The Nigerian population is above one hundred and eighty three million (www.worldometers.info), and about 55% of the population have no access to grid-connected electricity (Nigeria Power Baseline Report -nesistats.org). Access to electricity in the rural areas is about 35% and about 55% in the urban areas.
It has been estimated that developing economies would need about 1,000MW per million people to meet their electricity demand. Invariably, Nigeria would require more than 160,000MW to achieve the desired electricity generation capacity. Nigeria projects that by the year 2020, the country's generation capacity would be in excess of 40GW (40,000MW), and the energy mix will constitute 69% thermal generation; 17% hydro; 10% coal; and about 4% of renewable. (www.nipc.gov.ng)
The on-grid challenge
On-grid generation refers to a system of power generation evacuated through the national grid to off-takers which may be the Bulk Trader, (Nigerian Bulk Electricity Trading Company Plc.) who through vesting contracts supplies the power to Distribution Companies; or directly to Eligible Customers, as may be declared by the Minister of Power. (The title of the Minister of Power in Nigeria is “Minister of Power, Works and Housing.”)
Presently, the installed power generation capacity in Nigeria is 12,522MW; out of which 10,592MW is gas fired; and 1,930MW is from hydro. It is worth noting that out of the total installed capacity, the maximum peak generation by power plants in December, 2015 was 4,810MW.
Most of the power received by Nigerian electricity consumers is on-grid power supplied by the Distribution Companies (DISCOs). On-grid power generation has over the years had its constraints, some of which are identified below:
a. Unavailability of gas: About 85% of installed generation capacity is thermal. Although Nigeria has the world's 9th largest gas reserves measuring 180,105Bscf (Billion standard cubic feet); the gas production is significantly low. Statistics reveal that as at 2014, the total gas produced was 8.9Bscfd, and less than 10% was supplied to the domestic power sector for generation. Gas constraints is said to reduce the power generation capacity by 1,995MW, and reasons for this include uneconomical gas prices; gas pipeline vandalism; insufficient gas infrastructure; and uncertainty in regulation and fiscal policy for gas, amongst others.
b. Inadequate transmission infrastructure: The existing transmission system is only capable of delivering about 5,300MW (out of the total installed capacity of 12,522MW) of power to DISCO trading points. This is as a result of Nigeria's current weak transmission infrastructure which is majorly radial, which means that it's a single path of transmission with a power source at one end. This implies that any fault in the path could potentially lead to a collapse of the transmission network. The issue with transmission has been estimated to reduce the power generation capacity by a total of about 263MW. Although, the Transmission Company of Nigeria plans to upgrade the transmission system to a capacity of 11,000MW by 2020 (subject to adequate funding and completion of projects planned for implementation); the transmission infrastructure in its current state, without an upgrade and improved technology, is unable to accommodate the estimated increase in generation by 2020.
c. Liquidity issues in the Nigerian Electricity Supply Industry (NESI): The NESI has since the handover of the PHCN Generation Companies (GENCOs) and DISCOs in November, 2013, been faced with liquidity issues resulting from non-cost reflective tariffs. The DISCOs, being the cash collectors in the power value chain were unable to collect sufficient revenue to pay their power bills which should sustain the rest of the value chain (GENCOs, gas suppliers and service providers). As a result, all the market participants in the power value chain cannot get their revenues in full, and this has led to a cash crunch in the market. This is clearly a disincentive to investment in additional generation or capital expenditure for the DISCOs. The current cash crunch is likely to linger until February 2016, when the newly reviewed Multi Year Tariff Order, 2015 becomes effective. Even then, the liquidity issues should not be expected to fall away overnight, but should ease off over the next two years as the Discos become more credit worthy.
d. Nigerian Integrated Power Project (NIPP) Privatisation: Closely related to the liquidity issues highlighted above are the issues affecting the completion of the NIPP Privatisation. The privatization process of NIPP Power Plants, which have a capacity to add up to 4,775MW to the grid, has been fraught with issues including non-availability of gas; non-completion of some of the NIPP plants; and inadequate gas and transmission infrastructure. More importantly, the current liquidity issues in the NESI, and the lack of government credit enhancements in the present circumstances, have not given potential investors the confidence to invest in the acquisition of the assets. This is especially complicated by the fact that most Nigerian Banks have a substantial amount of exposure to the power sector from the PHCN privatization, and the alternative is international funding which would be subject to more scrutiny by international banks.
Given the above, it is imperative that whilst the issues are being resolved, we should look at viable solutions for increasing generation that would hopefully be somewhat isolated from some of the issues raised above.