Outlook for the Nigerian Power Sector 2021
The Nigerian journey to a competitive and efficient private sector-led electricity market is bedeviled with a number of challenges ranging from inadequate electricity infrastructure, insufficient generation capacity, inadequate transmission of power to inefficient distribution of electricity to consumers. Regrettably, the sector is also contending with the negative impacts of the prevalence of the COVID-19 pandemic. The Nigeria power sector suffered a loss of about ₦57 Billion in 2020 due to problems associated with gas supply and grid infrastructure. It is reported that Nigeria’s power grid had five (5) major collapse incidents that plunged substantial parts of the country into darkness during the course of the year 2020. Notwithstanding that the entire value chain suffered immensely from the pandemic, the Distribution Companies (“Discos”) can be argued, incurred major challenges arising from as a result therefrom. The most obvious of these being: (a) a huge jump in the electricity demand by end users;(b) unresolved stranded electricity issues; (c) increased customer apathy; (d) low payment response rate; and (e) inefficient collections rate, challenges with energy load allocation as well as business continuity risks.
In the midst of these, there have been continued collaborations by the Federal Government of Nigeria and other foreign and domestic stakeholders in the power sector, for the purpose of improving the sector and optimize its capacity across the power sector value chain. An example of this is the recent collaboration of the Federal Government of Nigeria and Siemens AG backed by the German government to modernize Nigeria’s electricity grid pursuant to the Nigerian Electrification Roadmap, 2019.
Flowing from the foregoing, this writer shall be providing an outlook for the state of affairs across the electric power sector value chain in 2021.
Marginal Improvement in the Distribution of Power
This writer expects to see the substantial improvement of power distribution in areas where customers pay for electricity services thereby giving the Discos additional impetus to provide more stable electricity supply in those areas on the basis of service-based tariffs.
The MYTO 2020 which took effect on 1 September 2020 amongst other things, redesignated the classes of customers in the Nigerian Electricity Supply Industry (NESI), increases the tariff payable by customers in the different classes and introduces a tariff regime that is based on the level and quality of service provided by the Discos to their customers in the different classes. As a domino effect of the MYTO 2020, the Discos will take advantage of providing better quality of supply to customers paying higher tariffs compared to the tariffs paid by customer classes in areas with poorer quality of supply. This structure enables the Discos focus on prime areas with improved areas of collection efficiency to improve their finances and operations.
Sub-franchising Regime
It is envisaged that there would be the adoption of various Discos franchising models such as those across the metering, billing, and collection aspects of the power sector. The Nigerian Electricity Regulatory Commission (NERC) Guidelines on Distribution Franchising in the Nigerian Electricity Supply Industry 2020 ( the “Franchising Guidelines”) was enacted to enable Discos to take advantage of evolving business structures and technology for the purpose of providing adequate safe and reliable services to end user consumers. The Franchising Guidelines permit a Disco to enter into a franchising arrangement with a third party (Franchisee) to authorize the Franchisee to perform some of the specific functions of the Disco within the Disco’s licensed area. The total management of the electricity distribution function and distributed generation models as contained in the Franchising Guidelines will assist the Discos mitigate some of its present operational challenges particularly in the areas of collections, billing and rehabilitation of distribution infrastructure.
Improvement in Distributed Energy Resources (DERS)
In recent years, support for minigrid development has increased due to improved commercial viability and recognition of the co-benefits of electrification, such as local economic development. Mini-grids are stand-alone power generation systems of up to 1 MW capacity that provide electricity to multiple consumers through a distribution network. They differ from embedded generation, which are independent power plants connected to the centralised grid at the distribution level. Mini-grids tend to be smaller in capacity compared to embedded generation, and are also intended to operate independently from the local distribution licensee. Today’s mini-grids demonstrate greater availability, reliability, and customer value compared to dilapidated and insufficient grid supply in most areas. Although today’s mini-grid tariffs are high relative to distribution companies and the central grid, they fall within the ability and willingness of customers to pay for electricity. Furthermore, the mini grids provide a solid platform for the utilization of renewable energy such as solar, wind, biofuel to diversify Nigeria’s energy mix and increase the nation’s overall generation capacity.
The Mini-grid Regulations issued by the NERC are designed to promote investments in rural electrification and provide a framework for engagement between mini- grid developers (off-grid electricity) community stakeholders and existing distribution companies, private retail tariff arrangements for certain operators and compensation for developers in the event of operational expansion by the distribution company licensed to cover the relevant community.
DER have changed the power generation sector by disrupting traditional markets and models as there is an evolving landscape for solar, wind, battery storage and other new energy technologies in the power space. It has paved and will continue to pave the way for a two-way flow of energy and allows the incorporation of new, connected technologies for power generation. DERS are both physical and virtual assets that can be deployed virtually across the grid.
A solar power company is developing a solar power system managed and administered through blockchain technology. The intention of the sponsor is to deploy the solar power infrastructure to the customers at no upfront cost. The utility payments shall comprise of the infrastructure as well as energy usage costs. In addition, the blockchain will utilize tokenization to manage and administer the end-to-end aspects of the project from the financing to energy service delivery to the ultimate customer. The movement towards integrated grid with efficiency and consumption working together for mutual benefit is advancing rapidly and more of this is expected in 2021. Recently, a Disco partnered with a power service provider to procure and install grid- tied uninterrupted power supply solution to support the reliability and quality of power
Dr.ayo de leoni (ayodele.oni@ bloomfield-law.com)specializes in international energy( oil, gas, electric power& renew ab les) investment law. for more details on anything oil, gas and power, read my newbooks-understanding Petroleum transactions and the Nigerian electricity market.