increase in  power supply capacity for a multiplicity of reasons, some of which would be discussed further.  This state of affairs has been mainly due to the inadequacy of the transmission system to evacuate all the power that can be produced and the insolvency of the electricity value chain.

The Power Sector is one where there has been a lot of work over the years by many dedicated professionals and policy experts.  So, there is a surfeit of well-articulated ideas and documents on what needs to be done. It would be a great disservice to denigrate the enormous sacrifices of those who have spent almost their lifetimes in this sector to; even as adequate and constant power supply continues to elude us. Unfortunately, those genuine efforts of some have been counteracted also by dysfunctional behavior over the years: from the very highest level to the most basic, leading us to the present status of epileptic power supply. Basic human factors such as greed and sentiments have often overriden overarching national interest. 

Thus this write-up can only be a broad overview of the sector and its recommendations are in no way meant to demean those efforts to date to even bring the sector to where it is at the moment. It calls for the need to have a national focus on getting to 25GW of power wheeling capacity by 2030. It also calls for a review of the extant laws and regulations to make private sector participation easier in order to meet the yawning needs for power in the economy and how best we can ramp up our generation capacity of 14GW by well over 100% in that time frame by focusing on quick wins. The solution is not to be found in moral admonitions and lengthy sermons but in designing options that place emphasis on the power of the market to minimize, if not eliminate the human factors holding back the sector. This paper makes a case for two novel interventions in the sector: energy trading companies and the accompanying exchange(s) and for the introduction of a certification process by the Council of Registered Engineers (COREN) for electrical engineering professionals to fill in the lower levels of regulatory approvals that is recommended to be vacated by the regulatory commission. It also supports the imperative for a national smart metering company as a new addition to the electricity value chain.

THE STATISTICS

Total demand estimates understandably vary, based on the different methods used by various organisations. For example, Energy Commission of Nigeria (ECN) had predicted 51GW on-grid demand by 2020 in a 2013 study, which is a far cry from the actual reality of our current demand. The methodology of the Engineering firm Tractebel in a study carried out in 2007 which forecasted 11GW in 2020 appears to give a figure closer to our current reality. This same study suggests 24GW for 2030 which appears to be a more realistic estimate but which might not have adequately considered the suppressed demand. Meanwhile, government in its plans had targeted a generation capacity of 45GW by 2020 which when compared with the less that 14GW achieved was more wishful thinking than based on proper planning or the ability to deliver such ambitious projections. Interestingly, the World Bank predicts a generation capacity of 63GW for 2035, to be able to satisfy the projected demand as at the year, based on the relationship between economic indices and power demand. This is over four times the current capacity, a very tall order indeed even if thirteen years away! If World Bank data that suggests that just over 55% of the population have access to grid electricity is right, then there is a very big problem in terms of what we still need to do as a country as it would suggest that there is considerable suppressed demand. With the data suggesting that this figure is weighed disproportionately against rural areas, it would imply an intensification of efforts to develop rural off grid renewable energy solutions. However, this low average access does not appear to be supported by empirical evidence at first glance, especially for the southern part of the country. By way of comparative data, Afghanistan stands at 97.7%, Egypt at 100% and Burundi at 11.7%. 

It is quite important at this stage to rehash some of the figures to avoid confusion. Total daily electricity produced from all sources: grid, embedded and captive (excluding the microplants) is 8GW, installed capacity from the generating companies is about 14GW. Available grid generating capacity is 8GW but only a maximum of 5GW can be wheeled, 62% of available capacity, with this figure being presumably before transmission losses. Current peak demand from the grid is around 8.25GW (according to GET. Invest, a European programme that mobilises investments in renewable energy in developing countries). This indicates that were the maximum available capacity efficiently utilized and increased, we should not really have a generation issue, but we do for a variety of reasons. To meet on grid demand estimated at 15GW in 2025 by GET. Invest, the present installed capacity would not be able to cope and the Siemens project, discussed further in this write-up, provides an appropriate road-map towards achieving the necessary increase in generation and transmission capacity. The imperatives of increasing our generation capacity, strengthening the transmission grid and dealing with the front-end issues call for urgency. It is fair to say that much work has been done on this by a lot of well-meaning Nigerians and foreigners and there are and have been a number of commendable initiatives. To put these initiatives in context and make further suggestions is to understand the stakeholders and the issues. No doubt, we have a crisis now, even as installed generation capacity is higher than grid demand. By 2025 and after, demand would be higher than installed grid generating capacity and this write-up is a clarion call for an emergency to be declared now and not even next year in respect of the power sector. If we miss to take the concerted efforts by the beginning of 2023, if we have a crisis now, we will have a mega crisis from 2025. The time for action is now and not too soon too. The problem cannot and will not be solved in one fell swoop but by a series of well-considered policy and action steps. An indication of how far we need to go can be seen in the comparative analysis of the electric power consumption per capita in Egypt, South Africa and Nigeria respectively at 1,592 KWh, 4,184 KWh and 142 KWh, according to World Bank figures for 2014, the latest year available. The relative proportions are unlikely to have changed much since then and probably would be worse comparatively to Egypt that has taken more decisive steps to address its electricity issues.   

THE POWER ECOSYSTEM

The ecosystem can be divided broadly into the consumers, public institutions, market operators, legal, regulatory and government environment, as well as financiers including foreign development finance institutions. Consumers can be broadly divided into domestic currently constituting about 60% of on grid demand, public sector 15% with Industrial customers claiming the balance of 25%. The government environment includes the Federal Ministry of power (FMP), Federal Ministry of Water Resources (FMWR) which is responsible for the development of hydropower projects in conjunction with FMP, Power Holding Company of Nigeria (PHCN), Niger Delta Power Holding Company (NDPHC), the recently formed Federal Government of Nigeria Power Company (FGNPC) and the Energy Commission of Nigeria (ECN) with responsibility  for research, data gathering,  coordination and promotion of the diversification of energy resources. ECN has cross-ministerial composition to aid its task of coordination and strategic planning. The National Power Training Institute (NPTI) provides training for workers in the power sector, the Nigerian Electricity Management Services Agency (NEMSA) enforces the industry’s technical standards across the value chain, including metering and is responsible for ensuring compliance with safety measures. The Rural Electrification Agency is tasked with the promotion of rural electrification, the coordination of rural electrification programs and the administration of the Rural Electrification Fund (REF). The REF funds renewable rural electrification projects through grants. The Bureau of Public Enterprises (BPE) is responsible for the privatization of federal government enterprises (GoEs) across sectors and currently oversees the ownership rights over the Federal Government holdings in the privatized companies. The industry regulator is Nigerian Electricity Regulatory Commission (NERC), formed in 2005 and regulates the generation, transmission, distribution and sales of electricity. 

Also, given that over 80% of our installed large power plants are thermal, the role of NNPC Limited (formerly Nigerian National Petroleum Corporation) in the sector is very critical.  The Gas Aggregation Company of Nigeria (GACN), whose shareholders are NNPC, Shell, Mobil, Total and Pan Ocean is the strategic aggregator and acts as an intermediary between suppliers and buyers of natural gas in the Nigerian domestic market. The Nigerian Gas Infrastructure Company Limited is a subsidiary of NNPC responsible for the transportation of gas through its pipelines. The World Bank has been a valuable financial partner in the gas sector through loans, grants and capacity development. The World Bank, in conjunction with other development partners funded the Transmission Rehabilitation and Expansion Program (TREP) which would be discussed further in this article.

The market operators consist of the generating companies (GenCos), the transmission company (TransCo) and the distribution companies (DisCos). It also includes the Nigerian Bulk Electricity Trading Company (NBET), responsible for bulk purchase of electricity and ancillary services from GenCos and its resale to DisCos.  For this purpose, it has a trading license, and it is wholly-owned by the government through the Bureau of Public Enterprises and the Federal Ministry of Finance. It has Power Purchase Agreements with the GenCos and Vesting Agreements with the eleven DisCos. The Electric Power Reform Act (EPRA) was signed into law in 2005 enabling the private sector to participate in the electricity value chain. As a result of this, the government unbundled the legacy Power Holding Company of Nigeria (PHCN) into six GenCos and eleven DisCos. 

FIGURE 1

Source GIZ Report on the Nigerian Energy Sector (2015)

The Generating Companies (GenCos)

The generation subsector consists of thirty two plants with a total installed capacity of about 14GW, all which are not necessarily connected to the grid. The companies can be broadly classified into four groups. The first group are the six companies created as a result of the unbundling of PHCN, which includes Afam Power Plc, Sapele Power Plc, Egbin Power Plc, Ughelli Power Plc, Kainji Power Plant and Shiroro Power Plc. To this first group must be added Jebba Power Plant whose ownership has remained with the Federal Government directly. Together with Geregu 1, Omotosho Gas and Olorunsogo Gas Power Plant privatized almost immediately on completion as the plants came on board at the commencement of the privatization exercise, they are referred to as the privatized plants and shown as Privatised GenCos in Fig 2, indicating location, privatization status, type of plant, source of data and whether grid connected or not. To ramp up generating capacity, the federal government embarked upon the National Integrated Power Project (NIPP) to build ten gas-based power plants to add significant generation capability, constituting the second group. The generation projects were accompanied by supporting transmission, distribution and gas pipelines. It was conceived in 2004 to be funded from the country’s Excess Crude Account (ECA) as at the time and the Niger Delta Power Holding Company Limited was incorporated to manage and eventually divest the holdings. The ten plants are; Alaoji, Benin, Calabar, Egbema, Gbarain, Geregu, Olorunshogo, Omotosho, Omoku and Sapele plants with a combined capacity of about 5GW. These plants are indicated in Fig 3. The third group of GenCos, shown as Fig 4, are the Independent Power Producers (IPP) with a combined capacity of 2.7GW. They were conceived as private sector owned and operated enterprises though some are owned by State Governments mainly Rivers and Abia States. Those owned by the Rivers State Government (541 MW) were privatized to First Independent Power Limited (FIPL), a subsidiary of Sahara Group but the exercise has been accompanied by significant dispute and drama between the current State Government and the company. The fourth  group  are the new power plants which for now only has Phase 1 of the Zungeru Power Plant shown as Fig 5 and has been indicated separately to accommodate subsequent updating of this review  for the upcoming power plants, some of which are already completed are shown as Table 1. In Figure 6, the current total split between thermal and hydro installed capacities is indicated graphically.

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE 1: UPCOMING POWER PLANTS IN MW
Power plant	Capacity (MW)	Location	Type	Status
Zungeru Phases II-1V	525	Niger	Hydro	Ready for Commissioning
Gurara	30	Kaduna	Hydro	Completed
Dadin Kowa	40	Gombe	Hydro	Completed
Kashimbila	40	Taraba	Hydro	Completed
Kudenda	215	Kaduna	Thermal	80 % Completed
Okpai Phase2	480	Delta	Thermal	Under Construction
Itobe(1-IV)	1200	Kogi	Thermal (Coal Fired)	Stalled
Gurara II	360	Kaduna	Hydro	EPC Contract signed
Mambilla	3050	Adamawa	Hydro	Contractual Dispute
Qua Iboe	540	Akwa Ibom	Thermal	Stalled
Total	6480
Completed	635

 

Broadly, generating plants can be on-grid, embedded, off-grid and captive. Licenses are required for the first three options whilst a Permit is required for the fourth. In all cases, only generation capacity exceeding 1 MW and distribution capacity above 100 KW need require a license or permit as may be applicable and where distribution is less than 100 KW, a simple registration may suffice. Captive power refers to self-generated and consumed power, either business or domestic and thus not evacuated to the national grid or distribution grid. Off-grid generation requires external off-takers and may thus require a distribution license. Power generated by means of embedded distribution typically uses the distribution grid of the relevant DisCo to evacuate power and on-grid licenses are required for all grid connected plants. An attempt is made below in Table 2 to capture the current approval regimen for possible types of generation using information largely from NERC. 

TABLE 2: CURRENT APPROVAL REGIMEN

TYPE	FEATURES	REGULATION
Captive Generation	Off-Grid. Permit required from NERC if greater than 1MW.	NERC Captive Power Generation Regulation
Embedded Generation	Power sold directly to DisCo through bilateral contract. License required if greater than 1MW.	NERC Regulation on Embedded Generation.
IPP Off-grid	Power is sold directly to commercial or residential customers through bilateral contract and may require investment in distribution infrastructure. License from NERC is required.
IPP On-grid	Requires PPA with NBET. License from NERC is required	NERC Generation Procurement Regulations
Embedded Independent Electricity Distribution Network (IEDN)	For areas where there are no distribution networks. Will connect to an existing DisCo and may have ringfenced customers.
Rural Off-grid IEDN	Isolated IEDN in rural areas not connected to a licensed distribution or transmission network, situated over 10kms from the boundaries of an urban area with less than 20,000 inhabitants. Will require to purchase power from a generation company and can seek support from the Rural Electrification Fund (REF). Requires license from NERC.
Urban Off-grid IEDN	IEDN in an urban area not connected to any licensed transmission network. Requires license from NERC.
Isolated Mini-Grid (in unserved areas).	A mini-grid is expected to have a generator in its own network. This may be owned by the mini-grid operator or a third party.   ->100KW of distributed power and up to 1MW of Generation Capacity. Permit required. -Up to 100KW of distributed power. Either apply for a permit or by registration using the prescribed forms.	NERC Regulations for Mini-grids 2016
Interconnected Mini-Grid	This refers to a mini-grid connected to a licensed distribution network in underserved areas. It requires a tripartite contract between the mini-grid operator, the distribution licensee and the connected community. The contract requires approval by the Commission.	NERC Regulations for Mini-grids 2016.

 

 

 

The Transmission Company (TransCo)

The Transmission Company of Nigeria (TCN) remains a government owned entity and is responsible for the operation, expansion and upgrading of the transmission network for efficient and effective wheeling of generated power. It has the mandate to create adequate network redundancies to ensure at least 99.9% reliability and reduce transmission losses to less than 5%. This transmission losses are currently significantly higher than this benchmark. 

It is structured into three major sectors; Provision of Transmission Services, System Operations services and Market Operation services. As provider of transmission services it oversees the development and maintenance of the transmission infrastructure, evaluates and accepts grid connections, ensures metering at all connections. It also obtains necessary information from users of the network to perform adequate planning operations and development of the transmission network. The three major components and how it relates to the value chain are shown further in Figure 7. As system operator (SO), it dispatches generated units in accordance with the grid code, handles emergencies and restorations, coordinates generation and transmission outages, supervises compliance with and enforces the Grid Code and Market rules amongst other system operation functions. Under the Electricity Reform Act of 2005, it is envisaged that the SO will devolve into an independent body separate from the TCN. The Market Operator is responsible for the administration of the market and the implementation of market rules. The transmission lines and generators are interconnected in a common grid and operates 330 KV and 132 KV configurations as shown further in Figure 8.

FIGURE 7 COMPONENTS OF THE TRANSMISSION SYSTEM

 

 

 

FIGURE 8: GRAPHICAL REPRESENTATION OF THE TRANSMISSION LINES

Source TCN

The Distribution Companies (DisCos)

There are eleven DisCos, and the distribution is better shown by the map below in Figure 9. The Federal Government retained 40% shareholding in all the DisCos after the privatization exercise. The DisCos became operational in 2013, at least for the major ones. The distribution system is composed of 33KV and 11 KV lines, medium and low voltages respectively and comprises of over 24,000kms as at 2010 according to NERC, a figure that would have increased tremendously from then. The DisCos resell power vide Vesting Contract with NBET, the bulk trader. 

 

FIGURE 9: GEOGRAPHICAL DISTRIBUTION OF THE DisCos

 

Also worthy of mention in the distribution chain are the Meter Asset Providers (MAPS), which are companies certified by NERC as manufacturers, suppliers, vendors or installers of electric energy meters and/or metering systems and are separate from the DisCos.

POLICY FRAMEWORK

In terms of the policy framework, the governing law is the National Power Sector Reform Act of (ESPRA) of 2005. The act was a consequence of the National Electric Power Policy (NEPP), adopted in 2001. It made provision for the unbundling of the electricity utility both vertically and horizontally and set out the legal and regulatory framework for the sector. It resulted in the transfer of the assets and liabilities of the previous utility, National Electric Power Authority (NEPA) into a transitional company, Power Holding Company of Nigeria (PHCN), which kicked off the privatization process. The Road Map for Power Sector Reform was produced in 2010 with update in 2013 and it finetuned plans and strategies to finalise the drive to complete the power sector reform and setting the country on the path to producing clean and efficient energy at competitive rates. This document is a significant document that had the requisite broad stakeholder consensus. 

The Multi-Year-Tarrif-Order (MYTO) is a tariff model for incentive-based regulation that seeks to reward performance above certain benchmarks, reduce losses and lead to cost recovery and improved performance standards from all industry operators in the Nigerian Electricity Supply Industry (NESI). It sets the feed-in tariff for the following categories of generation; new entrant gas plant, new entrant coal fired plants, small hydropower plants, land mounted wind power plants and solar power plants. It is set up to cover a total of 15 years going forward and is reviewed annually in light of changes in a limited number of parameters such as inflation and gas prices, with major reviews every 5 years when all of the inputs are reviewed with stakeholders. 

The Nigerian Electricity market is governed by three main codes, the Grid Code for the transmission system, the Distribution Code and the Metering Code. The Grid Code stipulates the conditions for the electricity transmission system in Nigeria. The code is the reference document for the day-to-day operating procedures and principles governing the development, maintenance and operations of the transmission system. The Distribution Code guides the DisCos that perform the functions of distributing electricity in networks in the voltage range of 240V up to 33KV. The Metering Code covers the metering of the transmission and distribution networks. 

The Embedded Generation Regulations of 2012 governs the rules for embedded generators and tariffs are negotiated between the generator and the eligible customer and are subject to the periodic approval of NERC. The Regulations for Independent Electricity Distribution Networks (IEDN) 2012, governs the issuance of licenses for distribution networks independent of a DISCO. IEDNS entails isolated rural or urban areas not connected to the national grid and embedded networks. An IEDN is required to operate its own generator or to obtain electricity from another distribution company via a service agreement.

The National Renewable Energy Efficiency Policy of 2015sets out the policies and measures the government is adopting for the promotion of renewable energy and energy efficiency in driving sustainable development across the country and this is concretized in the National Renewable Energy Action Plan of 2016. The Rural Electrification Strategy and Implementation Plan of 2016 provides the implementation framework and measures for driving rural electrification across the country through on-grid and off-grid sources and provides for the setting up of the Rural Electrification Fund which is now operational. Quite important to note is the Eligible Customer Regulation which permits GenCos to bypass NBET and DisCos and sell directly to ‘eligible’ customers defined at the discretion of the Minister of Power. 

The National Mass Metering Programme (NMMP) is an initiative of the federal government launched in August to allow the Central Bank of Nigeria (CBN) to fund the acquisition of electricity meters on behalf of DisCos by paying directly to MAPS and DisCos through a loan facility with a maximum tenor of 10 years at subsidized interest rate. It is meant to further bridge the metering gap and eliminate estimated billing, one of the many causes of credit default. It aims to close the existing metering gap of 6.5m by the immediate deployment of one million meters as Phase 0 and a further four million meters as Phase 1. Phase 0, involving 157 companies has been largely completed and Phase 1 (involving about 45 companies), meant to be launched in August 2022 appeared to have run into a snag when  CBN went  to court to freeze the bank accounts of MAPs alleging diversion of funds extended to them. This relief sought by CBN with the courts was subsequently lifted ‘pending’ further discussions in order not to jeopardise the programme. The meters are meant to be provided free to the consumers but in so far as is known, at least in Lagos, people have paid for the meters said to be under this scheme. 

The NMMP is to be distinguished from the older MAPs programme, where customers are expected to pay upfront for meters which are then subsequently defrayed from the bills over a period of 36 months. It would have been easier to relegate the supply of meters to the same status as telephone handsets, but for the need for calibration. However, even with the regulation surrounding the supply of meters, many knowledgeable industry insiders believe that because of the breakdown of the calibration regime, DisCos now easily cheat customers with uncalibrated meters. This is an area that needs revisiting by NERC.

 

STAKEHOLDERS ISSUES AND CHALLENGES

The different stakeholders have different issues. For customers, it is rampant power theft, bad debts and illegal connections. The Aggregate Technical Commercial and Collection losses (ATC&C) for DisCos was 51% in 2020 from  45% in 2019,  largely attributable to the COVID-19 pandemic due to restriction of movement, according to the firm Bode Agusto & Co. NERC in its report of Q3 2021, quoted the loss at 44.1% across the DisCos, meaning that for every N10 billed, N4.41 is lost to theft, unwillingness to pay, inefficient distribution networks and low revenue collection. This loss of 44.1 % is more than twice the 21.58% allowed in the MYTO for 2021. This huge shortfall feeds into the ability of DisCos to meet their  obligations to GenCos through NBET. In a recent forum, the Executive Secretary of the Association of Power Generation Companies (APGC), Dr Joy Agali said the GenCos are being owed a whopping sum of N2trillion, in contrast to the N500bn quoted by NBET, whilst on their part, they are owing suppliers N1trillion. It is thus important to bring out this issue to make clear that without resolving the front-end issues of high ATC&C, all not necessarily due to the consumer, but with the consumer playing a significant role, our quest for  reliable power supply will continue to be a mirage or in the very least the industry would perpetually be on government life support. So far, the government has pumped over N2.9 trillion into the sector in one form of support or the other post-privatization without which the sector would have collapsed. 

The DisCos are not exonerated either. Hindsight is a wonderful vision but the more one looks at the nature of the DisCos, the more one comes to the realization that in the main, those that won the bids have not been able to deliver on the promise essentially because they lack the technical and financial ability to revamp the distribution network, provide bulk meters, requisite IT monitoring infrastructure and general management ability. The extent of distrust of their ability or otherwise by the government is such that the CBN issued a directive in August 2020 that all inflows to DisCos should be made into designated accounts to ‘improve payment discipline’ in the industry.Recently it was reported that banks and AMCON have taken over the management of five DisCos, probably a foreboding of worse to come.    

The issue with the transmission network centres around its continuous public ownership and operation, decrepit equipment, politics, inadequate redundancies, sabotage, revenue challenges and chronic under-investment.  As stated earlier, despite available generation capacity of 8GW, TCN is only able to evacuate 5GW. Perhaps the best illustration of the problems we have with the transmission network is the recent controversy arising from the probe of the House of Representative panel on the US$30m to US$33m monthly Take-or-Pay contract with Azura-Edo Power Plant. Though the press reports are unclear as to whether the liability crystallizes based on available capacity to generate power at any particular time or the actual power generated but not evacuated, there is  no doubt that the trigger is the inability of the transmission system to evacuate the available power. Though not speaking to the sanctity of this particular contract, it would appear that the House of Representative missed the fact that take-or-pay contracts are standard practices worldwide. This year alone, the transmission grid has collapsed (and there is no agreement on the number of times), at least five times to July 2022, excluding the ill-advised strike action by the sector’s workers’ union in mid-August. Reasons for the collapse typically range from incessant vandalism of power infrastructure including gas pipelines, low water levels at the hydro plants, decrepit transmission infrastructure and  load rejection. For example, the last grid collapse in  July 2022 was attributed by TCN to ‘tripping of a unit with a load of 106 MW in one of the generating stations due to ‘exhaust over temperature’, which led to a train of events that ‘culminated in the collapse of the national grid’.  Subsequently in October, the partial collapse of the grid appeared more an almost daily affair.

In the case of the GenCos, for the hydro plants, low water levels during the dry season is a major issue and for the thermal plants, availability of gas and sabotage from pipeline vandalisation are major constraints as well as inadequate gas pipeline infrastructure riddled with bottlenecks. Gas supply by the Gas Aggregator and Gas Infrastructure companies is on a best endeavor basis, meaning there are also constraints not helped by the huge arrears of GenCos to gas value chain supply companies. 

THE IMPERATIVES GOING FORWARD

Having gained an understanding of the issues, the next step is an understanding of the imperatives. The Power Sector Reform Programme (2017-2021 ) gives a very good overview of the sector and is a document worth having. It dovetails into the Siemens Nigerian Electrification Roadmap (NER) and its technical and commercial proposal would be an interesting read for the more technically minded. This is the game changer for the sector and its faithful implementation would lead to a drastic improvement in the power supply situation.   

The Siemens-Nigeria Electrification Roadmap

The Siemens contract is in three phases; Phase 1 involves the quick win solution to strengthen the system’s end-to-end intervention from current 5GW to 7GW. Phase 2 involves bringing the end-to-end capacity of the grid in the medium term to 11GW to achieve further reduction In ATC&C losses and maintain optimal grid stability and reliability. It also involves gas processing projects to ensure fuel availability for GenCos. Phase 3 aims to increase the grid capacity from 11GW to 25GW and it involves additional transmission and distribution assets’ upgrade based on network studies and local demand and further large scale power projects. The project as initially conceived was to cost Euro 3.11billion with 85% of the financing coming from a consortium of banks guaranteed by the German government through the credit insurance firm Euler Hermes, with the balance of 15% to come from the Nigerian government in counterpart funding with a 2-3 year moratorium and a 10-12 years repayment period at concessionary rate. 

Phase 1 was initially scheduled for completion in 2021, Phase 2 by 2023 and Phase 3 by 2025. The initial delays to Phase1 appear to have been surmounted and some of the required upgrade equipment have started to arrive. A Special Purpose Vehicle, the Nigerian Federal Government of Nigeria Power Company (FGNPC) was set up by the government to manage the process through political transitions and the concept was birthed on the back of a meeting between the erstwhile German Chancellor Angela Merkel and President Buhari on 31 August 2018. Irrespective of the misgivings that swirled around the NIPP projects, it is difficult to imagine what the power supply situation in the country would have been without the NIPP plants. And just as it was one of the signature projects of the Obasanjo regime in the power sector, properly implemented, the Siemens-Nigeria Electrification Roadmap could be one of the things the Buhari administration would be remembered for if it is faithfully seen through, especially if Phase 2 is able to commence before the expiration of the tenure of this administration. 

The faithful implementation of the Siemens NER must take priority in terms of what is to be done. Elections are due in February next year and the incoming administration irrespective of party will do well to continue with the Phase 2 of the roadmap though with some modifications, given that it has already suffered serious delays and thus dated in the context of its aspiration and what may be required as a minimum target. By bringing capacity to optimum at existing plants, resolving the gas supply constraints (as much as possible as sabotage would always be problem) and improving spinning capacity at existing plants and probably incentivizing a proven entrepreneur like Alhaji Aliko Dangote to take advantage of the already existing gas pipeline to the Dangote Fertiliser/Refinery Complex (currently, the company has a 580MW captive power plant), to establish an embedded plant, it should be possible to bring actual power supplied to 15GW by 2025/2026.  This would still be a remarkable achievement, though the initial Siemens plan envisages 25GW by 2025/2026. Phase 3, can then be realistically spread out to deliver 25GW by 2030. The government aspiration of 40GW by 2030 would not be possible given our propensity as a country and even 25GW would only be achieved if the incoming administration gets down to business immediately because of the substantial lead time to set up power plants, though the excellent project management that went into the Azura Edo Plant, delivering a 461MW plant in 28 months, a full eight months ahead of schedule provides an example worthy of emulation. Ominously however, the preconstruction and project development phase took six years! There is a pressing need to cut down on the bureaucratic red tape that hinders as much as tries to regulate the sector.

National Smart Metering and Digital Grid System

This is meant to be a part of the above Siemens Phase 1 project but there has been nothing to suggest that it is still on course. It is however so vital an initiative to resolving the solvency issues in the sector that it should be on the front-burner.  In brief, this involves the setting up of an integrated national metering solution that offers online, real time metering and enables fast real cause analysis of revenue issues, thereby enabling quick decision making and control. It also promotes transparency in billing, visibility and early detection of theft, tampering and systems losses. It is a cloud based grid and data management platform to facilitate data collection and analysis for billing, switching and reconciliation purposes; and it relies on a network of smart meters and sensors all geospatially linked through digital field offices ringfencing the different operators in the value chain. Siemens of course would want to sell its EnergyIP, its smart metering platform and given the time it is taking to implement more conventional meterering solutions, it may not be appropriate to do the implementation in one fell swoop moreso given the investments that have gone into producing, importing and acquiring the more conventional meters, some of which are smart but may not necessarily be compatible. Also, there are competing solutions in the market place and it would not be right to have this implementation without a competitive process. However, a hybrid system that focuses on bulk meters in the value chain down to the level of distribution transformers and large industrial users is recommended in first instance as a matter of priority. Thereafter, the system can be introduced to integrate individual households. The practical implementation would mean that there would be significant new player in the electricity value chain and it is better that this is ab initio a serious multinational able to come up with the significant investments, probably supported by government grants, some sort of guaranteed revenue arrangements and tax breaks in its first few years of operation.

The Transmission Rehabilitation and Expansion Programme

The Transmission Rehabilitation and Expansion Programme (TREP) is another major imperative; launched by TCN in 2017. The TREP is meant to expand the capacity of the Transmission Grid to 20GW by ‘2022’, which of course is here with us and almost at an end! The transmission grid only currently does around 4GW on the average, can reach 5GW, with the Siemens NER the only viable path to an immediate relief. As it is, the Siemens NER should deliver a grid capacity of 7GW next year 2023 and there is no indication that TREP would be a part of the upgrade to 7GW, though the Siemens Phase 2 Project envisages that; ‘some transmission projects have already been identified by the TCN which shall be considered in this phase’. 

The bewildering need for integration and cutting down on turfs and fiefdoms in the power sector is best exemplified by the fact that these two initiatives are existing side by side with similar objectives as work on TREP is indeed ongoing. Some of the issues around procurement shenanigans and selection of contractors provide good examples of why TCN must be privatized and PHCN scrapped for good, given the slow speed of action arising from bureaucratic ineptness. TREP as proposed involved counterpart funding from AFDB, World Bank, the Japanese agency, JICA, the French AFD and the EU to the tune of US$1.6b for various transmission upgrade and expansion projects across the country. There is no ready information on the extent of disbursement by these organisations to date. However, what is clear and urgent is the need for unified command over these two initiatives especially as Siemens Phase 2 commences. Recently, there were press reports that some of the transformers required for this project have arrived the ports and there is evidence of ongoing rehabilitation work of the transmission lines as part of this project.

The Mambilla Hydropower Plant

On the generation side, another gamechanger is the Mambilla Hydropower Plant. This project, on the drawing board probably before many of the readers of this article were born is one that has been plagued by a lot of controversies and to paraphrase a recent newspaper article, “by those who do not love Nigeria enough.” On its own, it is capable of adding over 3GW to the grid, about 12% of the medium-term aspiration of 25GW, or for sake of comparison, over 60% of the capacity that the NIPP plants added to the grid. What this means is that in one fell swoop, a significant impact can be made on available generation capacity. Unfortunately, despite the best endeavors of this administration, it is mired in contractual disputes between an erstwhile contract awardee, Sunrise Power said to be a shelf company and the Federal Government. The contract was awarded to a Chinese Consortium in 2017 led by China Gezhouba Group (a subsidiary of state owned China Civil Engineering Construction Corporation CCECC) and including Sinohydro and CGCOC (formerly CGC Overseas Construction). The consortium has been unable to proceed because of this dispute, which is now currently before the International Court of Arbitration. Attempts to reach out of court settlement have faltered at least twice and the case is fully back in court. It is quite unlikely that this project will commence in enough time for a 2030 completion as stated by the erstwhile Power Minister. The sad issue is that it is debatable, given the reducing risk appetite of the Chinese  for large scale infrastructure projects around the developing world,  that the Chinese Exim Bank Facility which  covers 85% of the project cost would still be available by the time ‘we are ready’. Who would love Nigeria is indeed a valid question!!

It is noteworthy that the commissioning of Zungeru (Phases 2-4) will add a further 525MW to the grid and Gurara, Dadin Kowa and Kashimbila another 110MW, giving a total of 635MW of hydro capacity available to be added soon to the grid. 

Tariff Regime

There is a need to attract further foreign and local investments into the sector and to do this a market reset is required. Key to this reset is having a sustainable and efficient tariff regime that promotes efficiency, covers the operational cost of operators and provides a decent return on capital. Tariffs have always historically been playing catch up with inflation and exchange rate volatility. There was a tariff review this year and the range for major DisCos varies between N54 to N60 per KWh. Using the official exchange rate, this translates into about US$0.14kw/h, a figure on its own that does not appear too low when compared with some other African countries, for example, South Africa is at an average tariff of 0.146KWh. It is important though that care should be taken in the direct comparison of costs as the subsidy structure on the value chain and regime differs from country to country. 

NERC needs to take a realistic approach in its exchange rate assumptions and ATC&C losses in determining the sustainable tariff more so that the government intends on ending subsidies to the sector latest by end of this year. Also, to be clear, there does not appear to be any commercial or logical reasoning why NERC needs to get involved in the determination of tariffs where the customer is an ‘eligible customer’ as defined under the applicable regulation. Removing this requirement would further deepen the development of the market by encouraging Gencos to sell directly to high value customers and lead to the formation of energy trading companies as a new addition to the electricity value chain. 

Metering and Reduction of Distribution Losses

There is a need to put more urgency into both the NMMP and MAPS initiatives, given the very long and atrocious waiting time for prepaid meters. As well intentioned as the NMMP is, people are not getting free meters and it’s clear the solution probably lies in encouraging a proven foreign player to come in as part of a modified NMMP. It is good to be patriotic but the local players have simply not kept up to the promise despite the success of Phase 0. We need to bring in a foreign player that has the funding and bandwidth to quickly roll out the millions of prepaid meters required working alongside our local players for competition.

Recapitalisation of the DisCos

The tackling of the front end of the business in tariffs and reduction of commercial and collection losses by metering also presupposes that the DisCos have the required capacity to roll out the necessary capital expenditure and investments required to ensure that losses are within the limits specified in the assumptions used in calculating the approved tariff. The performance of the DisCos to date will not support such an assertion and would thus call for a review of the privatization process. There are huge legal issues and the government cannot cancel the contracts as both sides are in clear breach, for the government especially, in terms of the pre-purchase covenants and warranties. An approach that seeks to sell the remaining 40 percent to strategic investors who can bring in the necessary capital and expertise is required. If NBET were to call on the debts being owed, most, if not all the DisCos will become insolvent. After resolving the metering and tariff issues, it would be necessary to require recapitalization by DisCos. This would be an opportunity to bring in better technically and financially endowed investors for most if not all of them of them. It does not augur well for the sector if the DisCos are on a perpetual breast-feeding scheme from government.

The Transmission Network

The transmission company, TCN would also require privatization, no doubt on an accelerated basis given the current circumstances. This however should not be an exercise done without proper planning to avoid the pitfalls of the privatization of the DisCos, for a very bad privatization exercise is worse than no privatization. It is key that there is a transitional period during which the company would be put in a state that would make it attractive to private investors. However, in order to have a successful transition programme ending in privatisation, it would be necessary to bare down strongly on the labour unions using a mix of traditional and novel tools. Perpetual ‘aluta’ expedition, likely backed by supporters from the judiciary and legislative arms of government and fifth columnists in the executive for political reasons need to be strategically managed for an orderly transition. Otherwise, the exercise would meet with a lot of roadblocks. 

The transitional process would clearly require bringing in private sector discipline, best assured by a management contract with a proven international player in the sector, with clearly spelt out deliverables. The privatisation itself can be regional or it can be based on its components parts of Tranmission Service Provider, Systems Operator and Market Operator, of course as advised by the requisite privatisaton experts in that field rather than generalists. It is also advisable that the process begins after the Siemens Phase 2 so that there would not be too many issues on the agenda at the same time given the available management resources. 

Privatisation of NIPP Plants

As a matter of urgency, all the NIPP plants should be privatized as an issue of national economic imperative. It is strange that given where we are with the power supply situation, the House of Representative deemed it fit in July 2022 to pass a resolution against the sale of five of the NIPP plants on grounds that the consent of the States and Local Governments also need to be sought. Rather than  seeking to encourage getting this consent, this resolution was in all likelihood a cynical act that probably reflects more on the invidious and sinister reach of the Labour Unions and anti-privatisation forces more than anything else. That however is not to say that BPE covered itself in glory on the earlier privatization exercise in the sector. It is acknowledged though that some of the NIPP plants still suffer from gas supply infrastructure issues which plagued them from inception but this is not an insurmountable matter.

 

Regulatory and Governance Framework

It would be important to rationalize the various agencies involved in the power sector and consolidate the initiatives which would encourage the elimination of waste. For example, the Power Sector Recovery Programme (PSRP) should be consolidated with the Federal Government of Nigeria Power Company (FGNPC), the former  is under the Vice Presidency while the latter is under the Presidency. Across the sector, there are institutions like the Solar Energy Research centres at University of Nigeria Nsukka and Uthman Dan Fodio University Sokoto that need to be reevaluated in term of their relevance. Throw into this motley mix a rump PHCN that still creates very big roles for itself, especially in transmission projects (we should not speculate why), but is effectively a holding company with only one active subsidiary, TCN, then the need for rationalizing institutions, agencies and initiatives in the sector could not be more stark. 

With the Presidency being the center of the major initiatives in the sector and with privatization, it might do well to seriously scale down the Ministry of Power to further save costs and appoint a Power Czar in the Presidency with direct access to the President and Commander-In-Chief. The resident Power Czar would have the core responsility to vigorously push through the Siemens NER co-commitantly with TREP or collapse the latter into the former, the privatisation of TCN, NDPHC and the liquidation of PHCN. This would be a task best suited not to a politician but a newly promoted engineer officer of the Brigadier General rank presumably not too senior to have settled into an entitlement mentality but still hungry enough for career advancement and probably still at a stage to assume this to be a military order; or somebody from the international finance or development finance space who is retiring and wanting to leave a final professional mark. A Nigerian with extensive international experience with a major multinational power sector company would also be a good fit. To appoint a politician, career civil servant or one without a sense of mission would be a big mistake. 

The overbearing role of the Bureau of Public Enterprises (BPE) in the power sector viz-a-viz its core competence should also be reviewed as a matter of urgency, though full privatization would probably automatically resolve this issue. Other agencies of government with overlapping functions which only generally slow down initiatives in the power sector also need to be rationalized as a matter of urgency.

The Gas Factor

Given that most of the power plants are thermal, the resolution of the gas-to- power issues in the electricity value chain should also be paramount. In fact, the success of the Siemens Phase 2 project depends on this matter. As part and parcel of this and as we look forward to Phase 3 of the project which calls for additional power plants, a critical look at the laws is  required so that, so that for example, Inland Gas Basins can be exploited and in-situ embedded thermal plants established to take advantage of this. The gas deposits of the Anambra Basin come to mind here in an area with enough pool of proven entrepreneurs that can be attracted to invest in such proposals. The in-situ exploitation of inland gas reserves for power generation would obviate the prohibitive cost of extensive gas pipelines and associated infrastructure for power evacuation. The recently launched Kolmani River Project in Bauchi and Gombe States in North Easter Nigeria is a direct nod to this strategy. The restrictive regime governing the ownership of gas pipelines should also be critically reviewed.

A review of the Nigeria National Gas Policy and the regulatory environment in particular over Non Associated Gas (NAG) and fiscal incentives are required to attract entrepreneurs. Such steps would encourage the development of industry clusters around the power plants as a deliberate economic development strategy. 

Other Initiatives

Another strategy that can be adopted for the northern parts of the country is to develop coal-fired thermal plants along the lines of the proposed plant in Itobe, Kogi State from which not much has been heard recently. Coal-fired plants around proven deposits in Benue and Kogi States would greatly ameliorate pipeline or transmission cost associated with either pumping gas to the northern parts for power generation or the distances that the transmission infrastructure would have to cover to wheel power up north from gas plants in the south.

 

 Current efforts at ramping up the use of solar energy for off grid solutions and integration with DisCos is certainly desirable and should be ramped up in the spirit of the time to move towards clean energy and as the cost of doing so declines over time with  improving technology.

 

Currently, NBET is the only energy trading company. It may not be a bad idea to introduce parallel energy trading exchanges as a way of deepening the market but only after a thorough assessment has been made. Such an act would help deepen the market by taking advantage of the Eligible Customers Regulation allowing the generation companies to sell directly to segmented customers. It should also help NBET to become more efficient with competition.

 

It is a good thing that the legislature is reviewing ESRA 2005 and the Senate recently passed a bill to this effect, but it would be a big mistake to delegate some licensing powers to the States as it is proposing to do for mini grids. It would certainly not augur well for the sector at all given the lack of capacity in the States and the ease with which they would quickly exceed their bounds as anybody who is into Solid Minerals Mining would attest to. It would be better to increase the threshold for registration to cater for some instances that now require permits or licenses (for example for minigrids rather than the current maximum threshold of 100W for registration, allowing up to 1MW to be by registration, rather than by permit and for Captive Power Plants; increasing the requirement to have a permit from the current 1MW to say 3MW before one would be needed) and also thoroughly reviewing the act to remove some of the bureaucratic impediments concomitant with increasing the capacity of NERC.

 

Relaxing the regulatory requirements which is a matter of necessity may also require that a new class of certified engineers may be required under the guidance of the Council of Registered Engineers of Nigeria (COREN) to fill in the spaces that the regulator would vacate so that safety and standards would not be compromised.

 

It is fair to state that the alternative view of totally deregulating the regulatory oversight functions to states is also very strong but it is the view of this author that such a step would not augur well for cases of interconnection between operators subject to different regulatory regimes and also across boundaries in addition to the issue of the capacity of the states stated above with the probable exception of Lagos State.

 

 

PROJECTED 2025 SCENARIO

Figure 10 below shows a conservative evaluation of the predicted scenario by 2025. Total installed generation capacity from all sources excluding wind, solar and microplants is assumed at 21GW, which is made up of the current 18GW and assumes completion of the projects listed in Table 1 to Okpai Phase 2 of 1.33GW. The balance would be from miscellaneous sources, mainly captive. Peak demand is estimated at 15GW and available power is at 12GW including from captive sources, a net increase of 4GW from the current 8GW derived mainly from the consolidation of the increase in transmission capacity from the Siemens NER and other projects. The projections still make the assumption that transmission will continue to significantly lag the estimated available grid capacity which is the most realistic one that can be made from antecedents.

  

The ability to deliver 15GW in 2025 would also depend on an extensive rehabilitation of the last mile 11KV and Low voltage distribution systems which currently can handle about 11GW according to the Siemens study (cf 5GW for the transmission grid). This requires that the capacity of the last mile network be increased by about 50%, a very daunting task.

CONCLUSION

In summary, the power sector, being the major driver of economic growth and sustainability, is one in which a lot of hard work has been put over the years. However, much remains to be done and the Siemens NER should be the guide with modifications in the medium term to take us out of the electricity supply doldrum. A plan is better than no plan and the Siemens solution provides a basis. The resolution of front-end issues, revisiting of the privatization of the DisCos, the resolution of gas supply issues, a careful and well thought out privatization of the transmission systems and the building of new power plants should enable us get to an available supply of 25GW by 2030. Even for us to achieve this figure by then, serious thought, planning and execution need to be of top priority as a matter of immediate urgency and the Phase 3 Siemens NER remains our best option of getting to this target. 

Having a tariff regime that covers cost is critical to the sustainability of the Industry, but this can only be achieved if DisCos are able to operate within the allowable ATC&C losses set by NERC. If is not done, they will continue to complain of unsustainable tariffs and customers would continue to resist paying for the inefficiencies of the DisCos, if most even want to pay at all in first instance. This conundrum calls for the recapitalization and revitalization of the DisCos with technically and financially sound strategic partners. Smart, effective metering of consumers and strengthening of the distribution networks are critical to resolving the issue of tariff sustainability. 

Resolution of the disputes around the Mambilla Hydropower project, leveraging on the 55km extension of the Escravos Lagos Pipeline System (ELPS) to the Free Trade Zone by Dangote Group, implementation of the Siemens flare gas treatment power plant concept, the building of coal fired plants in the Middlebelt, expanding capacity in some of the existing plants as being proposed for Ibom Power and exploitation of inland basin gas deposits are some of the quick ways of ramping up generation capacity in the country. 

Bold, forward looking ideas are needed, in the model of the one that led the then governor of Lagos State, Asiwaju Bola Tinubu to conceive the 270 MW Enron project that was ultimately frustrated by the then federal government. Finding a way of incorporating more IEDNs into the existing monopolistic but struggling DisCos is another way forward. The extant laws must be reviewed for effectiveness and to open the power space up to interested and competent private sector operators. Regulators must be upskilled to keep abreast of ideas, innovations and the needs of the economy.

Innovative ways of financing the hydropower projects must be developed to improve the mix towards clean energy in line with the global energy transition initiatives. Such projects have huge economic benefits aside from power, for example for agriculture, but may not immediately yield financial benefits.  Through innovative structures like Build, Own, Operate and Transfer (BOOT) models, grants, guarantees and Power Purchase Agreements, private sector interest can be piqued with little to no financial commitment by government. This is more pressing as only about 19% of our total hydroelectric capacity is being exploited or is ready to be exploited at the moment.

The journey is not actually far, the ideas have been well articulated over the years, there have been commendable successes but the zeal to have the desired outcome must now be singular and intense so that Nigeria can begin to live her potential as the Giant of Africa and a country to truly reckon with in the comity of nations.