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.



3 comments:

  1. Hello Decoder,
    I really appreciate your analysis and comments on the electricity sector in Nigeria. I am a student in technology policy at Cambridge university, with a focus on electric energy. I would like to know your opinion on the investment opportunity in electric sector in Nigeria. From your articles, it feels that it is very unlikely that any private company would want to invest into the transmission section; there are however, many private companies in the generation and distribution. Last month, 60% of share of distribution is sold to several companies; from another source, I read 25% of generation comes from independent power plants. Would you say that it is a good time to invest in either generation or distribution? But how sustainable is it, without proper investment in transmission, there will eventually be bottleneck in either distribution and generation.
    I would really like to know your professional opinion on this.


    Sincerely yours,
    Dakun

    ReplyDelete
    Replies
    1. Thanks for your interest in my articles Dakun. I appreciate you taking the time to read through them. To answer your questions in full detail would take a few chapters as I do not have a short answer to them. However, I have made an attempt to summarize my opinion. My apologies if it is a lengthier opinion than you were anticipating. Look forward to talking with you more on other issues on the power sector in Nigeria.

      1) From your articles, it feels that it is very unlikely that any private company would want to invest into the transmission section

      The transmission company of Nigeria (TCN) has been deemed insolvent by the current CEO, Don Priestman. Based on the revenues generated from its Transmission Tarriffs, TCN is unable to generate enough revenue for operation and maintenance of the transmission system. The company also struggles to pay its current debt and as source mentions that the company has over $1 billion in unpaid taxes and debt.

      As you can see, this is not a company private companies would rush into an investment in as it would make a very risky investment. As the transmission company and network is government owned, any investment in the transmission system would come in form of a loan to TCN with an interest rate that would reflect the high level of risk of the investment. However as the company is currently insolvent, acquiring more loans would mean having to pay more high interest payments on this loans in addition to existing interest payments and debts that the company is unable to meet.

      The idea is for TCN to use these borrowed funds to expand its transmission network so it can transmit more power through its network and hence make more revenue based on its $/GWhr revenue structure. However, TCN’s revenue is very dependent on an increased generation supply to the transmission system as well as a more reliable and stable transmission grid to match the existing and future generation supply.

      With the very poor existing reliability of the transmission network, in my opinion, it would take nothing short of a decade for the existing transmission network to be revamped to be able to reliably transmit today’s generation supply not to mention the expansion to accommodate a stable and reliable supply for generation supply growth promised in the near future.

      TCN’s inability to reliably transmit majority of the available generation today through its network affects its revenue. Until a more reliably network is in place, there will be no growth in TCN’s current revenue. Yes, the borrowed money will be used to expand and repair the network but like I mentioned it would take years and multiple GW of capacity expansion and growth in the generation and transmission sector before the company start to transmit enough stable GWs to become profitable. How would the company have the capacity to pay its interest on any new loans when it will not be profitable for many years to come, cannot stay afloat with its O&M cost and existing debt and tax payment?

      Given the above, private sector investments/loans would become more difficult to secure in the near future in this sector. In my opinion, the transmission sector should be fully funded by rate payers in combination with government funding.

      Delete

    2. 2) Would you say that it is a good time to invest in either generation or distribution? But how sustainable is it, without proper investment in transmission, there will eventually be bottleneck in either distribution and generation

      The privatization of the generation and distribution assets in the country have recently been privatized. These sectors are now fully privately owned except the NIIP project which when completed will also be sold to the private sector. The transmission sector, TCN is the only sector in the power system that is planned to remain government owned as it is deemed a critical infrastructure.

      You are exactly right! The expansion of the transmission sector should be ahead of both sectors mostly especially the generation supply. If this is not the case, like you mentioned, the transmission network would become a bottle neck and no matter how much generation GW capacity is installed, the supply to the distribution companies will be limited by the transmission transformation capacity.
      With that said, as a generation facility investor, I would be skeptical about investing in generation facilities on the system given the poor reliability and limited capacity on the transmission network. There is a high probability that I would be down most of the year due to limited transmission capacity and numerous system outages on the transmission grid. There should be more focus on the revamp and expansion of the transmission grid to accommodate future private sector investments in the generation and distribution sector.

      Now, if from my feasibility studies, I can locate my generation facility on a particular point on the network where I can become an island and supply a defined amount of load for the scenario of loss of power from or to the grid. I can continue to generate revenue from supplying power to my islanded load even with the regular outages seen on the transmission grid. An investment in a facility at this type of location on the grid is not preferred but it is still more favorable than having to be tripped and supply no load every time there is an outage on the grid. As you may know, the country suffers from multiple system outages and nationwide blackouts annually. A generation facility of this type would more than likely have to be a much larger generation facility/IPP. Smaller generation facilities/IPPs would likely be tripped off for loss of supply from the grid as they would not have the capacity to successfully island and supply loads connected to the network.


      Delete