Grid-based electricity in Nigeria: How it works and why it doesn’t

At 126kWh per capita consumption, Nigeria is far behind other developing nations in terms of electricity consumption. Ghana’s per capita consumption at 314kWh is over two times that of Nigeria, and South Africa’s 3,584kWh per capita consumption is twenty-eight times higher.

The challenges of the grid-based electricity transmission system in Nigeria are numerous but I believe that the underlying cause of many of the challenges is poor infrastructure as a result of inadequate funding and lack of trust in the distribution companies (DisCos).

How it works

There are four portions of the power value chain in Nigeria; the gas producers, the thermal and hydroelectricity plants — generation companies — (GenCos), the transmission company of Nigeria (TCN) and the distribution companies (DisCos).

There is also the Nigerian Bulk Electricity Trading Plc (NBET) an intermediary between DisCos, TCN and GenCos for bulk payments. The gas companies provide gas while the GenCos produce electricity from gas and water then send it to the transmission companies who then distribute it to the DisCos and in turn distribute it to power users within their respective franchise areas.

The Genesis

The problem starts at the beginning of the chain.

Most of the installed generation capacity is fueled by gas: 15% of electricity is derived from hydroelectric dams while the remaining 85% is derived from gas-powered power plants. Despite this knowledge, the availability of gas molecules is low due to insufficient production, economic disincentives, inadequate infrastructure, and frequent vandalism.

Long-term under-investment and delays in the delivery of planned gas infrastructure have also resulted in a shortage of gas-processing and pipeline infrastructure. Low domestic gas prices do not justify investment in gas development by upstream oil and gas companies.

Besides, gas producers are not consistently paid for the gas they supply because the generation companies do not receive full remittances from the NBET due to collection issues.

Current and future power plants will not meet power demand unless gas supply improves significantly. But regardless of that, the country currently cannot make use of the gas being supplied to the generation companies.

Nigeria has 12,522MW of installed generation capacity, but due to maintenance, gas, water and transmission constraints, an average of only 3,879MW of capacity is operational.

Nigeria’s transmission system can transmit ~5,300MW but this is disrupted by system collapses and frequent forced outages. Currently, transmission capacity is higher than the operational generation capacity of 3,879MW, but it is still far below the total installed capacity of 12,522MW.

As a part of the privatization program, the Power Holding Company of Nigeria’s (PHCN) distribution network was broken up into 11 regional grids, with a minority stake retained by the FGN. The resulting distribution companies vary greatly in terms of network size, the number of customers and geographic area. They are called the DisCos.

The biggest challenge the DisCos face is the level of distribution losses. This includes technical, commercial (energy not billed for), and collection losses (energy billed but not paid for).

There are cases of inappropriate charges arising from estimated billings creating issues between the distribution companies and consumers, outdated metering and customers bypassing the metering system. But the DisCos could not afford to finance smart meters which led to the creation of the Meter Asset Providers (MAPS) in 2018 who are expected to finance the installation and maintenance of meters.

But the fundamentals are still missing

Nigeria needs to fix structural issues before supply can meet demand. The most critical issue is to ensure that the distribution companies have the revenues to settle their obligations, meet their operating expenses and invest in new capacity.

Setting the right tariffs is just one piece of the puzzle. It costs ~ ₦70/kWh to produces electricity in Nigeria and the average price being paid for it by consumers is ~₦36/kWh.

The required interventions cannot be isolated within a specific segment because of how interconnected the power value chain is, which allows disruptions cut across the whole sector, i.e. a decrease in power generation has an impact on the power distribution and in turn distribution collection losses have an impact on finances of all market players.

Unreliable power supply forces both households and industry to rely on privately owned generators for much of their power. Self-generation costs a lot more than grid-based power.

There are also cases of off-grid Independent Power Providers (IPP) in certain areas, factories, and gated estates. They cost more than the country’s grid-based power to get constant electricity but offer a more sustainable option to those who can afford it.

Most distribution companies also cannot accommodate the electricity being sent by the transmission companies. The most apparent issue is the lack of capacity due to infrastructure lapses.

These companies do not have the finances to fund this infrastructure and so there is a dearth of investment.

How do we move forward?

First, the Government could invest what is required to enhance the sector’s infrastructure, but all the evidence points to the lack of funds on the government’s part and the sector was privatized for these reasons.

Alternatively, the government could explore regulatory restructuring. Here cost-reflective tariffs are being paid to at least cover cost and margin for the work being done, but this should only happen after all power users have been provided smart meters from which consumption of electricity can be monitored.

Finally, the government must enforce strict punishments on those that bypass meters to curb electricity theft.

It costs a lot of money to produce electricity, we may need to pay its price to move forward.

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