Solar:Affordable Power in Nigeria and Africa: The Power Value Chain, Reform and Problems-Part 3
The Power value chain can be broken down into Power Generation, Transmission, and Distribution.
Generation
In Power generation, a fuel (natural gas, coal) is burnt to produce steam, which drives a turbine producing mechanical energy. The turbine spins an electro-magnetic generator to produce electricity energy.
Hydroelectric power plants use flowing water (from a stream, river, dam) to drive the turbine and hence generate electricity.
The two predominant fuel sources for power generation in Nigeria supplied to Nigeria’s national grid: 86% gas power generation, and 14% hydroelectric power plant. We do not generate grid power from coal, solar or wind.
Nigeria’s installed capacity of grid-connected power plant is 10,400MW, of which only about 6,100MW is available for supply through the national grid. It is estimated that Nigerians generate up to 14,000MW of electricity from privately owned gasoline and diesel generators
The key challenges with generation in Nigeria are the dependence of gas as fuel source, gas supply, gas pricing, and sector liquidity
Transmission
The generated electricity is then connected to a very high voltage (to reduce losses) transmission line, which supplies electricity to different distribution companies across Nigeria. Despite Nigeria’s installed generating capacity, supply is limited to 5500MW by the transmission line. This makes the transmission the weakest link in the value chain.
Distribution
Electricity from the transmission company of Nigeria is supplied to the Distribution Companies (Discos) who supply the end user. There are 11 Distribution companies (DisCos) across Nigeria. They are responsible for the operation and maintenance of the network, customer connection, and billing. The key function of DisCos is revenue collection.
The Nigeria Power Problem
Ideal situation
Gas producers supply gas to the GenCos for generation. As shown in the image above Power flows from the Generation Companies to the consumer through the grid and the DisCos.
The DisCos collect revenue from the customers, and pay the GenCos through the Bulk Electricity Trader (NBET). The GenCos then pay the gas suppliers from the received revenue at the terms agreed upon in a Power Purchase Agreement (PPA). This is shown as Cash Flow above.
Real situation
There is a huge revenue shortfall remitted by DisCos to the GenCos i.e. over $2.8bn as at July 2018, plunging the entire sector into massive debt.
A key reason for this is that the GenCos pass on their generations cost at the current foreign exchange rate to the DisCos who have to collect tariffs at a government set rate that does not reflect the true cost.
This rate was decided at a time with significantly lower foreign exchange rate. The GenCos are not able to pay the gas supplier, and the gas supplier does not invest in suitable gas to power facilities, thus creating a liquidity issue.
The key issue with the Nigeria power value chain is liquidity, revenue collection by the DisCos and government set tariff and gas price, which is unprofitable for stakeholders.
This is why most DisCos prefer to send customers an estimated bill instead of installing prepaid meters, and why most Nigerian gas producers export their gas on the international market at a higher price.
Now that we understand the power value chain and its challenges, Next Up is Solar Energy
Thank you for reading
Nero
