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Khilnani: Many Nigeria’s Power Plants are Starved of Gas and Unable to Deliver Electricity

Chairman of Cummins Power Generation Nigeria, Deepak Khilnani, speaks with Kunle Aderinokun about the challenges of the power sector in Nigeria and Cummins’ commitment to solving the problems through innovative technologies

How would you describe your company and your key activities?

We are Nigeria’s leading independent power producer (IPP), supplying electricity to prominent industrial manufactures and residential estates across Nigeria. All plants operate on high efficiency natural gas generators, which are both extremely robust and cost effective. We own and operate the power plants, providing performance guarantees to our customers. Cummins Power Generation also seeks to improve the overall site efficiency, using innovative technologies such as waste heat recovery.

What is waste heat recovery?

When a generator runs, more than half the energy produced is thrown back into the atmosphere and wasted. With our technology, we capture this waste heat and use it to generate more electricity or produce steam or cooling for industrial process. This offers a significant cost saving, boosts the generator efficiency and reduces global warming.

Cummins has pioneered waste heat recovery installations in Nigeria with systems operating and delivering these benefits mentioned above. Remember one thing – with waste heat recovery the fuel is free. Free today, free forever. And with rising fuel prices, this has an even more long-term benefit, reducing the payback on the capital investment to less than a year.

What key projects are you working on and what is their development status?

To date we have mostly built 3 to 15 MW power plants, supplying electricity to industrial users such as Nigerian Bottling Company. We continue to invest and grow our captive business, of which we are the leaders in Nigeria having installed over 100 MW in the past five years.

Today we are also expanding into the larger grid connected projects. Cummins Power Generation Nigeria is committed to building larger power plants that can supply electricity directly to homes across Nigeria. We have signed power purchase agreements (PPAs) to build 720 MW of IPP plants, which are expected to start supplying electricity into the grid over the next 10 to 24 months.

Given high efficiency and reliability has been our hallmark in Nigeria, we expect our IPP plants to deliver substantial savings to the country.

What are the benefits of operating on natural gas instead of alternate fuels such as diesel?

Firstly, gas fired power generation is significantly cheaper than operating on diesel. Fuel cost alone is less than one third of diesel – the gas price is N. 52.5 per scm and diesel is around N. 190 per litre. Natural gas is also a much cleaner fuel, emitting less carbon and nitrogen emissions than diesel and reducing wear and tear on industrial machinery.

It is easy to store, cannot be pilfered and is domestically sourced, thereby promoting local employment and relieving strain on imported dollars – it’s a ‘no brainer.’

We’ve found that once our customers switch to gas and experience the benefits, they seek to replace other processes and build new facilities around access to natural gas.

So what do you think then holds back the adoption of gas-based power generation solutions in Nigeria compared to diesel and petroleum engine generators?

Fuel supply is the major constraint to growing the gas to power market. Industrial users who have access to a gas pipeline are switching quickly as the fuel price of piped natural gas (PNG) alone is one-third the price of diesel. Gas is also a much cleaner fuel so service intervals are longer on gas generators and emissions significantly lower.

The pipeline infrastructure in Nigeria is growing, however, does not nearly cater to the demand in the market. As the availability of natural gas grows in Nigeria, gas-fired power generation will boom.

We also offer compressed natural gas (CNG) through sister organisation, Powergas – CNG is a good alternative gas solution for customers not connected to pipeline. The price of CNG is still nearly half of diesel, driving the commercial application. Offering both gas and power solutions have given us a competitive edge and one of the reasons I believe we’ve been successful in the market.

In the past few years, in spite of various initiatives, power still remains one of the core challenges in Nigeria. What factors do you think are responsible for this?

This is down to two key factors. There needs to be massive investment in the power sector. And for investors to invest, the price of grid electricity needs to be realistic. The government has taken the difficult step of increasing tariffs, which while in the short run may be a painful medicine, in the medium term it will have great benefits; boosting private sector investment and actually reducing customers total energy costs. As grid connected power becomes more stable, reliance on imported diesel substitute will drop, reducing customer’s blended energy tariff.

The second major constraint is the availability of fuel. There are many power plants in Nigeria today that are starved of gas and unable to deliver electricity. I feel optimistic that government is addressing these issues and I expect power availability to improve in the coming years.

Recently, there have been many interruptions in the gas supply. Will this affect your business?

Naturally, yes. Since gas is our fuel source and if there is no fuel we have a problem. Given the developments in gas infrastructure being encouraged by the Buhari government, I feel these issues on gas supply would be on a medium term, perhaps three to four years. After which Nigeria will enjoy continuous and reliable gas supply.

The irony is that Nigeria holds the world’s ninth largest gas reserves and according to the World Bank flares about 57 per cent of the daily production – worth $2.5 billion and able to generate an additional 6,000 MW.

However, there are many ways in which we are dealing with this for the short term. Our contracts with our customers are to deliver electricity and therefore we take the responsibility to arrange the gas. And you may ask where we get the gas from? If piped gas in unavailable, our Group company, Powergas, Nigeria’s leading Compressed Natural Gas (CNG) producer who has extensive operations across the country, trucks the gas to site.

In your opinion, how does power impact the economic growth of the nation?

The World Bank states economic growth is positively correlated to electrification and there are many positive socio-economic spillovers with reliable and cost effective electricity.

Cheap power was a big driver of the industrial revolution. Energy is up to 40 per cent of heavy industrial manufactures operating costs in Nigeria – significantly dampening competitiveness. To put into perspective, in the US, energy costs amount to just 10 per cent of operating costs. As grid power becomes more stable, industrial growth will boom in Nigeria.

Electricity is also a basic human right – which in today’s day and age shouldn’t be rationed.

Cummins has been contributing in many ways to provide power solutions in Nigeria. What has been the main focus areas and important breakthroughs in terms of performance?

We have significantly invested in our aftermarket and service capabilities – our IPP plants have averaged 99.42 per cent power availability in the past 15 months.

This isn’t an off the cuff number – it’s a statistical data point we internally track for all operating plants. Cummins is very service orientated and continually strives to improve generator performance.

Investing in new technologies such as remote monitoring is also enabling us to better analyse plant performance and respond to potential issues before they materialise.

Outside Nigeria, what geographies are you in and targeting to set up plants?

Outside Nigeria, we currently operate power plants in Kenya, India, Belgium and Spain, servicing leading customers such as Inditex (Zara) and Taj Hotels. The focus of the organisation is certainly growth and investment in Nigeria – it’s our largest and fastest growing market. We are also building plants in The Republic of Benin and Ghana – we see West Africa as a good long-term market.

What kind of innovation and new products should be expected from Cummins in Nigeria?

Cummins engineering is world class – constantly innovating with new technologies and improvements in generator performance. Cummins invested over $735 Million in Research & Development in 2015.

We launched a new high efficiency 1540 KW Osprey gas generator in Nigeria in May, which is one of the most efficient on the global market – offering 44 per cent electrical efficiency.

Cummins technology enables us to offer both cost effective power solutions whilst guaranteeing 99 per cent power availability – the organisation is geared towards offering a better service at a lower price. Technology drives this vision.

What policy suggestions do you have for the Buhari led administration in terms of power?

The Buhari led government is doing a great job in prioritising power generation in Nigeria and utilising domestic natural gas. Development of the power sector will drive domestic manufacturing.

The administration is also connecting the dots in the power industry – investing in not only power plants, but also the transmission and distribution network. This is very important to encourage additional private investment in the sector.

The key policy intervention that I believe would be a game changer would be to reduce the retail price of gas to industry and continue developing the gas pipeline infrastructure across Nigeria – both initiatives I believe would foster significant industrial growth.