Captive power possesses huge potential that can transform small and medium enterprises (SME) and the economy, if leveraged, a report by The Corvus, a financial and economic publication of Guaranty Trust Bank Plc, has said.
It said developing a captive power plant (CPP) was quite complex.
Quoting Pricewaterhouse Coopers (PwC), it said the project development timelines for CPP may span about three years, noting that it involves several predetermining factors ranging from regulation to mode of financing.
“The latter is the easier part as it often comes down to either project financing, where the sponsor is directly responsible for the cash flow, or balance sheet financing, which typically involves debt financing based on cash flow generated by the project.
“The major sticky points to the development of captive power plants in Nigeria are in regulations, where the laws governing captive power generations (CPGs) are quite restrictive.’’
According to the Electric Power Sector Reform Act of 2005, CPP generates ‘’electricity for the purpose of consumption by the generator and which is consumed by the generator itself and not sold to a third party.”
This is contrary to the industry’s understanding of a “captive plant” as one owned and operated by a third party, it added.
The report said beyond financing and regulation, the building of any CPG project is complex and demands experience, expertise and patience.
‘’First, like working on any other venture in Nigeria, the project developer needs to be nimble understanding that the rules and road map are not very clear and ever willing to adjust his schedule and resources to accommodate for that.
‘’It is also essential to enter local partnerships with co-developers, to facilitate a smoother market entry and project development, and with clients – in this case SME clusters or industrial estates, to guarantee the financial viability of the project. Perhaps, most importantly, it is imperative that the project developer be as self-reliant as possible to ensure control over the entire value chain ranging from the operation of the power plant to the distribution channels.
‘’Where all the issues mentioned are effectively taken care of, the success of the CPP generation project is virtually guaranteed with enormous rewards certain for the project developer, its clients and the economy at large,’’ the report added.
Quoting the National Bureau of Statistics (NBS), the study stated that as at February, there were 37 million Small and Medium Scale Enterprises (SMEs) in the country.
It noted that their contributions to the economy was over $250 billion, though $150 billion less than the gross domestic product (GDP) of the Australian city of Sydney last year, which has a population of just under five million people.
It put the reason for the differential on limited access to finance and markets compounded by low skilled manpower and technology and mainly poor power supply.
It would be recalled that 10 years ago, the government, through its Financial System Strategy 2020, targeted SME clusters for infrastructural support, as critical to solving their power challenge.
Today, with these clusters still bereft of adequate power supply,CPP generators can fill the gap. The case for CPG is apt; industrially, they can guarantee SMEs security of power supply, commercially, they require significantly less time and money to develop when compared to traditional power, and technically, they can be configured to the specific industrial demands of SME clusters, it added.
SMEs, and most businesses in Nigeria, rely on individually purchased, operated and serviced generators as their major source of power supply. The result was that Nigerians spent over N17 trillion on fuelling generators between 2010 and 2015, according a report by electricity-focused NGO, Good Governance Initiative.
The study, built on the survey of SME owners in Southwest and Southsouth, reveals that over 70 percent of small business owners consider individually operated generators not good for their businesses as they spend nearly 50 percent of their yearly income on the fuelling and maintenance of their generators.
Source: The Nation