Nigerian power sector requires further investment despite progress

Since the privatisation of Nigeria’s power sector, the country’s generation capacity has increased and new players are entering the market. However, the government still has several pressing issues to address

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Nigeria needs a minimum of 60,000MW to be self-sufficient, demonstrating the great challenge the country faces, but also the opportunities that exist in the power sector

Author: Alfred Jagun, CEO, STAG Engineering

22 Feb 2018

Since the privatisation of the power sector in Nigeria, the Nigerian Government has put a roadmap in place to ensure an uninterruptible supply of electricity in the country. In support of this vision, the Nigerian Electricity Regulatory Commission (NERC) was introduced to regulate the distribution and transmission of power all over the country.

Unfortunately, many newly instated rules and regulations are in conflict with problems that exist on the ground. Namely, the energy generated and distributed throughout Nigeria cannot be accurately accounted for, as more than 60 percent of energy is lost due to theft and vandalism.

In 2016, the Ministry of Power, Works and Housing was introduced with the aim of increasing the country’s power generation capacity and improving its transmission. Once this goal has been achieved, the focus will shift to ensuring that power supply is uninterrupted. It is important to note, however, that Nigeria’s electricity distribution companies (DisCos) cannot sell energy without adequate power supply by generation companies (GenCos).

Therefore, the main challenge lies in ensuring that adequate support and finance are provided in order to generate enough energy in the sector.

International support
To achieve 24/7 power nationwide, the sector needs a financial injection from the government and foreign investors. Although strides are being made to close gaps within the sector, little has actually improved since privatisation.

Due to financial constraints, poor distribution infrastructure and bad gas transmission, the government has had to pay Nigerian Bulk Electricity Trading (NBET) NGN 702bn (€1.66bn) so that it can pay its obligations to GenCos. GenCos can then, in turn, pay their gas and equipment suppliers, banks and other partners. NBET is also working with DisCos, the government, the NERC and regulators to improve DisCos’ payment performance from 24.9 percent to 100 percent.

To achieve 24/7 power throughout Nigeria, the energy sector needs a financial injection from the government and foreign investors

In the 2018 budget, only NGN 555.88bn (€1.3bn) has been allocated to the Ministry of Power, Works and Housing, however, and this budget must cover three different sectors. Fortunately, the international community has been involved in securing a $600m (€515m) loan from the African Development Bank to help the country meet its electricity generation target of 20,000MW by 2020.

Furthermore, in August 2017, the Transmission Company of Nigeria received $1.55bn (€1.3bn) from the World Bank, EU and other partners to finance its expansion projects. Some of these misappropriated funds, such as those recently returned by the Paris Club, could have been returned in a more structured manner. Specifically, they could have been used to fund ongoing projects, reducing the funds that need to be borrowed and reducing the chances of misappropriation.

Rewarding investors
Several policies have been created to improve financial rewards to investors. For example, the current NERC tariff is not cost reflective and, as such, is not attractive to investors. The Nigerian Minster of Power has therefore instructed NERC to create a new policy for eligible customers that allows those willing to pay a higher tariff for electricity to do so. The same is being done to improve access to meters. However, laws to protect investments still need to be put in place, especially with regards to theft and vandalism.

Fortunately, some improvements have been made. Generation capacity has increased from 1,580MW in 2015 to 6,803MW in 2017. The country needs a minimum of 60,000MW to be self-sufficient, demonstrating the great challenge the country faces, but also the opportunities that exist in the power sector.

The number of independent power plants being built is increasing daily and, as such, the distribution of power is improving. The ministry has developed 36 units of 330kV and 132kV transmission substations. It also supervised the construction of 1,635km of 330kV double circuit lines, 720km of 132kV circuit lines, 10 330kV substations, seven 132kV substations and 6,150MVA of 330kV and 132kV transmission capacity.

Finally, the government has provided more than 25,000 complete self-protection transformers, which will retain more than 30 percent of power lost due to poor transmission networks.

Mind the gap
The success of Nigeria’s plan to improve energy supply is dependent on funding and regulation. Not only power generation, but the whole power system, must be updated. Once this has been achieved, technology development and training can be addressed. This would incur costs that must be covered. Therefore, rather than ask for recovered funds back, the government should use them as collateral for loans to access technology.

The success of Nigeria’s plan to improve energy supply is dependent on funding and regulation

Then there is the material gap, which is considerable. In Nigeria, oil breakers are still being used instead of air or vacuum breakers, and there is a cobweb of power lines that should be underground.

The country must develop technology to suit the environment. For instance, it has a ready supply of liquefied petroleum gas (LPG) that could be used to generate electricity. Unfortunately, the equipment available cannot use LPG because of its high carbon content.

We have spoken to several equipment manufacturers regarding working with us to modify these engines so that they can use LPG, but are yet to find one willing to take on the challenge. The government, as well as the R&D departments of Nigeria’s universities and technology colleges, should also be working on developing a solution. Furthermore, the cost of metres would be much lower if manufacturing was local.

Only once the existing system has been made efficient can technology begin to progress alongside the advanced world. Once Nigeria’s power sector reaches this point, upgrades to new technology can happen and training can be carried out locally.

Nature’s power
The government needs to allow for more embedded stations. The managing director of Ikeja Electric complained that his company could only get access to about 360MW of energy when it needs around 1,250MW. With more embedded stations, companies such as Ikeja Electric could achieve the power levels they need. The government also needs to ensure that tariff regulations allow DisCos to cover the cost of their power.

There should be rural electrification, and the country needs to look into other power sources. We could look to solar energy as South Africa and Morocco have done, or wind energy like other developed nations.

Presently, the country has three major hydroelectric plants, as well as thermal plants. These alone are insufficient to meet Nigeria’s needs. The country needs to look into embedded stations as a priority, as well as rural electrification.

One recent success story is the Tunga Dam in Sardauna, Taraba, which has been able to generate 400kW of electricity for the local community. This serves as an excellent example to other states in Nigeria, and illustrates the benefits of using the resources at hand to generate enough power to meet citizens’ needs.