Monday, 25 November 2013

Five Year Generation Investment Plans Puts Hydro Plants at Capacities seen 30+ years ago.

In October 2013, Kainji PLC & Shiroro PLC formerly part of GENCO was sold to Mainstream Energy Solutions a consortium that comprises of seven corporate entities from across various sectors of Nigeria. This was part of an effort to complete the privatization of the generation companies formerly held by the Power Holding Company of Nigeria (PHCN). Kainji PLC consists of two hydro plants namely Kainji Hydro and Jebb Hydro located in the Kainji and Jebba regions of Northern Nigeria.

The initial installed generation capacities of both the Kainji and Jebba hydro plants are 760MW and 578MW respectively. This is a combined total of about 1338MW (1.3GW).  However, as of today, Kainji and Jebba hydroelectric plants have an operating generation capacity of only 110MW and 450MW respectively which translates to a combined total operating capacity of about 560MW. Today, Kainji and Jebba plants operate at only 14% and 78% of their initial respective installed capacities. This works out to a total operating generation capacity that is approximately 42% of the combined initial installed capacity of these plants.

In an article released in the Punch [Dayo Oketola, November 21, 2103] titled “Mainstream increases Jebba Plant’s Capacity to 450MW”, Mainstream stated that the agreed mandate in the concession agreement is that within five (5) years, the company would recover the lost capacities of both the Kainji and Jebba power plants.  This total combined installed capacity in the referenced article above was stated to be 1500MW but from my analysis above it is actually 1338MW. The approximately 200MW difference could be from additional 200MW unutilized design capacity at the Kainji Hydro plant. This plant was designed for a total of 12 turbines which translates to a total installed capacity of 960MW. However, only 8 turbines were installed at the Kainji plant translating to an initial installed generation capacity of 760MW at this plant.

If this strategy to recover the lost capacity at these plants is successful, this would put us back to the generation capacity of 1963 when the Kainji plant was installed and 1984 when the Jebba plant was added to the power system. Mainstream’s strategy which has been agreed with our leaders would take us 5 years to fully execute and implement but will only get these major hydro plants to the installed generation capacities seen 30+ years ago. It should be noted that there could also be additional 200MW supply if unused available design capacity at the Kainji plant is utilized within the next 5 years.

I applaud Mainstream for their investment in the acquired asset. This was expected and is a true measure of the value of privatization in the generation sector. Hydroelectric assets require no fossil fuels and this drastically reduces the cost of operating these plants. The faster Mainstream energy invests in maximizing the generation output from both Kainji and Jebba hydro plants, the faster they can generate revenues to recover their cost of acquisition and investments. What bothers me as a Nigerian is that we have to wait 5 years to have generation capacities similar to what was present at these plants over 30 years ago.

Nigeria is in this position today because of huge unnecessary neglect by our leaders in the power sector over many years. This neglect is part of the reason we have become a nation that runs predominantly on diesel generators. This neglect has cost Nigerians to lose billions of dollars of potential revenue/GDP from foreign and local investments. This neglect has stunted our growth across multiple sectors. How did Nigerians let this happen? Why do we have to wait for 5 years to enjoy the availability of the generation capacity and clean energy that was supplied from these hydro plants over 30 years ago? How did Nigerians let this get to such an embarrassing state? How can a country estimated to have requirements of over 100GW of supply based on its population have just under 5GW? How can we fix it? When will we fix this? Nigerians, let us work together and fix this!

From the analysis above, it takes no genius to know that we are not going to achieve anywhere close to 40GW in 2020 at the pace we are moving. There have been no announcement for any mega power projects similar in magnitude to the ones discussed in this article that will be required to meet the 40GW target for 2020. It should also be clear that even the 10,000MW planned for 2014 is also far from our reach given the limitation on the transmission network and generation supply.

Sunday, 24 November 2013

Fifty One (51) Hydroelectric Plants similar in size to Kainji Dam needed to meet 2020's 40MW Targets

The “Road Map for Power Sector Reform” set a target for Nigeria to attain a generation supply of 40GW by 2020. As mentioned in my previous article “Nigeria to make International History if Generation Supply grows to 10GW (100% growth) by 2014”, this corresponds to an annual growth rate of 37% which is an unrealistic growth rate when compared to annual growth rates in power sectors around the world.

To date, Nigeria has only been able to reach a peak generation supply of 4.5GW and this was achieved in December 2012. Since 2012, Nigeria has not been able to attain this peak generation supply due to unreliable transmission network, over loaded and aging equipment etc.

To bridge the generation supply gap to meet the 40MW supply by 2020, Nigeria would have to install approximately 35.5GW of generation capacity along with the corresponding expansion of the transmission grid in the next 7 years. This is approximately nine times the existing generation and transmission supply in the country today.

To put this in perspective, If Nigeria is to achieve the 40GW goal set by the Road Map by 2020, we would need approximately fifty one (51) hydroelectric dams with installed capacity similar to Kainji Dams to be constructed and put in service within the next 7 years. The Kanji Power plant is the largest hydroelectric power plant that has been constructed and commissioned in Nigeria. This Hydro plant was put into services in 1968 with a total installed capacity of 760MW (0.7GW). Since 1968, there has been no other hydroelectric generation facility of this size installed in Nigeria.

To illustrate even further, the Three Gorges Dam in China is the largest Hydro facility in the world. The Three Georges hydro plant has a total installed capacity of 22.5 GW. To meet the targets set out in “The Road Map for Power Sector Reform”, Nigeria would have to install approx. two hydro facilities each the size of the Three Gorges Dam within the next 7 years. It should be noted that this Hydro plant had a price tag of $21 billion and took a total of 18 years to construct.

One might ask that we could meet the 40MW generation target by installing natural gas or coal plants given the environmental concerns, high cost and long durations to construct a hydroelectric dam. Well, the largest natural gas generation plant in the world is the Surgut-2 plant in Russia and this plant has a total installed capacity of 5.6 GW. Also, the largest coal generation plant in the world is the Taichung Power Plant constructed in Taiwan. This coal plant has a total installed capacity of approximately 5.8GW.

From above, it is clear that if Nigeria plans to install 35.5GW of power within the next 7 years to meet the targets set out in the road map using natural gas or coal plants, we would need construct and install a minimum of the six of world’s largest natural gas or coal plants within the next seven years.

When put into perspective by comparing to the world’s largest power plants, it seems impractical to achieve these goals set out in the road maps. Nevertheless, Nigeria’s power problem needs to be fixed. If we really have the intention to fix the problems in the Nigerian power sector in our life time, we would need multiple Mega projects like the Three Gorges Dam, the Surgut-2 plant or the Taichung Power Plant to bridge the power shortage gap. A generation supply of 40GW is not our final GW target as Nigeria’s power requirements today based on total population is estimated in excess of 100GW.

Our leaders need put in place serious plans for approval of critical Mega projects that will add large amounts of GW supply to the grid. The approval of single generation plants with installed capacities of less than 1 GW (example the 0.7GW Zengeru dam approved this year) will not cut it unless the goal is to have multiple similar sized projects approved around the same time frame. Initiating one-two small generation plants of this size a year will not even bring us close to our target in the next decade. It should be noted that mega transmission projects would also be required on the transmission grid to accommodate for the increased generation supply to the grid.

Nations like China, Taiwan and Russia were faced with planning growing their power sector to meet their consumer demands. These countries proved their commitment to their people’s growth and development by stepping up to the plate to design and construct major projects to meet the increasing power demands of their nation. Nigeria is expected to make a similar statement and commitment to its people by planning and executing projects of equal or greater magnitude to meet the embarrassing power shortfall in the country.


Sunday, 29 September 2013

Revised Tariff for TCN forecasts 5,000MW for 2014, half of the 10,000MW promised by Minister Nebo

Nigerian Electric Regulatory Commission (NERC) released their Multi-year Tariff Order (MYTO 2) for the transmission sector dated on June 1, 2012. The MYTO determines the actual tariffs that Transmission Company Nigeria (TCN) will use to calculate and earn its revenues for 2012 to 2017.

In the revised MYTO created by NERC, the revised tariff rate for 2013 is N1422 per MWhr which is a decrease from N1521 per MWhr for 2012.  From the rates structure above, It is clear that TCN’s revenue generated is directly proportional to the amount of power it transmits through it transmission network based on the Naira per MWhr tariff rate.

To further illustrate, Nigeria has generated and transmitted a record peak of 4.5GW. This record peak supply was achieved in December 2012 and till date has not been reached again in the country. Now assuming 4.5GW of power is transmitted all year round through TCN’s transmission network, this would correspond to 39,420GWhr being transmitted for the full year. At a tariff rate of N1500 per GWhr, TCN would earn approximately N56 billion ($350 million) for the year. As you can notice, this calculation is based on TCN transmitting 39,420 GWhr for the year and this value is currently not sustainable in the sector so actual revenues earned by TCN would be less that N56 billion ($350 million).

For the above calculation and for NERC’s approval of the tariff rates, there is a requirement for TCN to provide a reasonable forecast for how much GWHr would be generated and transmitted through its transmission network that would be used as an input into the calculation.

This GW or GWhr value would provide an insight to what TCN and NERC are forecasting for GW supply in Nigeria for the upcoming years. It would also provide a GW value to compare with the promised 10GW of power by next year (2014) made by the minister of power. It was shocking to discover that there was no value for a forecast of GWhr or GW generated and transmitted presented by NERC in the MYTO document. The document jumped from presenting the total revenue requirement for TCN for 2014 to stating the calculated tariff of N1400 per GWhr. The MYTO document does not show the forecasted GW or GWhrs that the 2014 Naira/MWhr rate is based on. It leaves it to the reader to reverse the calculation to determine the GW or GWhr used in the calculation for 2014 to 2017.

No Wahala NERC, I have recalculated the GW requirement that supports your approved 2014 forecast. Based on a 2014 Revenue requirement of N65 billion and forecasted 2014 tariff of N1400/MWhr, TCN and NERC are forecasting an average of 5.3GW of power to be generated and transmitted through its network in 2014. A 5.3GW supply is not even close to the 10GW (10,000MW) supply promised by Minister Chinedu Nebo in 2014.

If NERC and TCN are forecasting 5.3GW for 2014 to determine TCN’s revenue requirements, why then are Nigerian Politicians forecasting the unachievable 10GW of power for 2014. Does this mean that TCN and NERC do not agree with the aggressive 10GW supply promised by the Minister? Is the 10GW forecast promised by the minister not realistic enough to be used for calculations of revenue for TCN? Does this mean Nigeria will have 10GW of installed capacity from the completion of NIPP generation projects but not enough transmission capacity evacuate the increased generation supply? These are questions that the power sector should address.

A 10GW forecast for generation supply by 2014 does not seem realistic given where we are right now supplying an average of under 4GW of power. If our generation and transmission supply has a record peak of 4.5GW, targeting a supply of 10GW by 2014 is forecasting an annual growth rate of over 100%. It is not practical to forecast such an annual growth rate in the power sector anywhere in the world. The 5.3GW Forecast for 2014 used in the MYTO seems more realistic. This would correspond to an annual growth rate of approximately 18%. Comparing to China’s remarkable growth rate of 11.8% during the expansion period of 2000-2009, this is still a very optimistic target for next year given we have not even been able to maintain close to the 4.5GW peak we achieved in December 2012.

[See more on Nigeria’s optimistic growth rates in my article, “Nigeria to make International History if Generation Supply grows to 10GW (100% growth) by 2014”, ]

Nigerian Politicians should look to actual experts in the sector to forecast realistic power supply targets for the upcoming years before promising Nigerians targets that even the Transmission Company and the regulators (NERC) do not support. Re-building a power sector that has been neglected for decades by previous leaders will not happen overnight and this message should be communicated to Nigerians. Setting and promising targets that are not practical or that cannot be achieved only makes the Nigerian people lose confidence and trust in their leaders when these targets are not met.

If readers are wondering about future GW forecast, based on the revised MYTO 2, the 2017 forecast (4year forecast) specifies a Tariff of N1,709 per MWhr which corresponds to a forecast of 6.2GW for 2017.

Saturday, 14 September 2013

Why does Nigeria export Power when it continuously struggles to meet its Power Demands at Home?

 In 2007, Nigeria commissioned and energized a 70km, 330kV transmission line from Ikeja to Republic of Benin (CEB-NEPA project). 330kV is currently the highest voltage in the Nigerian transmission network. This line was part of a strategy driven by West African Power Pool (WAAP) to export power generated from Nigeria to Republic of Benin.  At the time of commissioning, Nigeria was exporting 80MW of power and today, Nigeria is exporting an average of 200MW to republic of Benin [African Development Bank Group, May 20, 2013].

Nigeria does not have the capacity to generate and transmit the required power it needs to meet the demand of Nigerian consumers. The country generated an all-time record peak of 4.5GW and this was in December 2012. Ever since December last year, Nigeria has not been able to reach this record generation peak due to lack of adequate generation supply and limited capacity on the transmission network. The “Road Map for Power Sector Reform” in Nigeria specifies a rule of thumb of at least 1GW (1,000 megawatts) of electricity generation and consumption for every 1 million head of population for any developed industrial nation. Based on Nigeria’s population of 150 million people, we should be targeting to generate and transmit a minimum of 150 GW.

It is very clear that we are realistically decades away from generating and transmitting power to match the demand of the true loads of Nigerian consumers. In fact, based on above, we are only generating and transmitting 3% of the total GW we should be targeting to generate and transmit based on our population.

Why did we invest in transmission facilities to export power to neighbouring countries? One would think that if we did invest in transmission facilities to cross international borders, this strategy would have been executed to enable Nigerians to import power for a short to midterm to meet the excessive generation supply shortfall in the country. When stable and reliable Power is available in Nigeria, plans to invest in the exportation of excess generated power can be examined. However, this is not the strategy that was adopted. Based on the installed facilities, Nigeria is a net exporter of Power to Republic of Benin and Niger.

Rather than investing in the engineering and constructing of transmission lines from Nigeria to Republic of Benin for power exports, we should have been investing in transmission lines and facilities to transmit and distribute any excess power generated by our power plants to major load centers in our country. According to the African Development Bank Group, the Ikeja transmission site from where power is exported has a capacity of 450MW and is the largest transmission site in Africa with a 330kV transmission network. Any excess power that could be transmitted from this site should have been to support the requirements of Nigerian consumers.

There is no logical reason why we invested in facilities to export power to neighbouring countries when we are not able to meet our own power demands. This was a bad decision made by our leaders. Nigerians need to pay closer attention to details to prevent decisions like this being made in the future.

 Given the major generation supply and transmission capacity shortfall in the Nigeria, any investment made to the Nigerian power sector should be used to reinforce and expand our system in the short and long term and not to support loads of neighbouring countries. Ambitious plans to export power should be a thing of the future and efforts to further export additional power should be ceased until relatively stable and reliable power supply is available to Nigerians.

Granted, 200MW is not a huge figure in the large scheme of the power requirements in the country. However there is a significant cost to construct a 70km transmission line of the highest voltage in the country. This expense could have been better justified to expand and reinforce transmission facilities in Transmission Company of Nigeria (TCN).

Below is a chart published by West African Power Pool (WAAP). The chart shows energy exchanges per country in GWhr for West African countries. From the chart, it is clear that Nigeria exports the most power to date when compared to other ECOWAS countries in WAAP.

Wednesday, 4 September 2013

When would Nigerian Leaders Set Performance Targets to Measure and Track Actual Power System Reliability?

It is a common statement made in Nigeria by our leaders saying Nigerians are benefiting for more stable and reliable power supply. They go as far as saying people are celebrating about the more stable power supply [Minister Nebo, Vanguard August 11, 2013].

How are we able to validate these claims about a more stable system? How is this reliability actually measured and reported to the Nigerian People? Is the Power system really getting reliable or are we mastering the art of scheduling power supply to loads across the country to provide the illusion of actual increased stability and reliability?

System Average Interruption Duration Index (SAIDI) and System Average Interruption Frequency Index (SAIFI) are two of many reliability indices used internationally by Power companies to measure and track their reliability performances. SAIDI measures the average duration of power outages per customer/resident in one year and SAIFI measures the average number of times a customer/resident experiences an outage or power loss in one year.

The median SAIDI value for North American utilities is approximately 1.50 hours [IEEE Standard 1366-1998]. This can be interpreted as a customer or resident had experienced an average of 1.5hours without power in one year.

The median SAIFI value for North American utilities is approximately 1.1 [IEEE Standard 1366-1998]. This can be interpreted as a customer or resident had experienced an average of one outage or power loss in one year.

In Nigeria, can we even state that we have an average of 24 hours without power in one year compared to 1.5 hours median outage experienced in North America? Can we state that we have an average of only 10 power outages/losses in one year compared to the median single outage experienced by North American utilities? It is clear that we are very far from the above North American SAIDI & SAIFI benchmarks. It will not be an easy or short road to reach actual international reliability benchmarks. However, we should start by setting achievable reliability goals, targets and timeframes to track and report to the Nigerian people about the real reliability performances on our power system as we make the required expansions in our Power Sector. Statements like we are experiencing more reliable power provide no value. Reliability performance should be reported with appropriate metrics and benchmarks so the Nigerian people can be made aware if there is actual increased reliability on the system. It is impossible to manage what you cannot measure.

Thursday, 29 August 2013

Nigeria to make International History if Generation Supply grows to 10GW (100% growth) by 2014

Nigerian to make International History if its generation supply grows to 10GW (100% growth) by 2014
Chinedu Nebo, Nigeria’s minister of power has promised Nigerians 10GWs of power supply by December 2014. Currently, Nigeria sits at about 3GW to 4GW for its normal operations. The country peaked its generation supply at 4.5GW in December 2012 and has not achieved that peak since then. 

If Nigeria were to attain the 10GW target by 2014, it would mean an annual growth in the sector of over 100%. This would make it the fastest observed growth in generation supply in the international community. Currently China holds this title with India as the runner up.  From 2000 to 2009, China’s generating capacity grew at an annual growth rate of 11.8% []. India in the last decade grew at an annual rate of 6.5% and plans to grow in the next 5 years by 8.5% which is still short of the capacity it requires for stable electricity. Given the growth in generation capacity is directly proportional to the GW supply, these rates can be applied to the growth rates in the GW supplied.

The ministry of power is proposing annual growth rates that are about 10 times the current rates seen in power sectors of the fastest growing economies in the world.  

A growth in the generation supply to 10GW would also correspond to a growth in your transmission and distribution networks to accommodate the increased supply.  With TCN insolvent and not able to service its current costs, how is the transmission network’s capacity expected to grow by over 100% without proper funding.  The government expects this growth to happen magically without adequately funding to meet this optimistic target. To achieve growths of this historical magnitude, TCN should be given a blank check to support its optimistic growth. The company should not be left to source for investors in a sector that is insolvent and cannot currently pay all of its costs. Even with a blank check, these timelines are very optimistic considering the numerous studies to be executed, the complexity in engineering, the lead times of major equipment, the acquisition of proper right of ways for transmission lines and substation and most of all the coordination between all relevant contractors.

 Nigeria needs to set more realistic goals that can be achieved.  Even with the planned goal of achieving 40GWs by 2020, we are still looking at an annual growth rate of 37% which is still multiples above the observed growth rates in the fastest growing economies of the world. Re-building and growing a sector that has been neglected for many years is not an easy task and takes time. This is understood.  More realistic predictions should be made by the sector and then communicated to the Nigerian people.  Like the Don Priestman, the CEO of Manitoba said in an interview with the Gaurdian,” There is no Magic wand with TCN”.  This statement should not only be applied to TCN but to the whole Nigerian power sector.

Wednesday, 28 August 2013

No Profits for TCN until 15GW of Power is transmitted through its Network

Transmission company Nigeria’s (TCN’s) sole source of revenue is from the tariffs it charges for transmitting power from the generation facilities to distribution companies. This Tariff is also called its Transmission Use of System (TUOS). TCN’s TUOS is set by the Nigerian Electric Regulatory Commission (NERC) and is the same rate everywhere in Nigeria.  For 2013, the TUOS rate is currently set at $7.4/MWhr (N1200/MWhr). It is very clear that TCN’s revenue is directly proportional to how much MWhr power is measured from transmission operations.

Nigeria reached a record generation peak of 4.5GW in December 2012 (Nigerian System Operator report). However, on average this year, GW transmission is much less than the 4.5GW achieved in 2012. However, let’s assume that an average of 4.5GW is transmitted through Nigeria’s transmission network this year. Transmitting 4.5GW for 365days would correspond to earned revenues of $291 million based on a TUOS rate of $7.4/MWhr. From popular news sources, TCN requires revenue estimated at $1 billion (N162 billion) to stay afloat. This revenue is used to cover its operational and maintenance activities, salary payments, repayment of interest and debt from financed projects. Given that TCN will make only approx. $291 million (N47 billion) from its TUOS charges, it will incur a projected loss of over $709 million (N115 billion) for this year based on transmitting only 4.5GW of power through its network. From the TUOS method that TCN uses to generates its revenue, it is clear from the above that the company would have to transmit significantly more GWs through its network to increase its revenues. To do this, it will need to spend billions of dollars to expand its transmission facilities. Also, its revenue creation is also linked to how much power is generated by the generation companies and transmitted through its network.

The ministry of power has forecasted that Nigeria will generate and transmit 10GW of power by 2014. This would mean growing from supplying a peak of 4.5GW to steady supply of about 10GW of power. This corresponds to an annual growth of over 100% in the Nigerian Power Sector. This is a very optimistic goal and if achieved, an annual growth of this magnitude would be the first for a developing country in international history.  Nevertheless, even if the 10GW is achieved by 2014 and transmitted through TCN’s network, this would only equate to revenues of approx. $648 million (N105 billion) but still a loss of about $352 million (N57 billion) and hence does not solve the problem.  As was reported in the news, TCN also owes about $1billion in unpaid taxes and debt. The company’s liabilities will only continue to increase until its revenue can grow to a point where it can cover its operations as well as service its large outstanding liabilities and debts. At a certain point, it would be almost impossible to attract reasonable investments to continue to grow TCN if liabilities keep growing and the company continues for face challenges with generating enough revenue to manage its operations and servicing its debts. If TCN is unattractive to private investors and banks, it will make it close to impossible to successfully raise the planned budget of over $3 billion annually until the country reaches its year 2020 target of 40GW without adequate funding from the government.

 One of Manitoba Hydro International’s goals during its 3 year management term of TCN is to make TCN a profitable enterprise by 2015. Unless other avenues of revenue generation are explored, TCN cannot begin to see any profits until it starts to steadily transmit approximately 15GW of power through its network. How can TCN expand its transmission facilities and network from currently transmitting 4.5GW to reliably transmitting 15GW given the company does not currently generate enough revenue to cover its existing cost and does not get adequate funding from the government? How can they pursue financing for future projects to achieve 10GWs or 15GW when they have challenges generating enough revenue to pay their current debt? How can we expect significant expansion from a company that is destined generate billions of naira in losses annually from its current operations? It should be noted that it is no fault of TCN that they cannot generate sufficient revenue as they do not control the GW generated and supplied to the network. Also, the limited capacity on the transmission network in the country is as a result of neglect in this sector for many years. Don Priestman, TCN’s current CEO under MHI’s management stated the following in an interview:

“..So for many years, TCH has been living a sort or hand to mouth situation, if you like, with minimal operating cost, with only enough money to pay the salaries, but not enough money to pay for the costs. In effect, if now TCN, by strict definition of the word, is insolvent what that means is that we are not getting enough revenue to cover all of our costs.” [Nigerian Guardian]

An option to solve this insolvent state of TCN could be for NERC to revisit TCN’s $7.4/MWhr TUOS rate. However, this would mean an increase of the TUOS rate by about 3 times the current rate to allow the company generate the required revenue to cover all its cost. However, this cost would have to be passed down to electricity consumers. A rate increase of this magnitude will not be welcomed by Nigerians. In other words, TCN still requires funding from FGN until generation companies starts to supply enough power in GWs and the expansion of transmission facilities are funded to a capacity where TCN can generate sufficient revenue from its TUOS tariff to cover all its cost. These costs also include its repayment of interest and debt from financing the expansion of the transmission system.

Note: The writer is not affiliated with either MHI or TCN. The contents of this post and blog are just comments based on news and trends in the Nigerian Power Sector.