Chairman, Clean Energy Groups, comprising Cummins Power Generation Nigeria and Powergas Africa, Deepak Khilnani, spoke with Raheem Akingbolu on the power sector challenges and his group’s strategy to help improve electricity supply. Excerpts:
What is your general assessment of Nigeria’s power market and regulation in relation to the current economic realities in the country today?
There is no sugar coating it – there is a significant supply demand imbalance in the Nigerian power sector. Grid availability is currently not sufficient to meet both industrial and residential demand and hence majority of sites in Nigeria rely on private generators. I believe this will change in the next few years as the government is making a strong commitment and action plan to improve grid power. For example, Cummins is developing a 150 MW grid connected power project in Rivers State.
With all these challenges, what policy suggestions do you think will benefit the sector?
Strong and enforceable financial guarantees will encourage further private sector investment into the power industry. Cummins is working closely with Nigerian Bulk Electricity Trading Plc (NBET) to develop national power plants and we’ve certainly noticed a strong alignment towards private sector co-operation in the power industry and ‘bankable’ PPA’s (Power Purchase Agreements) to make the projects commercially viable.
Moreover, additional investment into the transmission & distribution infrastructure will minimise power losses and boost the confidence of the generation companies (GENCOs).
How did you receive the presidency’s call for crude oil and gas companies to return to the Niger Delta?
Let’s take Powergas for instance, it provides quality compressed natural gas to Nigerians no matter where they live, Niger Delta inclusive. We operate two gas compression plants in the Niger Delta, which provide strong local employment opportunities as well as serve local industries with clean, reliable and affordable natural gas. In fact we commissioned our second plant in the Niger Delta just last year. For a region so wealthy in natural resources, the community development also needs to keep pace for the region to truly prosper and become a stable environment for further private sector investment.
How have falling crude oil prices affected natural gas sales in Nigeria?
Since the fall in crude oil prices, the price of diesel in Nigeria has actually increased because the crude is exported from Nigeria and the refined diesel is imported. Given diesel is the competing fuel for natural gas in most off grid power generation applications, natural gas has become even more competitive.
Nigeria has the world’s ninth largest reserves of natural gas. We locally source, dry and process the gas, hence are able to sell natural gas at approximately half the price of diesel. We have seen strong growth in sales over the past year due to the wide price differential, but also the improved industrial reliability of operating on gas engines. Gas is a much cleaner fuel than diesel and hence requires less generator maintenance.
Moreover, the reliance on diesel is very environmentally damaging and puts strain on foreign exchange reserves as a major proportion of dollars are used to import diesel instead of utilising cleaner and cheaper domestic fuels.
What do you think about the gas infrastructure in Nigeria?
The pipeline gas infrastructure in Nigeria to transport natural gas to the point of use is relatively small given the size of the nation and high demand for natural gas. The pipeline network is limited to just a few cities – Lagos, Port Harcourt, Aba & Benin City. Pipeline development costs are high and usually part of long-term infrastructure projects – hence we pioneered the ‘virtual pipeline’ business to transport gas by truck to any location across Nigeria not connected to a pipeline.
Can you please tell us your experience doing business in Nigeria, especially as it related to Cummins and Powergas in the Nigerian energy industry?
Nigeria is ranked 169 out of 190 in the World Bank ‘Ease of Doing Business’ report. It is certainly a challenging market, but I believe through hard work and persistence you can set industry standards. For example, our relentless drive to compete on service and safety stands out – all our power plants across Nigeria average over 99% power availability throughout the year and we are proud to have a 100% safety record. Our business model is based on a long-term investment and leadership position in the Nigerian energy industry.
Who are the majority of your customers in Nigeria today?
Currently we serve a vast array of clients in Nigeria ranging from multinationals to small &medium industries, hotels and large residential estates with a tailored power solution for each site. For example, we install and operate waste heat recovery equipment at large industries that require cooling and heat for industrial process. Similarly, for factories that require 24×7 power with zero downtime, we install synchronised diesel sets to cater for any chance of gas outage.
We are also developing national power plants that supply electricity directly into the grid and serve Nigerians with reliable and clean electricity at home – a core right for all citizens in today’s day and age.
What kind of innovation and technology should be expected from Cummins?
Cummins recently introduced a brand new1540 KW high efficiency Osprey gas generator – which has one of the lowest fuel consumptions globally (up to 44% electrical efficiency). Cummins is also launching an upgraded 2000 KW engine next year, which again will boost performance, stretch maintenance intervals and reduce gas consumption – all contributing to lower operating costs.
We have also set up a partnership with Soventix, a leading solar company in Germany to support our ambitions to further reduce emissions and tariffs at our power plants across Nigeria. We will be focusing on hybrid solar systems that interface with the gas generators. There is so much innovation in the energy industry and it is essential to keep pace with these disruptive trends.
What is your strategy to improve the power situation in Nigeria?
Our short-term strategy continues to develop reliable and localised energy solutions that supply electricity and compressed natural gas (CNG) to industries and large residential estates. This requires continuous enhancement of technology such as remote monitoring software to analyse plant performance and people training and development. I’ve always been a strong believer in strong local capability in order to build a sustainable enterprise – especially in a business like ours that operates complex industrial machinery across Nigeria.
We are very experienced in building and operating captive power plants – having been operating in Nigeria since the late 1990’s in this market.
Our medium-term strategy is to work with the Federal Government of Nigeria and local distribution companies to develop a portfolio of 100 MW + national power plants that pump clean and reliable electricity into the grid.