Infrastructure hiccups stalls Nigeria’s 2020 power generation projection

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The energy sector projection as presented in the Infrastructure Master Plan reveals that Nigeria targets to increase power generation to 40 gigawatts by 2020. Since this report became public, divergent views from industry experts continue to trail this lofty ambition given the current economic and infrastructure reality in the country at the moment.

It is not difficult to decipher that electricity is the hub of both economic and technological development as the electricity industry in the developing countries has gone through a lot of changes in the recent past.

Analysts believe that electricity supply or the lack of it will remain a very sensitive issue. The question that continues to beg for answer among industry watchers is; will Nigeria ever attain effective power supply to grow the economy?

According to an estimated projection, generating capacity should increase to 35 GW in 2015, while it is expected to further triple to 105 GW in 2025 before slowing down to reach 164 GW in 2030. This system expansion is expected to eliminate current electricity poverty and raise electricity per capita from the current extremely low level of 140Kwh to 1,110kwh in 2015, 5,000Kwh in 2030.

IPPs involvement

Claudius A. Awosope, professor of Electrical and Electronics Engineering in a paper presentation titled: Nigeria Electricity Industry: Issues, Challenges and Solutions opines that Independent Power Producers (IPP) given licenses by NERC to add 8237 MW to existing capacity, has not done anything tangible.

According to him, “There is some reluctance among the licensees to begin observable construction activities. Part of the problem concerns the power purchase agreement (PPA) which is at the core of IPP. The unnecessarily long duration of PPA will lock in a high cost structure in the grid system because of the take or pay clause in the agreement. It poses a problem to cheaper production from more efficient plants in the future”.

Awosope further noted that with the unbundling of PHCN into 6 generation companies, one transmission and 12 distribution companies, the sector is on its way to full deregulation and privatisation. The companies are yet to be privatised. There is no universal “one model fits all”. But most power systems are private sector driven. A public-private sector mix can also be a viable option.

“The peculiar nature and initial conditions in the industry may suggest some roles for the government in the production and delivery of electricity” he added.

Investment issues

The immediate past government of Nigeria had planned to spend $18 billion to increase power generation, transmission and distribution by 2018. In the summation of analysts, this amount is enormous given industry experience.

They however opine that though this financial requirement is daunting, it is achievable. Only to the extent that the right institutional framework, policy consistency, appropriate incentive structure and security of investment and input would guarantee the required flow of investment.

Both domestic and foreign investors and producers have important roles to play in achieving a sustainable electricity future in Nigeria. Awosope pointed out that the mobilization of the financial resources to support a dramatic scaling up of generating capacity, more than twenty-fold in another four years will be a major challenge stressing that this must be situated within the context of the risks that would impact the industry.

“Risks associated with investment to strengthen power supply networks in both the short and medium term as investor/producers and the state is essential for efficient allocation of resources in the industry for a sustainable electricity future in Nigeria and the sub-region”. On his part, Dolapo Oni, Head, Energy Research, Ecobank Development Company (EDC) Nigeria Limited observes that the problem with investment is a case of where is the money going to come from because where the money comes from determines how long you can keep the money what kind of investments you can make with the money and how much of the money you can get.

Oni pointed out that sourcing the money outside the economy would mean target foreign direct investment (FDI) in form of private investors to come and drop the money, he however noted that foreign investors would not want to come into the economy as long as there is risk of exchange rate losses.

Oni is optimistic that a lot of things could change between now and then but the most important thing is for government to provide an environment of stability and certainty of exchange rate risk and remove the reliance on crude oil

Experts view point

Wumi Iledare, Director of Emerald Energy Institute, University of Port Harcourt observed that projected year for achieving the increase in power generation is only four years away.

“2020 is only four years from now, the administrative set up and Industry Governance structure is not in place to make this happen”

“Perhaps a 20 Gw dream within the next four years is a more realistic dream and even with that I hasten to opine that we have a weak governance structure for the Oil and Gas Industry to make it happen” he said. Achieving 40 gigawatts of electricity in the view of Dolapo Oni is simply not possible owing to the fact that there are critical issues that need to be addressed.

According to him, “there are several issues that need to be addressed on the distribution side of power. For the whole power/ energy sector to work, people must pay their bills. People do not want to pay estimated bills and people do not want to pay bills for power they do not get. So people need some sort of orientation”.

He further pointed out that generation is always an easy part of the mix because going from 7, 000 megawatts to 20,000 can be achieved within two years. He is  however concerned that if Nigeria generate the power but cannot sell it or cannot transmit it, then it is redundant “so there are several issues that needs to be fix before we can think of achieving going from 7,000 megawatts to 20,000 megawatts”.

“We should not expect that much of a change. There might be improvement in terms of generation because there are still several generation plants ongoing and there are plans to build coal power plant construction have started already. There are plans to build more gas power plants; there are plans to increase output from some of the existing ones”.

“The key thing is watching how transmission and distribution shapes up in the next years, then that goal starts to look like a reality and even for that goal, you can’t just go from 7,000 to 20, 000. The amount of capital investment required, I am not sure we can monster it under this current circumstance unless things improve”, he said.

Source- Business Day

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