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”, http://laselle-engineering.blogspot.ca/2013/08/nigerian-to-make-international-history.html ]

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.