Nigeria’s Power Sector in 2020

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Chineme Okafor writes that in addition to its perennial low-level efficiency, Nigeria’s power sector had the COVID-19 pandemic to deal with in 2020

On December 27, three days before the curtains finally draw on 2020, data obtained from the office of the vice president, Prof. Yemi Osinbajo, revealed that the average volume of power generated and distributed to Nigerians from the national grid within the year was 4,045 megawatts (MW) daily, about 264MW more than the 3,781MW that was reported the same time in 2019.

Similarly, an average of 3,644MW could not get to the grid daily within the year while N640 billion was unearned as a result of the sector’s inefficiencies.

In the year under review, Nigeria’s transmission network equally reported a 5,520MW peak power generation and transmission – a feat it quite celebrated.

Plainly, the government stated that due to constraints which included insufficient gas supply, distribution and transmission infrastructure, the sector continued to record poor results, inferring therefore that it has not overcome its perennial challenges.

Generation issues, transmission and distribution networks failures as well as water management challenges are well-known dilemmas of Nigeria’s power sector; together, they confined the sector’s productivity and made it unable to support Nigeria’s economy.

According to a recent report of the World Bank on the workings of the sector, Nigeria’s unreliable electricity supply costs her up to N10.1 trillion or about two per cent of its Gross Domestic Product (GDP) yearly.

The bank also explained that out of the 190 countries it surveyed in another report to determine levels of access to electricity, Nigeria ranked 171 globally and 33 among 46 Sub-Saharan Africa countries.

It also stated that 97 million people or 47 per cent of Nigeria’s population today do not get electricity from the national grid; they mostly rely on battery-powered flashlights and fuel generators to electrify their homes and offices thus making Nigeria the country with the largest electricity access deficit in Sub-Saharan Africa and the second largest in the world, after India.

Sector’s performance in 2020

Commercially, the Nigerian Electricity Regulatory Commission (NERC) which regulates the sector, explained in its third quarterly sector report that the financial viability and commercial performance of the industry did not improve.

NERC stated in its first quarter 2020 report that: “The financial viability of NESI (Nigerian Electricity Supply Industry) has remained a major challenge threatening its sustainability.”

According to it, “the liquidity challenge is partly due to the non-implementation of cost-reflective tariffs, high technical and commercial losses exacerbated by energy theft and consumers’ apathy to payments under the widely prevailing practice of estimated billing.”

Further providing insights on the showings of the sector within the year, the NERC stated that only 10,477,856 people or homes are officially registered electricity customers in the country, from which only 4,231,940 or 40.39 per cent have been provided meter by their respective electricity distribution companies (Discos).

The regulator said that in the reviewed customers service complaints records of the Discos, cases of load shedding, delayed connection, service interruptions, outages, arbitrary disconnections and infrequent voltage were top on the list.

This, it inferred indicated that nothing really changed in the sector. Safety practices, it added were equally frequently compromised in the sector so much that in the first three months of 2020, nine people were reported dead from electrocution.

Payment defaults and cases of mistrust amongst operators were also quite rife in the sector in 2020. Edgy interactions between key operators showed that the sector still lacked the camaraderie required to get it working productively.

For instance, the Executive Secretary of the Association of Power Generation Companies (APGC), Dr. Joy Ogaji noted in June, the dire challenges of the power Gencos, and how the non-provision of earlier agreed payment securitisation instruments for power production has contributed to ruining the sector’s commercial status.

Ogaji, had explained that the development encouraged multiple defaults on invoices for power supplied to the national grid with zero penalties.

Additionally, she claimed that, “the weak transmission and distribution networks inherited from the PHCN are still in existence and are not complementing Genco’s efforts in maximising available capacities to the benefit of the Nigerian consumers.”

“The maximum capacity attained by the national grid ever is 5,375MW as opposed to the current overall average available capacity, 8,589MW, and installed capacity of 13,427MW, with an expansion capacity of 20,000MW in an enabling environment,” Ogaji stated.

She essentially explained that the average volume of electricity stranded from getting to Nigerians everyday as a result of poor transmission and distribution facilities was 3,214MW.

“This implies that if we had a grid capacity that matches our average available capacity, 3,214MW can be immediately made available to Nigerians with the current state of operations of the Gencos and at no additional cost,” she added.

But the Discos debunked this, stating in the first quarter 2020 report of their operations that, “since 2015, there has been no significant improvement in the energy generated and wheeled by TCN, that is finally received by Discos.”

The Discos further claimed that power generation since 2015 “continues low and flat, only affected by a seasonal effect between the dry and rainy seasons.”

They equally claimed that supply uncertainty from the Gencos, NERC’s regulatory inconsistencies as well as theft and assets vandalism were key challenges to progress in the sector in 2020.

Huge debts, COVID-19

Furthermore, on the finances of the power sector, the World Bank had indicated that this was perhaps in tatters considering that between 2017 and 2019, the level of debt from tariff shortfalls totalled N1.249 trillion.

The bank had revealed in the Power Sector Recovery Program working document it developed with Nigeria that N322 billion, N403 billion and N524 billion were recorded in the sector as tariff debts in 2017, 2018 and 2019 despite the federal government spending N1.301 trillion within these years as subsidy for power production.

This subsidy it noted, however, benefits only rich Nigerians and not common people or even industries who need stable electricity to support the country’s economy.

“The significant fiscal resources spent on funding tariff shortfalls disproportionately benefit the (relatively) rich. While access to grid electricity of the poorest 40 per cent, ranked by per capita household expenditures, is 37 per cent, 68 per cent of the richest 60 per cent reported access to the grid.

“Living in more affluent neighbourhoods, the top 60 per cent also experienced fewer outages, and spent almost twice as much on electricity as the bottom 40 per cent.

“As a result, the fiscal expenditure on tariff shortfalls largely benefits the rich. Eighty per cent of the fiscal expenditure on tariff shortfalls benefits the richest 40 per cent of the population, while only eight per cent benefits the bottom 40 per cent, and less than two per cent benefits the poorest 20 per cent,” the bank explained.

With regards to COVID-19, the sector also suffered from impacts which affected its finances in 2020.

In a webinar organised by PwC Nigeria during the year, the Chief Executive Officer (CEO) of Benin Disco, Funke Osibodu, had disclosed that while the COVID-19 pandemic adversely impacted the wages and earning ability of practically all Nigerians, payments for electricity services were also affected.

Osibodu, had further explained that the closure or scale down of commercial operations also reduced the energy consumption and revenues from Discos’ commercial and industrial customers.

She reported that the Discos in other words had more electricity sent to residential customers but with increase in non-payment and electricity theft through meter bypass and illegal connections. COVID-19, she added, also impacted the cost of delivering electricity to Nigerians.

“This is transparently manifested through electricity distribution companies, in terms of the inability of customers to pay their bills and the resultant reduction in revenue collections, Osibodu said while she noted that disruptions of material supplies, increase in operational complexities and cost of operations were some of the other impacts the pandemic exerted on the sector in 2020.

REA, the only bright spot

Despite the failings of the sector in 2020, a bright spot, the Rural Electrification Agency (REA) remained conspicuous with its energy access programme through renewable energy sources.

Within the year, the COVID-19 pandemic offered the REA a unique opportunity to accelerate access to clean energy in Nigeria with up to five million new solar home installations and mini-grids earmarked, and execution started well off.

With strong institutional supports from the Central Bank of Nigeria (CBN), World Bank, African Development Bank (AfDB), Rocky Mountain Institute (RMI) amongst other globally recognised groups, the REA has been able to lay a solid foundation to support household solar market penetration in Nigeria through market-based processes. It leveraged this in 2020 to remain a key mover in the sector in 2020.

In a review offered to the World Economic Forum (WEF) on the activities of the REA, its former Managing Director who now heads the United Nations (UN) Sustainable Energy for All, Damilola Ogunbiyi noted that the agency was quite impressive in 2020 with its practical response to COVID-19.

“REA has played a leading role in the pandemic, using its knowledge, network and infrastructure to help deploy off-grid energy solutions that can provide lifesaving electricity access to the more remote health clinics across the country,” Ogunbiyi said.

She equally highlighted REA’s lead in increasing electricity access to households and micro, small and medium enterprises (MSMEs), as well as students and patients at federal universities and university teaching hospitals in the country through its Nigeria Electrification Project (NEP).

According to her: “The World Bank has provided a $350 million facility and the African Development Bank an additional $200 million facility to the Nigerian government for off-grid development as part of the Nigeria Electrification Project (NEP). This investment is expected to leverage over $81 billion in additional funding from the private sector – and in the wake of COVID-19, these investments will become even more important to help speed and scale progress.”