Gencos: Why We May Not Invest in New Generation Capacity

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Chineme Okafor in Abuja

The power generation companies (Gencos) have given reasons why they may likely hold back on fresh investments in growing power production capacity in the sector.

The Gencos said through their umbrella trade union – the Association of Power Generation Companies (APGC), that current market conditions where their declared generation capacities are ignored and also unpaid for would not encourage them to invest in expanding their production levels.

They also listed a number of actions they would want the Minister of Power, Mr. Saleh Mamman, and Minister of State for Power, Mr. Goddy Jedy-Agba, to take up to stabilise the country’s power market.

They stated this in a statement which contained their felicitation with Mamman and Jedy-Agba on their appointment to head the power ministry by President Muhammadu Buhari. The statement was signed by APGC’s Executive Secretary, Dr. Joy Ogaji.
The Gencos claimed they had fulfilled their contractual obligations to the country which they signed during the power privatisation exercise which was concluded in 2013.

“We wish to put on record that Gencos as patriotic partners with the federal government has exceeded their contractual obligations of recovering lost capacities. The sector can now boast of an available capacity of about 8,000MW and installed capacity of about 13,427MW as against an average of 3500MW utilised capacity,” said the Gencos in the statement.

According to them: “This poor utilisation figure is a huge disincentive to further investments in capacity recovery and installing additional generation capacity, as it makes no sense for a Genco to increase its available generation capacity only to be rejected and hence uncompensated.

“For gas Gencos, it is double jeopardy as the gas feedstock is on a take-or-pay basis, meaning the Genco must pay for the gas irrespective of the gas being utilised or not as well as finance the cost of making capacity available.”

The Gencos informed that while their available generation capacities are backed up by committed fuel, and manpower and all the necessary resources declared to the System Operator (SO) on day-ahead bases, they are however never able to produce that much.

“In many cases, there is a huge mismatch between the Genco declared capacity and the available grid capacity. It is imperative to note that the investment in generation is at the instance of the off taker hence the capacity made available by the Gencos remains constant and paid for in every billing period while the energy may vary, given the operational conditions,” they added.

Stating their expectations from the ministers, the Gencos said the jobs of Mamman and Jedy-Agba were cut out, but they would want them to focus on certain key aspects that would stabilise the power sector.

“Arguably, the Nigerian power market is substantially dissimilar from power markets in the world. Its structure, nuances and nature pose unique challenges in the development of the market. Without a doubt, challenges do exist in the sector. Nigeria must position itself to overcome these so as to evolve from a developing to a developed or matured market.

“However, the Gencos as a major stakeholder in the Nigerian Electricity Supply Industry, believe that amongst other things, the sector will be seeking leadership from the Honourable Minister in developing an adequate indigenised policy taking into cognisance the unique design which underpins the functioning of the power system, ensuring synergy and a harmonised working relationship with all stakeholders and private investors, ensuring that policies are in sync and better matched with regulations, codes, procedures and the market while keeping the same overall market architecture.”

They equally noted that they want the ministers to explore and identify appropriate electricity market models that support the development of secure, sustainable, and affordable power sector with a focus on developing the market to become viable, commercial and contract driven.

“We are hoping that the minister and his team would work with all stakeholders and bring together today’s best practices and details on the most effective and efficient ways for re-positioning the electricity market to efficient and reliable market.

“Gencos once again pledge their loyalty and support to the new minister of power and his team as well as appeal to the regulator to immediately correct the anomaly in the market by reinstating available capacity payments while also ensuring that outstanding available capacity payments to Gencos, for which there is a painstakingly kept database, are paid without further delay. This will signal to investors that the Nigerian government is desirous of growth in the power base,” they explained.