The Nigerian Electric Power Sector in 2015
Proem
The 2015 elections have been postponed and as stated in the last edition, the Nigerian economy slows down in every election year and then picks up after the electioneering process.
We had also stated in the last edition, that the imminence of the elections this year is likely to drastically slow things down in the electric power sector and we had given reasons for this in the last edition. We had also stated that we expected that some improvement in the electricity infrastructure would be experienced such that some of the decrepit equipment and facilities currently being utilized in the NESI would be replaced.
Further, we had stated that the federal government of Nigeria was, at some point this year, expected to pay more attention to the delivery of temporary solutions to power shortage in the country whilst long-term solutions are being cultivated. The Nigerian Electricity Regulatory Commission (“NERC”) as the key regulatory body has also issued the Multi Year Tariff Order 2.1 such that the price of electricity was increased. However, most of the customers will only be required to begin to pay the increased tariffs in June 2015.
We conclude the series with what should be expected in the electric power sector this year.
A Flurry of Activity between February and March 2015
We expect that between the 7th of February, 2015 when the elections were postponed and March 28, 2015, when the elections should hold, the current administration would attempt to achieve a more convincing measure of success in order to win more supporters. It is likely that we would see more activities connected with the transmission company of Nigeria. The writer understands that the Alaoji NIPP plant, Sapele 2 and Omoku plants for instance are at varying stages of testing and commissioning towards adding to Nigeria’s available electric power capacity. As at Friday, the Sapele 2 had done 250megawatts hours and the Alaoji power plant over 82 megawatts hours. Specifically, we should also see activities around gas and around getting a few more things done in the power sector to further win the electorate over.
New Entrants in the Power Sector Particularly in the Renewable Energy and Embedded Generation Space
There is an emergence of more distributed power as the country finds new gas sources and embedded generation, which will boost power supply to the customers in the different distribution zones. Embedded generation relate to plants which are connected directly to the relevant distribution network, rather than the transmission network.
A number of old and emerging estates are in discussions with independent power producers to develop within the fence power plants and the writer expects this to continue in the year 2015 and further. In the words of Tony Elumelu and I agree with him, ‘provided gas supply will increase, power generation countrywide will improve significantly by fifteen to twenty per cent (15-20%).
Related to the foregoing is that the Nigerian Electricity Regulatory Commission (“NERC”) and the Nigeria Bulk Electricity Trading Plc. (“NBET”) are developing template bankable power purchase agreements for renewable power and in particular, solar power. Knowing NERC, I am sure they would see the issuance of the templates and support the clamor for an expansion of Nigeria’s energy mix. In specific terms, Nigeria is expected to close new power plants deals worth $5.6 billion.
Improved Metering
A while ago, NERC directed electricity distribution companies (Discos) to commence the implementation of the Credited Advance Payment Metering Implementation Scheme (CAPMI). The effect of the proper metering is that more electricity consumers would be likely charged for actual (and not estimated) consumption. From the writer’s interactions with people who should know, it appears that more Nigerians now have meters and many more would, before the end of this year. Proper metering reduces the incidence of estimated billing.
In particular, many companies are looking to introduce smart metering and from this year we shall begin to see new technology in metering to reduce the incidences of theft and estimated billing.
Specifically, the Nigerian Electricity Market Stabilization Facility consisting approximately of US $1.5 Billion (the “NEMS Facility”) which was established by the federal government would be useful to the distribution companies in the execution of agreed metering programs. The NEMS Facility would be in addition to certain grants being given by the United States government to some of these companies.
Acquisitions and the Advisors’ Year
The writer expects that there would be a good number of acquisitions,, particularly in the power sector as several people look to diversify from oil and gas and expand their revenue profile and what better sector than the electric power sector where demand already exceeds supply. Due to the fact, however, that the grid challenges and gas shortages remain, a number of these entrants would be acquiring already existing plants with gas supply and possibly connection to the grid. State owned power plants poorly run by states would be sold and a number of oil and gas companies which won power plants are likely to sell them together with offshore assets they may be selling. Consequently, advisors are likely to make more money from the power sector than they did last year. The years 2012 and 2013 I believe, were the years advisors and consultants in the power sector earned the most. I believe 2012 would come close in terms of revenue, particularly for the discerning power sector advisor.
Increase in Support Services
The writer also expects that as available capacity increases in the power sector, services providers would also get more involved in the sector and introduce more cutting edge products such as those useful for reducing electricity theft, to conserve energy and to generally improve electric power quality. Traditional information technology firms are already establishing power units and there should be more of those this year.
For more details about the power sector, do pick up a copy of the text on the power sector written by Ayodele Oni.
Ayodele Oni {ayodeleoni@outlook.com}, a solicitor, specializes in international energy (oil, gas and electricity) investment law and policy. He holds a mini-MBA in power & electricity. Follow me @ayodelegoni.