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•Adelabu: Nigeria needs about $262bn investments to meet 30,000MW power generation target by 2030
The federal government’s subsidy in the power sector hit N135.2 billion in the second quarter of 2023, from the N36 billion it paid in the first quarter, contradicting the last administration of Muhammadu Buhari that it ‘quietly’ removed the monthly payments.
The development emerges, just as the Minister of Power, Chief Adebayo Adelabu, has stated that Nigeria would require investments worth about $262 billion to be able to achieve its ambitious target of expanding electricity generation capacity to about 30,000 megawatts (MW) by 2030.
According to the new quarterly report by the Nigerian Electricity Regulatory Commission (NERC), the N135.2 billion recorded in the second quarter of 2023, was an increase of N99.21 billion or 275 per cent compared to the previous quarter of N36 billion.
The ex-Minister of Finance, Mrs Zainab Ahmed, had revealed in March 2022, that the federal government had quietly removed the subsidy on electricity tariff, saying that the government had to carefully adjust the prices incrementally at some levels.
“We have been able to quietly implement subsidy removal in the electricity sector and as we speak, we don’t have subsidies in the electricity sector. We did that incrementally over time by carefully adjusting the prices at some levels while holding the lower levels down,” she had stated.
However, the NERC report for Q2 stated that the increase was largely attributable to the government’s policy to harmonise changing rates.
“In the absence of cost-reflective tariffs, the government undertakes to cover the resultant gap (between the cost-reflective and allowed tariff) in the form of tariff shortfall funding.
“This funding is applied to the Nigerian Bulk Electricity Trading Plc (NBET) invoices that are to be paid by Distribution Companies (Discos). The amount to be covered by the Disco is based on the allowed tariff, determined by the commission and set out as their Minimum Remittance Obligation (MRO) in the periodic Tariff Orders issued by the commission.
“It is important to note that due to the absence of cost-reflective tariffs across all Discos, the government incurred a subsidy obligation of $135.23 billion in 2023/Q2, which is an increase of $99.21 billion (+275 per cent) compared to the N36.02 billion incurred in 2023/Q1; this increase is largely attributable to the government’s policy to harmonise exchange rates.
“On average, the subsidy obligation incurred by the government per month was N45.08 billion in 2023/Q2. For ease of administration of the subsidy, the MRO is limited to NBET only with the Market Operator (MO) being allowed to recover 100 per cent of its revenue requirement from the Discos.
“In 2023/Q2, the MRO-adjusted invoice from NBET to the Discos was N154.04 billion while the total remittance made was N152.48 billion, which translates to a 98.99 per cent remittance performance.
“The remittance performance of Discos to NBET in 2023/Q2 (98.99 per cent) is a 31.37 per cent increase compared to the 67.62 per cent remittance performance recorded in 2023/Q1.
“The significant improvement in remittance performance by Discos is because a large portion of the NBET invoice is to be covered by the government in the form of subsidies,” the report stated.
According to NERC, the government’s subsidy obligation meant that in 2023/Q2, Discos were only expected to cover 53.25 percent of the total invoice received from NBET. The report noted that during the period, the total revenue collected by all Discos was N267.8 billion out of the N354.61 billion that was billed to customers.
“The Discos overall collection efficiency increased by 6.79 percentage points from 68.75 per cent recorded in 2023/Q1. While the total collections increased by 8.41 per cent (compared to N247 billion 2023/Q1). The total billings declined by -1.33 per cent (compared to N359.3 billion in 2023/Q1),” the commission noted.
Besides, it explained that the total electricity generated during the quarter reduced to 8,867.05 Gigawatt per hour (GWh), translating to a decrease of -5.17 per cent (-483.19GWh) from the 9,350.24GWh generated in 2023/Q1.
The report noted that this was due to 16 of the 26 grid-connected power plants recording a decrease in total generation.
“The decrease in electricity generation in 2023/Q2 was due to a decrease in the available capacity of the power plants. Two of the top performing power plants in 2023/Q1–Olorunsogo and Alaoji NIPP were both unavailable for 84 days (approximately 91 per cent of the quarter) in 2023/Q2 due to gas constraints and mechanical faults,” NERC said.
Furthermore, the commission stressed that all the hydropower plants recorded decreases in their average generation in 2023/Q2, with Shiroro hydro plant recording a decrease in generation due to the shutting down of one of its four units/turbines for minor maintenance.
Jebba, NERC said, had 50 per cent of its turbines (289.2MW capacity) shut down in 2023/Q2 to allow it undergo total overhaul and replacement of key components, including generator rotor, winding and Automatic Voltage Regulator (AVR).
Adelabu: Nigeria Needs About $262bn Investments to Meet 30MW Power Generation Target by 2030
Meanwhile, the Minister of Power, Chief Adebayo Adelabu, has stated that Nigeria would require investments worth about $262 billion to be able to achieve its ambitious target of expanding electricity generation capacity to about 30,000 megawatts (MW) by 2030.
Speaking in Lagos, at the annual international strategic conference of the Association of Energy Correspondents of Nigeria (NAEC), the minister announced that the federal government would no longer provide sovereign guarantee between investors and organisations in a bilateral contract.
He also stressed the need to create an improved partnership between the public and private sector in order to address critical issues hampering the growth of the power sector.
Adelabu, who was represented at the event by the Director, Transmission Services Department, Ministry of Power, Dr Emmanuel Nosike, noted that the numerous challenges in the power sector had led to frequent power outages, fluctuations in electricity generation, and in some cases complete grid collapse.
“Nigeria needs about $262 billion in investment to meet the expansion needs of the power sector by 2030”, Adelabu stated, adding the government had set an ambitious target to generate about 30,000MW of electricity by 2030 with renewable energy contributing 30 percent to Nigeria’s energy mix.
The minister, whose speech was sent to THISDAY, yesterday, acknowledged that Nigeria’s current power sector infrastructure could not effectively generate the much-needed electricity for the country. He explained that Nigeria currently has a low power generation, transmission, and distribution capacity of about 5,625MW, 8,500MW, and 8,425MW respectively, which were inadequate to even reach the targeted power generation of 20,00OMW in the short-term.
Adelabu expressed concerns over the poor performance of the power sector, noting that the sector was faced with multiple challenges which also comprise insufficient generation capacity, tripping of transmission lines, vandalization of power infrastructure, high frequency due to low demand for power, as well as ageing infrastructure.
The minister maintained that the insufficient power generation in Nigeria was also due to outdated power plants, underinvestment in new generation infrastructure, and over-reliance on fossil fuels such as gas/steam and diesel.
Adelabu stated, “The interruption in electricity supply is a result of sudden outage in the transmission line which may be as a result of overloading, overheating of insulation, and faulty substation equipment.
“Vandalisation of power infrastructure is a significant challenge in Nigeria’s power network. Criminal elements, sometimes intentionally damage power lines, transformers, and other equipment associated with low levels of surveillance and security on all electrical infrastructure.
“High frequency due to low demand for power is often referred to as ‘over-frequency’ or ‘over generation’ and it occurs when the power supply exceeds the demand on the grid. Its effect can be felt in the overloading of generators and transformers, loss of synchronisation, and frequency instability. When the frequency goes up, the machine output reduces and vice versa.
“When power systems infrastructure has exceeded its expected lifespan, it needs repair, rehabilitation, or replacement. Ageing power network infrastructure can lead to increased failure rates and reduced reliability without adequate maintenance and system upgrades.
“These issues have had far-reaching consequences on the nation’s development, and as such, may risk losing potential investors.”
To address these challenges, he said there was a need for the government and private sector to collaborate on developing a strategic approach to upgrade and modernise the electricity transmission infrastructure to fully realise the anticipated benefits of privatising the power sector.
On the government’s side in terms of providing an enabling environment to attract investment, he said the federal government approved the Electricity Act 2023 to attract the required private sector investment to bridge the huge deficits of electricity demand and supply.
The Electricity Act 2023 recently signed by President Bola Tinubu, enables the states, private companies, and individuals to generate, transmit, and distribute electricity in the country.
Going forward, Adelabu said the federal government would no longer provide sovereign guarantee between investors and organisations in a bilateral contract, adding that this new approach would enhance accountability and responsibility between both parties. He advised that contract financing should be encouraged between the investor and the organisation.
Adelabu explained, “For instance, if somebody wants to invest in the transmission of electricity today with the Transmission Company of Nigeria (TCN), it should be between the investor and the TCN.
“What we see in Nigeria is that the federal government provides a sovereign guarantee, assuring the investor that the money will not be lost, and that provides a situation where the investor and the organisation relax because they know that the government will pay.
“For now, we have proposed a situation where the investor and the lender will be committed to ensuring that the project works and payments will be from the proceeds of that project.
“There should be a gas power policy. The policy on gas to power should be adequately streamlined. Concerted effort should be made at the relation of Nigerian currency to foreign currency.”
He added that Nigeria could overcome all these challenges if there was an improved public and private sector collaboration, while the government was working on providing an enabling environment for ease of doing business in the power sector.
