By Moses Nasamu
Energy or, more accurately, access to energy is one of the biggest barriers to social and economic growth that the African continent faces. Few metrics are adequate to draw a picture of a continent where the energy sector is underdeveloped significantly, at a time when growing populations and economic growth prospects would demand more resources.
There are multiple dimensions to the dilemma of energy access in sub-Saharan Africa, and particularly in Nigeria, where there is a lack of reliable electricity supply for large percentage of the population. From insufficient power generation capacity, to difficulties in maintaining energy infrastructure and attracting investment in the market, to problems in serving low-income consumers, to over-regulation and the lack of cost-reflective tariffs are some of today’s many challenges for the Nigerian Electricity Supply Industry (NESI). Similarly, an ever-growing population, urbanization, and local economic development goals will all continue to drive an increase in energy demand.
Successive interventions by various administrations in the last 20 years, including privatization of the distribution and generation assets, have still not addressed the ongoing challenges facing Nigeria’s power sector. According to the Power Africa Nigeria Fact Sheet published by the United States Agency for International Development (USAID) in Oct 2019, access to grid electricity in Nigeria remains at 45%. This is despite huge subsidy injections to the sector by the President Buhari led administration in the last 3 years.
In December 2019, through the Ministry of Power, the Nigerian Federal Government announced the introduction of a new “Willing Seller, Willing Buyer” policy that would allow electricity generating companies to wheel electricity directly to consumers who have the capacity to pay cost-reflective tariffs. The new policy is supposed to ensure that generation companies get full payment for the power they generate and minimize government-led subsidy intervention in the power sector.
While the purpose of this strategy is commendable, I believe that the successor distribution companies (DISCOS) will pose significant setbacks and difficulties to the implementation. Much of the consumers who are brave enough to take advantage of this new policy currently fall within the distribution companies ‘ franchise area. This poses an enormous challenge for the generating companies as these willing buyers form a significant part of the DISCOS maximum demand customers. Encroaching into this space could impact the DISCOS revenue assurance and billing efficiency negatively and the shareholders are likely to pose significant resistance.
On the other hand, many DISCO shareholders are looking to exploit this new policy by using proxy companies acting as ‘middle men’ to wheel power via the existing distribution infrastructure and charge higher tariffs to their maximum demand consumers without guarantees of improved supply. This could force many of such consumers to seek for embedded generation alternatives and could adversely affect the DISCOS ‘ viability further.
Furthermore, transmission is likely to be the weakest link in the value chain if the implementation of this new policy is to be seamless. Consequently, there is a need for huge investments and capital injection into transmission infrastructure and smart grids that will enable generating companies the ability to wheel capacity to willing buyers without recourse to the dilapidated and obsolete grid currently managed by the DISCOS. This new smart grid has to be sophisticated and robust enough to allow consumers the flexibility to switch power providers if necessary, as this will create a new and much needed competitive and sustainable market.
Lastly, I am concerned that with the introduction of this new “Willing Seller, Willing Buyer” policy, the Federal Government have inadvertently created a new avenue for DISCO shareholders to continue to enrich themselves at the expense of the consumers without implementing any discernible programs aimed at tackling the viability challenge currently plaguing the DISCOS. Whether the regulator, Nigerian Electricity Regulatory Commission (NERC) will be alert to this new treat will be a subject for later discuss.
- Moses Nasamu (@Mos_Hygh) is an Electrical Engineer, Certified Management Consultant and Business Leader who practices in Lagos, Nigeria. He currently serves as an Executive Director at Energy Savers Nigeria, a Non-Profit Initiative that seeks to educate communities on the benefits of energy conservation and efficiency.