The feasibility of the power sector recovery plan

By Akachukwu Okafor 06/04/2017

Trasmission

From a preliminary analysis of the recently developed power sector recovery plan approved by the Federal Government, it is not a feasible recovery plan in the medium and long term. The measures are designed as interventions to stabilize the collapsing power sector rather than help it recover. The plan will not effectively solve the liquidity problems in the sector and the cost reflective tariff only a measure that might further throw the sector into challenges if other measures are not planned for and implemented synchronously.

The power sector recovery plan comprises a wide range of pet policy actions, operational and financial interventions which intends to help improve transparency, service delivery, performance of DISCOS, transmission companies and the entire value chain. In specific terms the plan provides for simplifying and reducing the cash deficits in the sector; how to make the DISCOS viable, accountable, responsive to customers and to ensure stability of the grid and expansion of the grid and transparency and communication within the sector, in addition to how to improve sector governance and the quality of personnel on the board of the DISCOS. Other provisions of the plan include addressing access to renewable energy using mini-grids and stand-alone solutions and implementing solutions that have been developed for 37 federal universities and seven tertiary hospitals as well as stopping the vandalization of gas pipelines which will help stimulate appetite for investment in Nigeria’s power sector. These measures sound brilliant in theory, how they will be effectively operationalized remains to be seen or made public.

Direct financial interventions to solve institutional and organizational incompetence – gap in skill, knowledge, capacity and capabilities and problematic perspective of the system is not an effective way of solving market failure challenges. For instance, the liquidity problem being experienced in the sector is mainly due to DISCOS unwillingness to make the necessary investments to reduce their aggregate technical, commercial and collection (ATC&C) and entire system losses. I was recently informed by a power sub-station duty engineer that he has over 50MW of power sitting on his substation, but the DISCO in the area only accepted to collect 14MW. The result is that the remaining 36MW will waste and because it was generated, and must be paid for somehow. He further said that DISCOS preferred to accept a small fraction of what is allocated to them and leave the rest with Transmission Company of Nigeria (TCN), while they charge the customer the ‘fixed charge’ of being connected on the grid with or without electricity. This practice is said to be more profitable to DISCOS as they don’t need to share their earning with anyone. Liquidity challenges in the sector cannot be solved when key system players are involved in rent seeking practices. It is difficult to see how government plans to simplify and reduce the cash deficits in the sector by approving a Power Assurance Guarantee of N701 billion Naira for Nigeria Bulk Electricity Trading (NBET) to pay GenCos for gas supplies from this year to December 2018 when there is no plan that equally guarantees that the funds will be collected within the market by DISCOS. How subsequent power guarantees to GenCos beyond 2018 will be secured not yet known.

Making DISCOS viable, accountable, responsive to customers is more of what government wishes that DISCOS do but not what they can be in the near term. It is public knowledge in the sector that DISCOS are grossly incompetent in managing their asset, delivering quality service and have consistently refused to do so. Part of their poor attitude has been traced to how the privatization was handled. The Minister of Power in May 2016 during the presentation of a roadmap for solving the power crisis argued that cancellation of contracts and reversing privatization initiatives sends wrong signals to investors and past reversals failed in solving the problems that caused their cancellations and reversal. However, the Minister has failed to point out that these reversals failed because the process of initial engagement, reversals and renegotiations to correct previous problems are flawed by illegitimacies, lack of transparency and ridden with outcomes that satisfied the selfish interests of powerful and influential actors in the sector. I believe that investors would be happy to see reversals and reprivatisations that are transparent and are in accordance with provisions of the law and international best practices.

There are indications that there are other financial interventions asides the N701 billion Naira planned (or budgeted) for the sector which might be in the form of subsidies and introducing a cost reflective tariff that will help reduce the cash deficits. These were positions advocated by the then acting chairman of Nigeria Electricity Regulatory Commission (NERC), Mr Anthony Akah in January this year, and hinted on by the Minister of Power while briefing newsmen after the approval of the power recovery plan. The Senate Committee Chairman on Power, Senator Enyinnaya Abaribe, while answering at a public dialogue before the approval of the recovery plan, advised government to carefully determine if it is power or petrol that it must subsidize and warned that government should not give money to DISCOS. Subsidies have never worked in Nigeria; it has always been a scam. It doesn’t exist. Even when it exists it doesn’t benefit most of the population. It benefits only the rich and vested interests. Subsidies for the power sector will only elongate and complicate Nigeria’s power sector difficulties. Government should rather embark on a sector wide campaign to enlighten electricity consumers on the positive effects of not subsiding power or petroleum products on the economy and provide a plan to help stabilize and manage the short term economic difficulties that will arise. Subsidising power is not part of the solution, rather DISCOS should invest in upgrading its distribution network to reduce ATC&C losses and improve its collection measures to capture more consumers who currently do not pay for electricity consumed. There are suggestions that the business model that the DISCOS currently operate is a model that collects revenues from willing-to-pay-consumers, while unwilling-to-pay-consumers are not targeted to pay for power consumed. The proposed cost reflective tariff which is really an increase in tariff should be put on hold while government and DISCOS develop and implement a plan that ensures that all consumers that use electricity pay fairly for what they consumed. The inefficiencies in the systems especially on the part of DISCOS should not be passed on to consumers who are not protected by the system. This I believe will help solve the cash deficit problems in the sector. Government should not subsidize electricity and should also not increase tariff, unless an increase in tariff is a deliberate measure by government to push people off the grid for renewable energy alternatives – which is a brilliant measure. Unfortunately, this is not what the government plans to achieve. Perhaps a more careful study and understanding of how the market i.e. consumers will respond to the introduction of a cost reflective tariff is what government should be interested in at this moment, so that it doesn’t create more problems for the grid sector. That said, it must be made clear that an increase in tariff may increase energy efficiency (EE) measures, especially by commercial consumers that are more likely to access finance to implement energy efficiency mechanisms. Also, pursuing an energy efficiency plan is a more conscious consumer and policy driven plan which only informed consumers will be willing to take, even though there may be difficulty in change of lifestyle and business process.

Energy efficiency is an energy demand reduction mechanism that is missing in the power recovery plan, at least from the briefing that the Minister of Power gave. This has the capacity to increase the number of consumers that are served by the same quantity of energy that previously didn’t serve a lesser number. An Energy efficiency plan being included as part of the power sector recovery plan is an opportunity to link the recovery plan to Nigeria’s energy efficiency contribution in her Intended Nationally Determined Contribution to the Paris Agreement which is a 30% energy efficiency improvement by 2030, which is a measure that will help attract investments. The structure of the current mini-grids regulation is part of measures that will not effectively assure a quick power sector recovery. These and more I would be analysing in the future.

 

Okafor Akachukwu is the Energy and Environment Editor, The Initiative for Policy Research and Analysis (InPRA) and a Science Policy Research Unit (SPRU), University of Sussex trained Energy Policy, Innovation and Sustainability Expert. Email: akachukwu_okafor@yahoo.com

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The impatience with grid electricity and our energy future

By Okafor Akachukwu 02/12/16coal-fired-power-plant

It has now been established that patience is the currency that Nigeria needs to have in abundance if they are to have regular electricity supply in the near future. Recently, the Managing Director of Benin Electricity Distribution Company, Olufunke Osibodu while speaking at the Founder’s Day event of a private university in Yola, urged Nigerians to be more patient with government on electricity improvements, as nothing is expected to change at least in the next five years. What a sad tale we are now accustomed to from the late Bola Ige days as Minister of Mines and Power. I think it has gotten to the stage when government should be urging Nigerians to be impatient with it and find alternatives that have been proven to be cheaper. Unfortunately it may not be doing this because it will not help its current relationship with the electricity distribution companies (Discos) which is frosty. Recently the association of Discos placed an advertorial in the dailies to ask the government to pay N100 billion owed by its ministries, departments and agencies (MDAs). The Minister of Power, Babatunde Fashola reacted, stating that the Nigerian government will not pay its estimated debt under an association, and that “debts are not calculated by estimate. It’s either N100 billion or less than N100 billion but not an estimate”. I am left to wonder – have Nigerians not been paying estimated electricity bills? Is what is good for the goose not also good for the gander? I guess these owing MDAs are yet to be disconnected. Let’s watch and see how this unfolds. The earlier people adopt renewable energy technologies for their homes and businesses the less they will have to be patient for grid electricity and estimated bills from Discos.
After I published my article titled “Paris Agreement, Nigeria has to depart from coal”, a reader pointed me to his article which was in defence of the Minister of Finance’s statement in Washington DC. Paul argued that “development funding does not look at the steps required to develop anymore, but is setting a global standard of development which is golden gilted which only the industrialised nations could possibly achieve…The environmental damaged caused by burning wood or refined products in old dirty generators far outweighs that of burning coal in a well managed power station”. These arguments are untrue, flawed and does not help the debate that Nigeria needs to be having about its energy future. It is true that an entire western industrialization was attained on the strength of coal, however this was during an era when the impact of coal on the environment was not known and established as it is today and there were no proven alternatives to the use of coal which could be successfully deployed at commercial scale as coal was. In fact in that period, only wood and coal were the proven fuel sources used except recently towards the end of the 19th century that hydro, oil, gas, nuclear, geothermal, and solar became part of the mix. The environmental damage caused by burning wood or refined products in old dirty generators can never outweigh burning coal in well managed power stations. Wood – biomass is a renewable energy fuel source from trees – which tree planting can be used to offset its carbon emissions. This is not so with coal. None of processes of coal mining, and burning is without severe negative impact to the environment, this is equally not so with oil, and gas exploration and refining expect for tar sands – oil sands, and shale gas which can be as dirty as coal.
The fact remains that there is no such thing as a well managed coal power station. Clean Coal is yet to be proven. While commercial deployment of Carbon Capture Use and Storage (CCUS) technology for sequestering carbon emitted from fossil powered plants holds tremendous potential for the continued use of fossil fuel, however it is decades away from being a commercial success. Till date, only two CCUS large scale projects are in operation, the first was launched in 2014 in Saskatchewan, Canada for the Boundary Dam project at a cost of US $1.2 billion which is meant to capture 1 million tonnes per annum (Mtpa) of CO2. The second is the Abu Dhabi CCS Project for Emirates Steel Industries for 0.8 Mtpa. CCUS is a complex and expensive venture, in 2009, the International Energy Agency (IEA) published a road map that called for 100 large CCUS projects to be implemented by 2020, following failures in delivery, in 2013 it downgraded its plan to 30 projects.
For Nigeria, the debate is not if coal will be part energy mix, already the National Energy Policy plan proposes that coal will be used to meet 30% of Nigeria’s energy needs. The debates are: 1.) How does Nigeria hope to deploy coal technology and still be able to meet its commitments to the Paris Climate Change Agreement – this has to do with the capacity to acquire, install and operate latest coal technology that reduces emissions?. 2.) How prepared are our regulatory agencies especially the environmental agencies to ensure that the operations of this sector comply with world best practices. 3.) What are the assurances that coal mining in host communities around the country will be protected from the toxic environmental – air, water, soil pollution that is evident with coal mining as is already the case in Okobo, and Itobe communities in Kogi State. 4.) How prepared are the government and mining companies to solve the socio-economic, health challenges and possibly social unrest that may arise from the devastation in these communities. We are yet to finish the oil pollution cleanup, Niger Delta crisis, and amnesty program business. We must prepare to pay the price for coal technology and getting locked into it.
Far from these questions on coal, it is important that our policy makers set our nation’s energy priorities right, and design a long term grand energy plan with which we can engage the international community if we will secure our energy future. Else it will continue to be a story of missed opportunities – just like we missed out on coal in the last decades. We must stop playing catch up. Gas and renewable energy sources hold tremendous potentials to sustainably secure Nigeria’s energy future and as a matter of urgent national security we have to do all we must to set the entire system working. We have to engage the right gears and levers, failure in doing this will result to huge. The race for the next energy future has just begun and the time for us join the race is now.

 

Okafor Akachukwu is a Science Policy Research Unit (SPRU), University of Sussex trained Energy Policy, Innovation and Sustainability Expert. Contact: Twitter- @akachukwu, Email: akachukwu_okafor@yahoo.com