With a growing population which is estimated to be very close to the 200 million mark, and the rule of thumb that 200 million people require on the average, 200,000 MW of efficient and affordable electricity to experience real economic growth; there is no gainsaying the fact that so much more needs to be done by the federal government of Nigeria to meet the energy needs of its teeming population.
It is in fact the case that beyond improving the national grid, other viable options outside power supply/ evacuation via the national grid need to be given due consideration in order to have a more robust system in place such that even whilst choices are being reviewed towards improving grid power supply and indeed improving the grid itself; economic growth does not continue to stall as a result of the high cost of doing business by the real and informal sectors of the economy. These sectors would ordinarily drive economic growth through job creation, taxation and production generally, where they do not have to expend most of their revenue on self-power generation.
The Problem with the Grid and Grid Power Supply
In spite of Nigeria’s current installed power generation capacity of almost 13,000MW it is noteworthy that, the national grid is only able to wheel/ evacuate barely 5,000MW; that is, less than 50% of the installed power generation and less than 5% of Nigeria’s current power need of 160,000MW.
This challenge with the grid is exacerbated by issues such as vandalism and historically poor maintenance, such that the last grid enhancement before the last 10 years was done in the year 1987; 20 years before the government began to take serious steps towards enhancing the grid from the mid to late 2000s.
Also, until recently there were no serious systems studies to be able to determine the actual evacuation capacity of the grid and the areas that require enhancement in the short, medium and long terms. Thus, the problem with the grid and a few other fundamental issues such as gas supply constraints, have conspired to make the electricity market in Nigeria very weak and liquidity dire.
The foregoing challenges have been because even when electricity generators can generate enough power and actually do expend cost (through plant maintenance, gas supply arrangements etc.) to so generate, they are either constrained off/down or cannot evacuate sufficient electricity and justifiably, can only get at best a portion of the capacity payment without enough funds from energy charge or energy payments.
This has a multiplier effect as neither the bulk trader nor the distribution companies then receive enough power to be able to generate enough revenue to remain profitable.
As is the case, any system or value chain is only as strong as its weakest link and to the extent that the grid has serious challenges, the value chain would continue to suffer serious setbacks as has been reported severally. The challenge with the grid is particularly heightened by the fact that the grid is primarily radial, as it is a single path of transmission such that any fault in the path could potentially lead to a collapse of the entire or a substantial part of the transmission network.
Typically, where there are challenges, there are also opportunities to create value and get rewarded in form of profits and the discerning businessman, can see the opportunities here. However, the government and the Regulator ought to provide sufficient support in form of policies, regulations and incentives to drive such business ideas and enthusiasm to create solutions and profits, correspondingly.
The Off-grid/ Mini-grid System Supported by Renewables
Off-grid generation is generally any stand-alone power generation system whilst mini-grids are typically power systems/ networks which provide smaller communities such as industrial clusters or residential estates with electricity through independent electricity distribution networks. This is what the Nigerian Electricity Regulatory Commission (NERC) has sought to do, albeit imperfectly and with clear problems of inadequacy and lack of clarity.
Interestingly, a few discerning young business people working with the bank of industry are already looking to explore the opportunity but this only scratches the surface and government and NERC need to play more active roles in this respect. The idea of the mini-grids/ independent electricity distribution networks is to have smaller generators connect to local distribution networks without going through the challenges of connecting to the transmission network. This would enable distribution companies procure lesser volume power and dedicate same to ring-fenced customers who could pay slightly higher price for power supply almost 100% of the time.
The concept could also work in a way that factories, industries and production units within a cluster could form a Special Purpose Vehicle with equity and third party financing to construct a small plant (not exceeding 10-20mw) that will sell power to the local distribution company which serves them with the guarantee that a portion of the power distributed is sold exclusively to them. In the alternative, they may just simply use the distribution network as a conduit or obtain their own distribution licence under the NERC regime put in place for that purpose.
As long as many of these plants are gas-fired, challenges; particularly those related to gas, could still slow down things. Hence, plants which utilize renewable sources such as solar may be more appropriate such that beyond by-passing the national grid, one also does not suffer problems underscored by the gas challenge.
As is always stated by commentators in the power space, the larger the number of persons on a network or co-pulling power, the cheaper same would be and where there is a reasonable number of persons interested in such mini-grid arrangements, the more likely a project is, to be bankable.
The Challenges Requiring Regulatory Interventions and Plausible Interventions
As suggested above, there are still regulatory uncertainties regarding off-grid/ embedded and independent distribution network arrangements as these uncertainties include whether urban Independent Electricity Distribution Networks may legitimately exist within an area already covered by a pre-existing distribution company.
The relevant distribution companies are also likely to object to licensing any entity to supply power within its franchise area without some form of income to the relevant distribution company, a concern which is legitimate, whether there would or should be, an applicable tariff methodology for off-grid generators and the need or otherwise for NERC to approve same.
The foregoing, therefore, call for an adjustment of the current regime for off-grid power such that there is clarity and investors actually understand what they may be going into. It may well be that the drafters of the regulations themselves need to better understand how off-grids work and the purport taking the Nigerian situation into consideration.
Further, captive power plants require licences where they intent to sell stranded power which exceeds 1mw. The captive power plants cannot sell power to willing buyers with their permits, but must obtain generation licences to sell power such power. NERC should also enable easier licensing for captive permit holders with excess power (over 1mw, of course) looking to sell same to distribution companies or eligible customers.
Arrangements should also be put in place to ensure that distribution companies and off-grid investors can work seamlessly such that such off-grid projects are profitable to both Parties and have long term benefits to the parties.
To achieve the desired economic growth driven by efficient and inexpensive power supply, power prices/ tariffs would increase in the short term in order to have more off-grid power whilst NERC and the government need to provide more incentives and clear policies on off-grid generation to ensure that there is more investment in the power sector through off-grid means.