The Nigerian Electricity Regulatory Commission (NERC) last week approved the “Lagos State Embedded Power Programme,” which aims to deliver 3,000MW incremental electric power to drive the burgeoning economy of Nigeria’s commercial capital at the cost of $3billion. Below are five ways this project is unique and deserves more than a cursory analysis.
Representation of entire value chain
The critical value chains in the power sector including generation and distribution and transmission are fully represented in the project. Also important is the guarantee of gas feedstock from producers and bankability of the project.
First of its kind in Nigeria, the project will generate up to 3,000MW of electricity through deployment of power plants in strategic locations around the state. The first phase will be commissioned before the end of the first quarter of 2018, and is expected to deliver 520MW incremental power, while additional 1,070MW will be delivered by the fourth quarter of 2018. The balance of 1,410MW will be completed by 2022.
Many power projects in Nigeria cannot take off because of unavailability of solid guarantee usually in the form of Power Purchase of Agreements. However the Lagos state government power project is backed by 3-months rolling bank guarantees to support the PPAs which will be signed by distribution companies and the Embedded Power Providers (EPPs) to enhance bankability of the project.
A special Purpose Vechile (SPV) will be registered under the Companies and Allied Matters Act (CAMA) to undertake critical aspects of the programme. The state will also delineate ring-fenced embedded power deployment areas into manageable zones from end users based on kilowatts/megawatts of power injected into transformers/feeders allocated to sub vendors all backed by agreements.
Certainty of feedstock
The Lagos state power project may not suffer uncertain delivery of feedstock common with major power plants in Nigeria. While Nigeria has about 25 power plants with 80 percent of them relying on gas, power supply is barely 4,000MW due to unavailability of gas feedstock.
In the agreement, Lagos state government signed with investors, it will secure gas for the project through guarantee to gas suppliers using its Ibile Oil & Gas company. The state will prequalify eligible gas suppliers in a joint venture agreement to receive the guaranteed gas from gas producers and sell to end users. JV companies will also be responsible for rollout of pipelines as required.
“Given the intractable challenges of local gas market, and to guarantee uninterrupted gas supply to the EPPs, Lagos State has finalised arrangements with reputable international gas suppliers to deploy a floating storage and regasification unit (FSRU) to be moored on Lagos waters and this will be further supported by trucking of LNG from the South-South (in the short-term),” said an agreement the state has with investors seen by BusinessDay.
Cost recovery mechanism
The state will embark on an independent and comprehensive power audit exercise in areas where the embedded power will be deployed. These include Epe, Ikorodu, Ikeja, Badagry, Marina, Ibeju Lekki, Apapa and Ikoyi where the embedded project will be deployed.
EPPs will generate and inject off-grid power for distribution through the network of Eko and Ikeja Discos. Further investments will be made in upgrading distribution infrastructure through the power sector and cost will be recovered from wheeling charges due to the DisCos based on agreed terms.
The Lagos state government will enter into a JV with credible partners for the rollout and installation of smart prepaid meters in the areas where embedded power is to be deployed. The DisCos will be assisted by vendors in collection who will provide bank guarantees for power supplied to their feeder stations, after adjustments for commercial and technical losses and administrative charges.
DisCos revenues from the sale of embedded power will be ring fenced from other obligations. Interesting the project is enjoying wide support from residents in the state as evidenced from the fact that there has not been much opposition to the proposed tariff of N52.52 per kW.
Strong legal framework
Lagos will enact a legal framework to be known as the Lagos State Embedded Power Law as well as the a law on power theft which will prescribe still penalities for power theft in the state. There will also be a proposed Lagos state power council (LSPC) that will be a voice for consumer protection, advocacy and negotiation of end user tariff. The governor will appoint the chairman and will will have in DisCos and other interest groups.
Source: Business Day