Ad­dress­ing Nige­ria’s Elec­tric­ity Deficit­sThe Em­bed­ded Gen­er­a­tion Model

THISDAY - - INSURANCE - - Onyearu, Lawyer and En­ergy Con­sul­tant writes from Abuja

An­drew Obinna Onyearu

As the elec­tions draw closer, the avail­abil­ity of elec­tric­ity, be­hind the econ­omy and cor­rup­tion re­mains the three most en­gag­ing is­sues upon which Nige­ri­ans con­tinue to seek lead­er­ship di­rec­tion and end-prod­uct. Much has been made of the deficits of elec­tric­ity and the dire con­se­quences that this has brought about across the coun­try’s com­mer­cial and so­cial space. That there is in­suf­fi­cient elec­tric­ity to serve Nige­ri­ans is com­mon un­der­stand­ing. That this sit­u­a­tion needs to be ag­gres­sively ad­dressed is a sub­ject of com­mon ac­cep­tance. And that this needs to be done with ex­pe­di­tion is com­monly be­lieved. The dire statis­tics have been rou­tinely dis­cussed over the last few years and very lit­tle will be gained in churn­ing them out. But the ef­fect of this in­suf­fi­ciency serves as a painful re­minder of the gap that ex­ists be­tween what Nige­ri­ans de­sire, the power re­sources “on the ground” and the ne­ces­sity to bridge that gap.

Power gen­er­a­tion, de­spite the graph­i­cally doc­u­mented ef­forts of this gov­ern­ment, re­mains woe­fully in­ad­e­quate. In the run up to the elec­tion, it is even worse now. The at­tain­ment of power gen­er­a­tion name plate ca­pac­ity – this be­ing the max­i­mum amount of elec­tric­ity that our gen­er­a­tion re­sources are ca­pa­ble of pro­duc­ing col­lec­tively – con­tin­ues to elude Nige­ria by a com­bi­na­tion of sev­eral frus­trat­ing rea­sons, many man­made! Chief amongst the prob­lems un­der­min­ing power gen­er­a­tion is the avail­abil­ity of gas, this be­ing the fuel most abun­dant for power gen­er­a­tion in the coun­try given the gas re­sources avail­able. Amongst the sev­eral rea­sons that limit the avail­abil­ity of gas in­cludes van­dal­i­sa­tion of ex­ist­ing gas trans­porta­tion fa­cil­i­ties; in­suf­fi­cient avail­able gas; limited in­vest­ment in gas in­fra­struc­ture; is­sues in gas eco­nomics like avail­abil­ity of gas sup­plies to meet ac­tual de­mand and gas price. More gen­er­ally are power gen­er­a­tion short­falls cre­at­ing huge gaps in sup­ply and the means by which, over the years, gov­ern­ment has sought to ad­dress th­ese. Start­ing from the con­cep­tion and ex­e­cu­tion of the re­form pro­gramme by the en­act­ment of the Elec­tric Power Sec­tor Re­form Act (EPSR) 2005; un­bundling of NEPA and di­rect in­ter­ven­tion mea­sures in the NIPP projects as well as their sub­se­quent pri­va­ti­za­tion, Nige­ria has con­tin­ued to com­mit time and fi­nan­cial re­sources, in no small mea­sure, to re­dress­ing this deficit. Whilst, at present, th­ese huge com­mit­ments have yielded limited suc­cess, it is clear that th­ese mea­sures are the right ones, medium to long term. Un­for­tu­nately, in the im­me­di­ate per­spec­tive, the gains of this in­evitable long-term plan­ning re­main mar­ginal. The crit­i­cal is­sue is that the gen­er­a­tion deficits re­mains stark and a vari­a­tion of the ap­proach to the prob­lem to widen the scope of power gen­er­a­tion in­crease has now as­sumed even more crit­i­cal pro­por­tions. The rea­sons men­tioned have con­tin­ued to un­der­mine rapid in­creases in power gen­er­a­tion such that even the gov­ern­ment’s pro­fessed – and pre­ferred – course in pri­va­tiz­ing gen­er­a­tion is now se­verely threat­ened as very few of the In­de­pen­dent Power Pro­duc­ers (IPP) have started or in­deed added, any note­wor­thy gen­er­a­tion of power.

Na­tional Elec­tric­ity Reg­u­la­tion Com­mis­sion (NERC) Chair­man, Dr Sam Amadi, writ­ing in a col­umn in This Day of 2 March 2015 quite su­perbly sets out the ra­tio­nale for this de­sir­able re­view of em­pha­sis, es­pe­cially to com­pli­ment the ef­forts that were be­ing pros­e­cuted un­der var­i­ous as­pects of the cur­rent re­form pro­gramme. In sum­mary, he stressed that the gen­er­a­tion land­scape had changed as post-pri­va­ti­za­tion, both gen­er­a­tion and dis­tri­bu­tion were now in the con­trol of pri­vate op­er­a­tors but that even with lib­er­al­ized gen­er­a­tion, prob­lems around lead time is­sues ev­i­dent in dic­tat­ing mar­ket stim­u­lus re­quired to gen­er­ate in­vest­ment mo­men­tum nec­es­sary to un­leash ca­pac­ity growth and sus­te­nance meant that Nige­ri­ans were still be­ing served with less than 4,000MW of elec­tric­ity, daily. Iden­ti­fy­ing the “dark spot’ as low gen­er­a­tion, he af­firmed the com­monly held view that aside in­ad­e­quate do­mes­tic sup­ply, it was a ma­jor prob­lem af­fect­ing the pro­duc­tiv­ity and com­pet­i­tive­ness of in­dus­tries and busi­nesses and, in con­se­quence, eco­nomic growth. Con­tin­u­ing, NERC sees the estab­lish­ment of the Nige­rian Bulk Elec­tric­ity Com­pany as a gov­ern­ment backed, cred­i­ble off-taker to pro­vide in­dus­try as­sur­ance of end use lead­ing to large ad­di­tions to gen­er­a­tion ca­pac­ity but yield­ing div­i­dends in 3 to 4 years. This, com­bined with the con­stricted res­o­lu­tion of the gas short­age all mean that ad­di­tions to gen­er­a­tion ca­pac­ity will not hap­pen quickly enough to de­liver short to medium term benefits.

It was against all th­ese de­vel­op­ments that, in designing an ap­proach to ex­pand the sources of in­creased gen­er­a­tion, NERC has ini­ti­ated in­ter­est by stim­u­lat­ing the dis­cus­sion on avail­able, less con­strained op­tions through high­light­ing the Em­bed­ded Gen­er­a­tion Model. Also known as Dis­persed; Dis­trib­uted; Off-site or De­cen­tral­ized Gen­er­a­tion, Em­bed­ded Gen­er­a­tion is power is gen­er­ated on a smaller scale, off-grid, di­rectly con­nected to its end­con­sumer and through its own des­ig­nated dis­tri­bu­tion net­work. Its at­tributes are con­sid­er­able. Com­pris­ing, typ­i­cally, smaller or mod­u­lar gen­er­a­tors, em­bed­ded gen­er­a­tion is the medium most amenable to a wide a va­ri­ety of fuel gen­er­a­tion tech­nolo­gies such as so­lar, wind, biomass, diesel, fuel oils, crude oil and small hy­dro. It ap­pears to be the gen­er­a­tion plat­form of choice for the devel­op­ment of re­new­able en­ergy in coun­tries such as Australia, France, Ger­many, Greece, In­dia and the United King­dom. It is also a use­ful means of ded­i­cat­ing power to state and lo­cal gov­ern­ment, el­i­gi­ble cus­tomers and oth­ers. It would pro­vide re­li­a­bil­ity for sup­ply of en­ergy crit­i­cal for vi­able industrial ac­tiv­i­ties and is the medium bet­ter able to deal with is­sues around peak shav­ing, high power qual­ity or volt­age con­trol es­pe­cially nec­es­sary for sen­si­tive industrial equip­ment. Its value in min­imis­ing line losses and volt­age sag, by, amongst other fea­tures, close­ness to load in­evitably leads to bet­ter re­sults in more ef­fi­cient power trans­mis­sion. Less than 40% of Nige­ria is ac­ces­si­ble to elec­tric­ity from a Na­tional Grid that is, at present, stretched be­yond ca­pac­ity and grid ex­pan­sion plans, costly with long term lead times, is cur­rently be­fud­dled with un­cer­tainty. In ar­eas with­out grid ac­cess or con­nec­tiv­ity like Ru­ral Nige­ria, em­bed­ded gen­er­a­tion can clearly pro­vide the main sup­ply source of power or, else­where, as backup standby gen­er­a­tion ca­pac­ity. This will en­sure regular sup­ply and pro­vi­sion of an­cil­lary ser­vices such as volt­age or fre­quency con­trol. Fi­nally, given its in­her­ent one-stop out­look, com­mer­cial man­age­ment in me­ter­ing and col­lec­tion, main­te­nance of gen­er­at­ing equip­ment and fa­cil­i­ties, and staffing all be­come sig­nif­i­cantly eas­ier to pro­vide thereby im­prov­ing ser­vice de­liv­ery and ef­fi­ciency.

NERC takes the view, rightly, that Em­bed­ded Gen­er­a­tion Model keeps faith with the strate­gic ob­jec­tive of a mar­ket-based ap­proach to ca­pac­ity growth and, in ex­er­cise of its pow­ers to make reg­u­la­tions as the Power Sec­tor Reg­u­la­tor un­der sec­tion 96 of the NERC Act, it has set out the reg­u­la­tory frame­work for the im­ple­men­ta­tion of the model. Its de­sire in seek­ing to pro­mote this as an an­swer to acute short­age un­til the Bulk Trader pro­cured power en­ters the mar­ket and the NIPP plants de­liver to full ca­pac­ity is well in­ten­tioned. As is its view that uti­liz­ing it to de­velop a mi­cro-grid for industrial clus­ters. Re­gret­fully, th­ese two views seem, in many re­spects, a sig­nif­i­cant un­der­value of the crit­i­cal im­por­tance of this model as a huge con­trib­u­tor to Nige­ria’s power mar­ket.

First, industrial clus­ters, as end user out­lets for the con­sump­tion of elec­tric­ity do not re­ally ex­ist. There are sev­eral industrial parks or es­tates that have been built across the coun­try. Th­ese re­quire a com­mon­al­ity of pur­pose by more than one industrial en­tity at a very early stage. It must be re­mem­bered that the pri­mary pur­pose of the industrial en­deavor is usu­ally not power pro­duc­tion but power sup­ply is crit­i­cal to the achieve­ment of those ob­jec­tives. In the course of de­vel­op­ing th­ese parks, their own­ers of­ten con­ceive them with a num­ber of power sup­ply op­tions. In ef­fect, by the time they are es­tab­lished, their power sup­ply re­quire­ments are al­ready de­signed and met. Sev­eral rely on power from the grid. Mod­ern ones are be­ing con­ceived on the ba­sis of self-gen­er­a­tion op­tions. Clearly, there­fore, the time to con­sider an em­bed­ded gen­er­a­tion op­tion is at con­cep­tion stage. Any other op­tion is clearly un­work­able, es­pe­cially from the in­vest­ment per­spec­tive of a com­mer­cially driven In­de­pen­dent Power Pro­ducer. As for those in ex­is­tence or with iso­lated industrial pres­ence, this makes the industrial “clus­ter­ing” a dif­fi­cult, frag­ile, un­cer­tain and too fickle an off-take op­tion for an IPP to base an in­vest­ment de­ci­sion.

It seems clear that the Em­bed­ded Gen­er­a­tion Model needs to be com­pre­hen­sively for­mu­lated and im­ple­mented to gen­er­ate the op­er­a­tional mo­men­tum that is re­quired to breathe life into this model. And, with the best will, whilst it re­mains whole­somely ap­pro­pri­ate for NERC to demon­strate as­tute­ness and fore­sight in “show­ing the way”, it is at pol­icy and im­ple­men­ta­tion level that Em­bed­ded Gen­er­a­tion needs to be gal­va­nized. More for­mal mea­sures, guide­lines and di­rec­tions need to be for­mu­lated at pol­icy level. It is sug­gested that, ide­ally, a com­mer­cially run en­tity us­ing the model of the Niger Delta Power Hold­ing Com­pany (NDPHC) but run dif­fer­ently from the Bulk Trader be es­tab­lished to mid­wife the process. Its pur­pose will be to for­mu­late th­ese poli­cies; im­ple­ment them; es­tab­lish, with pri­vate sec­tor par­tic­i­pa­tion, em­bed­ded gen­er­a­tion pi­lot schemes across the coun­try that demon­strate its work­a­bil­ity which will pave the way for full scale IPP in­volve­ment. All th­ese can be achieved within shorter lead times.

Large gen­er­a­tion projects jus­ti­fi­able demon­strate the strong­est prospects of deal­ing with our elec­tric­ity deficits. But, at the mo­ment, they re­main ex­actly that – prospects. Sev­eral of them con­tinue to be ham­pered by some of the prob­lems al­ready dis­cussed. Th­ese, crit­i­cally, are re­spon­si­ble for the luke­warm­ness in com­mit­ment at off- take where the re­luc­tance to com­mit to Power Pur­chase Agree­ments (PPA) con­tin­ues to ham­per in­vest­ment fund­ing. Although this lat­ter po­si­tion is im­prov­ing and PPAs will soon be­come re­al­ity, huge fund­ing to untested prospects re­mains a per­sist­ing cause for con­cern for lenders and in­vestors. But this sit­u­a­tion, un­for­tu­nately, of­fers no im­me­di­ate, short-term div­i­dends which means that scal­ing down in­vest­ment tar­gets – and con­se­quently, ex­pec­ta­tions - in power gen­er­a­tion must be the way for­ward.

Em­bed­ded Gen­er­a­tion is clearly the fu­ture of power gen­er­a­tion in Nige­ria given the dis­par­ity be­tween de­mand and ac­tual gen­er­a­tion. Along­side re­claim­ing short term lost ca­pac­ity, this is the short­est route to grow­ing power gen­er­a­tion re­sources in Nige­ria. It rep­re­sents the only way in which smaller projects can be turned around quickly with new mar­kets be­ing de­vel­oped much more eas­ily. Smaller scale power gen­er­a­tion opens up the fuel space in a man­ner that al­lows hith­erto ex­pen­sive elec­tric­ity from re­new­ables to com­pete. Some of the prob­lems be­ing ex­pe­ri­enced now could have been mi­cro-man­aged with greater ef­fi­ciency and bet­ter re­sults in­clud­ing State, even Lo­cal Gov­ern­ment par­tic­i­pa­tion in gen­er­a­tion may even be­come pos­si­ble. With the ben­e­fit of hind­sight, its role in the re­form pro­gramme, tak­ing ac­count of its quite crit­i­cal sig­nif­i­cance could have been more com­pre­hen­sively cap­tured and in­te­grated whilst the bulk gen­er­a­tion en­vi­sioned for greater ef­fect and na­tional ac­cess through the Na­tional Grid pur­sued. In essence, it makes as­tute think­ing to giver fur­ther, closer at­ten­tion to scal­ing up its im­ple­men­ta­tion ag­gres­sively.

Min­is­ter of Power, Prof. Chinedu Nebo

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