Power Lines used to illustrate the story [Photo: energymixreport.com]
At COP 26 in Glasgow, Scotland, President Muhammadu Buhari made a commitment that Nigeria will go net zero by 2060. This means that for every ton of carbon dioxide (CO2) that Nigeria puts out, we will take an equal amount out.
It is for this purpose that the Nigerian government launched the Energy Transition Plan (ETP) in August.
Among other objectives, the energy transition plan seeks to “bring modern energy services to the full population” by 2030 and eliminate fossil fuel generators. This would mean adding about 6.3 gigawatts (GW) of distributed generation, approximately 0.6GW per year to electrify about 1.5 million newly households per year. But also raising the on-grid generation to 42GW, an ambitious increase of 3GW of new centralised generation per year – including 0.8GW per year of new solar PV.
Nigeria currently emits about 295 million tons of CO2 per year, which is roughly 0.5 per cent of the global annual emission of about 50 billion tons. Twenty per cent (about 48 million tons) comes from the power sector where 80 per cent of the generation comes from distributed fossil fuel generators.
Replacing 6.3GW of distributed generation with clean alternatives will happen even if the government does nothing. This is because currently, Solar Plus 4-6 hours of lithium-ion storage is already cheaper on a levelised cost basis than any other source of electricity including gas. For most Nigerian households, installing solar plus reliable storage will save them money over the long run if they can get over the short-term set-up costs of a little over N2 million – for the standard three-bedroom house. This cost is expected to drop by another 50 per cent before 2030.
Nigeria is already doing quite a bit on the off-grid space under the Nigeria Electrification Project run by the Rural Electrification Agency (REA).
Where the problem lies, is with the target to raise the centralised generation to 42GW mostly clean energy by 2030. The ETP, as publicly disclosed, correctly identifies the problem as transmission and distribution, and losses – including technical and commercial – as the core challenge. It proposes about $5.4 billion investment per year mostly in public spending to expand the grid and increase the utilisation of latent generation capacity.
Very correct, but the devil is in the details.
Any avid follower of the power sector knows that the problem of the power sector is not adding more generated power. If it were, at least 1.2GW worth of solar power purchase agreements signed since 2015 should have been financed and built. Between the gas plants like Azura and Afam that do not generate at their full capacities because the power they generate is “rejected by the grid” (more on that later) to the generators in each of our homes and businesses (idle or not), Nigeria has a generation capacity of over 100 GW – a very loose unscientific estimate.
If we all could have fuel for those generators and a way to send that electricity to the person who needs it and they are willing to pay for it, voilà — the problem is solved—there is nothing to be learned in Egypt that Nigerians do not already know.
So why is something so seemingly simple, yet so complicated in Nigeria and everyone in authority seems to have given up? Even the venerable ‘Mr Effective’, Babatunde Fashola as Minister of Power, focused on the off-grid market and seemed eager to give up the portfolio. It is because, like fuel subsidy, it is one of those problems that have dire political ramifications and no administration wants to swallow the hard pill.
One-half of the problem is now in private hands since Distribution Companies (DisCos) were privatised and is now a regulatory problem. DisCos do not collect enough money, or they do not disclose how much they really collect so they do not pay enough money up the chain to pay for the power we consume. Discos pay about 20-40 per cent. Government has to subsidise the rest, paying the generators and the transmission grid.
Nigeria’s government has paid over N1 trillion in electricity subsidies for refusing to allow Discos to charge a cost-reflective tariff. Simple transparency in that system and correct tariffs would solve that.
Labour unions should keep quiet on this one, you cannot eat your cake and have it, each of us already pays more using generators or paying estate facility managers for reliable supply. We also need to be decisive in enforcing regulatory and commercial sanctions on irresponsible DisCos to weed out the weak performers and get serious companies with a strong track record running distribution utilities in the game.
The other half is still in a government parastatal, the Transmission Company of Nigeria (TCN), into which billions of dollars have been sunk in budgetary allocations and multilateral debt of over N1.6 trillion in six years. The transmission and distribution grid is broken; Nigeria has endured over 200 grid collapses in nine years and employees of the organisation tasked with managing and fixing the grid are willing to deliberately shut down the grid over an industrial dispute. The ETP admits that solving the problem would cost money, over $100 billion in investments, which the government does not have, nor can afford to borrow, as we are already over N3 trillion in deficit this year. It would also require a willingness to break the TCN down and concession or privatise some of its assets with significant resultant job loss – a risk no government has been willing to take.
Ultimately, we need to get power from where it is generated, to where it is needed and ensure everyone who provides services down the chain gets paid a cost-reflective tariff from DisCos to generators to gas suppliers.
Here are some ideas that can help on the distribution side:
1. Net metering policy: We need a simple policy that allows people to sell electricity to the grid when they are not using it and buy it when they need it. Pricing can be bilaterally negotiated with the DisCos based on simple guidelines from the regulator that ensure the powerful are not trampling on the weak.
2. Set cost-reflective tariffs: you won’t sell your electricity from your generator to the grid if it costs you more to get fuel than you make from the DisCo. Why do you expect DisCos to give you electricity for less than it costs them? Tariffs need to make sense. That said, what does a reasonable number look like? Somewhere in the neighbourhood of N50-80 per kWh makes sense depending on the location and proximity to a cheap generator (if the naira value holds steady).
3. Fix distribution grid: For this to work, investments need to be made in the distribution grid. The companies that hold the concessions need to find the money. They agreed to do so in their vesting contracts, if they have not done it, the contracts can be terminated due to non-performance and given to serious people.
4. Blended Finance: The financing to fix the distribution and transmission grid must come from a combination of grants, debt and equity. Nigeria’s advocacy for a fair and equitable transition must emphasise the need to attract billions of dollars annually in grants which would be allocated between mitigation projects such as this, adaptation and loss and damage projects.
5. Smart metering: Many of us already have smart meters. Get all of us on it. It is not that hard if we are willing to be transparent. Measure progress religiously.
6. Integrate Fintech companies into settlement processes between sellers and buyers of electricity. Buypower, Flutterwave and Paystack will like this one.
But you still need to get power to travel long distances using the transmission grid otherwise only industrial areas and rich estates will have reliable power. We still need to fix some parts of the transmission grid and leave the rest to minigrids to solve. Some parts of the country are too far to build transmission lines—costs about $300,000/km—so if a location is more than 5km away from the grid, you are better off just building a minigrid for under $1 million to serve them adequately.
Back to the point, to fix the relevant parts of the transmission grid that won’t be served by minigrids, we should:
1. Break the transmission system into regions—perhaps 2-3 discos to a region.
2. Hold bids to concession the transmission regions to private operators. The bid will include the cost of transmission upgrades they will do, and what Transmission Use of System charges they will need to make to recoup the investment over a 15-year period. Perhaps the Discos can even collaborate to form regional transmission operators or independent system operators like you have in the US or in Nordpool.
3. Devolve and democratise the regulatory process. Regulation of the electricity grid has hitherto been centralised and therefore subject to political expediencies at the federal level but also ineffectual at the grassroots level. The Senate’s Electricity Bill 2022 devolves the powers for generation and regulation decisions to the states, but it needs to go one step further to separate regulation from even the state executive government by allowing the people to vote directly for their electricity regulators as obtained in many climes.
These processes would take years to implement, and near-term actions such as setting cost-reflective tariffs will be difficult for most households. Government can ameliorate these effects by making loans, tax breaks or direct subsidies available to homes and businesses willing to install rooftop solar and storage (recall the major hurdle for most consumers is the upfront cost). The distributed capacity we build using this method at the local level is not a loss to the grid because, with an efficient transmission and distribution system and net metering policies, all the local systems may yet contribute to the whole.
The goals of the Energy Transition Plan are achievable, but not without tough decisions being made and the country needs to attract significant international capital – mostly in grants – but also in equity and debt.
As campaigns begin in a few weeks, the electorate should look beyond platitudes such as someone promising to add 42GW of say nuclear generation without giving specifics of how they will fund it or solve the political and social problems that have hindered it for years.
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