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By

SOLVING NIGERIA’S POWER PROBLEMS

OLUMUYIWA ABIODUN

May 15 2015

Highlights • Background

• Overview of the Nigerian Power Sector

• Electricity Delivery Components

• Why do we need Large Power Plants and Transmission Lines

• Available Fuels

• Power Reforms

• Short Term Solution

• Medium Term Solution

• Long Term Solution

• Conclusion

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• Nigeria has an Installed Generating Capacity of Circa 7000Mw but only generated an average of 2800mw in April 2015.(That’s about 40%)

• Currently, about 72% of this Energy is Powered by Gas .

• Nigeria with its abundant gas reserves has experienced several gas outages in recent years, these outages are caused by an insufficient Gas infrastructure, and the incessant Vandalisms on Crude oil and Gas Pipelines.

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Major Electricity Generation by Fuel in Nigeria:

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• These Over 5000mw Capacity Generation plants are not able to function at their designed Peak

outputs largely due to gas shortages. • Nigeria has the 7th Largest gas reserve in the world at 187 trillion cubic feet, However, because the

Handling and storage of gas is difficult and requires huge investments, the sector remains largely underdeveloped.

• This Lack of investment is also due to the overregulation of this industry through government

controlled prices and a poor regulatory environment. Consequently, most of the gas currently produced is either flared or exported. Of about 5 Billion scf/day of gas produced in Nigeria, about 4 Billion scf/day is exported while only about 1 Billion scf/day is left for Local Generation, Feedstock for maufacturing and the west African Gas Pipeline.

• This poor gas infrastructure and incessant pipeline vandalizations are the most important challenges

faced by Generation companies (GENCOs). • Reported cases of pipeline vandalization has been unbelievably on the steady rise from 895 Cases in

2004 to 3,505 cases in 2013. • Nigeria has been estimated to require at least 40,000 MW of electricity when compared to other

developing Nations (Even though more conservative estimates put it at 12,000MW).

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• Wide Gap between Demand and Supply • Regulation/Overegulation of the Gas and Electricity

Industry. • Underutilized, Unreliable and Obsolete Generation

Assets. • Weak Transmission Infrastructure • Overloaded Distribution Network. • High Commercial and Technical Losses. • Poor Gas to Power Infratructure. (Vandalization,

Inadequate Pipeleines etc)

To achieve a stable electricity Industry, the following must be in place.

• Available and affordable fuel

• Reliable, cost effective and efficient generators.

• Transmission and Distribution.

• Metering, Payment of Bills.

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• Economies of Scale. (Larger Power plants are more efficient with CAPEX and OPEX)

• Proximity to cheap Energy sources (Natural Gas in the case of Gas Plants and Rivers in

the case of HydroElectric Power Plants) and;

• Reliability: Since Thermal and Hydro Power plants cannot throttle their production

during times of Low demand, and it is practically impossible to save power for later

use, it is more efficient to transmit power that is not needed in a zone to another

zone. The ability to get power from alternate zones also lowers the possibility of a

blackout in the event the generators in a zone fail, hence the need for a Nationally

connected transmission grid.

• In Nigeria presently, These reasons are seriously undermined by the Vandalizations on

the Gas infrastructure, and the Transmission Problem.

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• Nigeria’s transmission capacity is said to be about 7200mw, However, during periods where power levels were able to be increased due to high water levels at the hydroplants coinciding with high generation and gas availabilities, the grid experienced high frequencies & Turbines had to be shut down.

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28 day Simple Moving Average of Daily Peak Generation (MW) 01-Nov-2013 to 21-Dec-2014

Diesel

NG

LNG-NG

LPG

LPFO

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Fuel parameters for 20V34DF

Calorific Values

(Kj/Kg)

Consumption. (Kg/Kwh)

100% Cost (USD/Kg)

Cost of Power

(USD/kwh

Cost of Power

(N/kwh)

Diesel 42800 0.189883178 0.855 0.16235 32.47002

NG 50000 0.16072 0.1 0.016072 3.2144

LPG (Mt Belvieu) 46607 0.172420452 0.1 0.017242 3.448409

LPFO 48000 0.167416667 0.5 0.083708 16.74167

LPG(Domestic)/ 46607 0.172420452 0.5 0.08621 17.24205

CNG 50000 0.16072 0.56 0.09 18

Estimated Opex/Fuel costs for generating electricity with a 10mw, Combined cycle dual fuel combustion Engine.

• Corruption and Politics aside, Previous Governments haven't totally gone to sleep on the Power Industry. For Example, between June 2000 and December 2002, our electricity generation capacity increased from 1425 MW to 4300 MW, it now stands at 7000mw.

• Several new gas pipelines and gas gathering infrastructure have been installed

• Discos and Gencos have been unbundled and Sold to private Investors.

• 10 More NIPPs have been completed and Plans to sell 80% stake in them are almost completed.

• Funds realised from sale of stake in NIPPs are to be used in developing the Electricity industry further.

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To improve on the Power Generation and distribution, Several Agencies have also been created. These agencies were to Regulate the industry, put together framework to improve gas supply etc.

Even though some of them have either overstayed their usefulness, they contributed immensely to the power reforms

• NERC (Nigerian Electricity Regulatory Commission)

• NBET PLC (Nigerian Bulk Electricity Trading PLC)

• GACN (Gas Aggregation Company Nigeria Limited)

• NAPTIN (National Power Training Institute of Nigeria)

• NELMCO (NIGERIA ELECTRICITY LIABILITY MANAGEMENT LTD/GTE)

• PTFP (Presidential tax Force on Power reform)

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• Implementation of a cost reflective tariff for the 11 DisCos is Very key to solving Nigeria’s Power problems. Tariffs should be cost plus.

• A Cost reflective tarriff Enables operators to access financing for their working Capital and other Capital needs. They can then consequently meet performance agreements like minimising commercial and technical losses to an industry standard.

• DisCos, in particular, will continue to be unable to meet obligations of the bulk purchaser and power suppliers with the absence of a cost reflective tariff.

• The MYTO II Regime should be properly guided to completion.

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To solve Nigeria’s Power problems we will have to take a short, Medium and Long term approach. • Short Term. Set of Smaller Emergency Power Plants for Load Centres. Willing buyer, willing seller Turnkey Small to Medium size NLNG Plants Levelized Energy Formula Pipeline Security

• Medium Term Pipeline Security Improvement in the Transmission Network

• Long Term Privatize the Electricity transmission regions Ensure Distribution companies adhere to best practices in Metering, connection and distribution of

Power. Increase investments in gas delivery. Increase generation Energy Conservation and Renewable Energy

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Set of Smaller Emergency Power Plants for Load Centres.

• Lagos for example, has 22 Transmission stations. These 22 stations can take power from 22 medium sized power plants (20-50mw).

• Smaller power plants are easier to fund and they have a quick turnaround time. (can be on ground, producing power in 6 Months).

• Discos, almost immediately will be able to meet their Distribution Network Capability with the Power they are getting from the grid.

• These Medium turnaround plants will use dual fuel, can be throttled to reduce their load when and if demand drops and distribute directly to consumers. They can be deployed anywhere in the country within months

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• Distribution companies will now have two sources of power, Power from Private Emergency Generators and Power from the Grid.

• The tariff structure would then be an aggregate of the Percentage of Power they get from the grid, and the percentage of power they get from Emergency Generators.

• For Example, Let us assume that Grid Power Cost N10 Per Kwh and Emergency Power costs an average of N40/kwh.

• If EKEDC Derives 20% of its power needs from the Grid, and 80% from Emergency Generators. The cost of Power within that Disco would be, ( N10 X 20%) + (N40 X 80%) ….. N34/kwh.

• Also,

• If Grid Power Improves and EKEDC Derives 80% of its power needs from the Grid and 20% from Emergency Generators, the cost of Power within the Disco would be. ( N10 X 80%) + (N40 X 20%) ….. N16/kwh.

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Willing Seller, Willing buyer. If any Operator can offer Cheaper, More reliable power to a bulk customer, he should be able to do so without jumping through hoops.

With an efficient Disco, this really should not be possible since the disco buys power from cheaper sources.

Nevertheless, any Private willing buyer willing seller arrangement within a Disco will pay a negotiated amount per kwh sold to the Disco.

This is a risk free income for the Disco.

It also frees up more capacity for the Discos.

The Disco should also be willing to enter this sort of agreement with point loads e.g. A large point load pays N20/kwh for anything below 80% uptime and N30/kwh for anything above 80% Uptime.

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Turnkey Small to Medium size NLNG Plants. Natural Gas is the cheapest fossil fuel available, it is also abundant, a Major bottle neck has been the pipelines, However, Nigerias NLNG produces circa 4 billion scf/Day Of LNG and is currently the 4th biggest producer in Africa. This Liquified gas is bought from producers who have signed long term contracts with the LNG. At cost plus rates, LNG can be shipped to a Major Load center in the west, e.g. Lagos Turnkey Small to Medium sized plants can then deliquify the LNG for use at nearby power plants, From where it can be stored, utilized or trucked to other inland plants.

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Turnkey Dual Fuel (LPG/LPFO) Power Plants, The Domestic LPG Price in Nigeria is currently high because there are no sufficient terminals and pressurised vessels to Lift and distribute the Products.

This is due to the restricted domestic demand.

This is a good opportunity to use LPG for Power Generation.

The LPG Generating Plant owners will be responsible for shipping products and discharging it at the Generating Plants.

LPG has as much calorific value as NG and costs as much internationally.

It is however easier to handle (Almost as easy as diesel).

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• Pipeline Security

• Improvement in the Transmission Network

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Privatize the Electricity transmission regions.

• There are 8 transmission regions in Nigeria: the Kaduna region, the Shiroro region, the Bauchi region, the Osogbo region, the Benin region, the Enugu Region, The Portharcourt region and the Lagos region.

• The Government should grant transmission monopolies to one company within each regions to improve investments and they should be given incentives to build more transmission lines to properly evacuate power from the Gencos.

• In addition there should be clear rules that govern interconnection and trading of electricity

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Ensure Distribution companies adhere to best practices in Metering, connection and distribution of Power

• The world bank ranked Nigeria 187 out of 189 in the getting electricity category of its “ease of Doing business ” Survey of 2015. The survey shows that it takes 9 steps, 257 days and 478% of income per capital to get connected in Lagos by the Eko distribution Company (Eko Disco)

• There are reports of many customers who have paid for connection and prepaid meters for years but the Disco has failed to deliver on either or both.

• Also, Cost of Meters are ridiculously inflated as the discos attempt to earn revenue from their sales, Prepaid meters are usually sold for about 500% of what they are really worth.

• Meters should be seen as a necessary part of an efficient distribution network.

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Increase investments in gas delivery

• The Government must take the issue of gas flaring more seriously. Nigeria recently shunned the World bank’s Zero gas flaring by 2030 summit. This is the wrong body language since Nigeria remains the second largest gas flaring country in the world,

• Nigeria flares 13 billion cubic metres of

associated gas annually.

• The government needs to clearly promote investments in the development of gas facilities to boost further production.

• Investors seldom invest in an environment that has been overregulated, the prospects of high profitability is the major driver for investments. The regulated price regime needs to be relaxed.

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Energy Conservation and Renewable Energy • Imagine if we only used power when we needed it. • The government should enforce prepaid metering, by a set deadline, there should be no connection to

power without meters, people naturally tend to be more conservative when their bill is commensurate with their consumption.

• Secondly, I believe the government should ban incandescent bulbs and encourage energy saving bulbs

instead.

• Finally, the government needs to encourage energy conservation through clear incentives to conserve energy.

Campaigns. Policies to Compel Discos to obtain a certain Percentage of their power from renewable sources. Tax rebates and low interest loans can be offered to support small renewable energy GENCOs. Renewable technologies can also be very important for remote areas with no connection to the grid

whatsoever as they can easily be deployed there with the right policies in place.

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Improve Generation

• From the funds realised from the sale of the 10 NIPPs, The Nigerian Government can further develop more power plants close to existing ones who may already have the required gas infrastructure in place.

• The Nigerian government should also look at diversifying the Sources of Power Generation. (Coal, Wind, Solar etc)

• Generation plants going forward should be properly priced and built based on how much power can be generated. If a 400Mw plans costs the government $600 Million to build but only generates 200Mw, Consequently, the plant cost $600 Million for 200mw, that’s $3 Million Per Mw. Generating Plants should not cost more than $1m to $1.3m Per available Mw. They could actually cost much less.

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