Addressing Nigeria's Electricity Deficits – The Embedded Generation Model

As the elections draw closer, the availability of electricity, behind the economy and corruption remains the three most engaging issues upon which Nigerians continue to seek leadership direction and end-product.

AndrewOnyearu

Much has been made of the deficits of electricity and the dire consequences that this has brought about across the country's commercial and social space. That there is insufficient electricity to serve Nigerians is common understanding. That this situation needs to be aggressively addressed is a subject of common acceptance. And that this needs to be done with expedition is commonly believed. The dire statistics have been routinely discussed over the last few years and very little will be gained in churning them out. But the effect of this insufficiency serves as a painful reminder of the gap that exists between what Nigerians desire, the power resources "on the ground" and the necessity to bridge that gap.

Power generation, despite the graphically documented efforts of this government, remains woefully inadequate. In the run up to the election, it is even worse now. The attainment of power generation name plate capacity – this being the maximum amount of electricity that our generation resources are capable of producing collectively – continues to elude Nigeria by a combination of several frustrating reasons, many man-made! Chief amongst the problems undermining power generation is the availability of gas, this being the fuel most abundant for power generation in the country given the gas resources available. Amongst the several reasons that limit the availability of gas includes vandalisation of existing gas transportation facilities; insufficient available gas; limited investment in gas infrastructure; issues in gas economics like availability of gas supplies to meet actual demand and gas price. More generally are power generation shortfalls creating huge gaps in supply and the means by which, over the years, government has sought to address these. Starting from the conception and execution of the reform programme by the enactment of the Electric Power Sector Reform Act (EPSR) 2005; unbundling of NEPA and direct intervention measures in the NIPP projects as well as their subsequent privatization, Nigeria has continued to commit time and financial resources, in no small measure, to redressing this deficit. Whilst, at present, these huge commitments have yielded limited success, it is clear that these measures are the right ones, medium to long term. Unfortunately, in the immediate perspective, the gains of this inevitable long-term planning remain marginal. The critical issue is that the generation deficits remains stark and a variation of the approach to the problem to widen the scope of power generation increase has now assumed even more critical proportions. The reasons mentioned have continued to undermine rapid increases in power generation such that even the government's professed – and preferred – course in privatizing generation is now severely threatened as very few of the Independent Power Producers (IPP) have started or indeed added, any noteworthy generation of power.

National Electricity Regulation Commission (NERC) Chairman, Dr Sam Amadi, writing in a column in This Day of 2 March 2015 quite superbly sets out the rationale for this desirable review of emphasis, especially to compliment the efforts that were being prosecuted under various aspects of the current reform programme. In summary, he stressed that the generation landscape had changed as post-privatization, both generation and distribution were now in the control of private operators but that even with liberalized generation, problems around lead time issues evident in dictating market stimulus required to generate investment momentum necessary to unleash capacity growth and sustenance meant that Nigerians were still being served with less than 4,000MW of electricity, daily. Identifying the "dark spot' as low generation, he affirmed the commonly held view that aside inadequate domestic supply, it was a major problem affecting the productivity and competitiveness of industries and businesses and, in consequence, economic growth. Continuing, NERC sees the establishment of the Nigerian Bulk Electricity Company as a government backed, credible off-taker to provide industry assurance of end use leading to large additions to generation capacity but yielding dividends in 3 to 4 years. This, combined with the constricted resolution of the gas shortage all mean that additions to generation capacity will not happen quickly enough to deliver short to medium term benefits.

It was against all these developments that, in designing an approach to expand the sources of increased generation, NERC has initiated interest by stimulating the discussion on available, less constrained options through highlighting the Embedded Generation Model. Also known as Dispersed; Distributed; Off-site or Decentralized Generation, Embedded Generation is power is generated on a smaller scale, off-grid, directly connected to its end- consumer and through its own designated distribution network. Its attributes are considerable. Comprising, typically, smaller or modular generators, embedded generation is the medium most amenable to a wide a variety of fuel generation technologies such as solar, wind, biomass, diesel, fuel oils, crude oil and small hydro. It appears to be the generation platform of choice for the development of renewable energy in countries such as Australia, France, Germany, Greece, India and the United Kingdom. It is also a useful means of dedicating power to state and local government, eligible customers and others. It would provide reliability for supply of energy critical for viable industrial activities and is the medium better able to deal with issues around peak shaving, high power quality or voltage control especially necessary for sensitive industrial equipment. Its value in minimising line losses and voltage sag, by, amongst other features, closeness to load inevitably leads to better results in more efficient power transmission. Less than 40% of Nigeria is accessible to electricity from a National Grid that is, at present, stretched beyond capacity and grid expansion plans, costly with long term lead times, is currently befuddled with uncertainty. In areas without grid access or connectivity like Rural Nigeria, embedded generation can clearly provide the main supply source of power or, elsewhere, as backup standby generation capacity. This will ensure regular supply and provision of ancillary services such as voltage or frequency control. Finally, given its inherent one-stop outlook, commercial management in metering and collection, maintenance of generating equipment and facilities, and staffing all become significantly easier to provide thereby improving service delivery and efficiency.
NERC takes the view, rightly, that Embedded Generation Model keeps faith with the strategic objective of a market-based approach to capacity growth and, in exercise of its powers to make regulations as the Power Sector Regulator under section 96 of the NERC Act, it has set out the regulatory framework for the implementation of the model. Its desire in seeking to promote this as an answer to acute shortage until the Bulk Trader procured power enters the market and the NIPP plants deliver to full capacity is well intentioned. As is its view that utilizing it to develop a micro-grid for industrial clusters. Regretfully, these two views seem, in many respects, a significant undervalue of the critical importance of this model as a huge contributor to Nigeria's power market.

First, industrial clusters, as end user outlets for the consumption of electricity do not really exist. There are several industrial parks or estates that have been built across the country. These require a commonality of purpose by more than one industrial entity at a very early stage. It must be remembered that the primary purpose of the industrial endeavor is usually not power production but power supply is critical to the achievement of those objectives. In the course of developing these parks, their owners often conceive them with a number of power supply options. In effect, by the time they are established, their power supply requirements are already designed and met. Several rely on power from the grid. Modern ones are being conceived on the basis of self-generation options. Clearly, therefore, the time to consider an embedded generation option is at conception stage. Any other option is clearly unworkable, especially from the investment perspective of a commercially driven Independent Power Producer. As for those in existence or with isolated industrial presence, this makes the industrial "clustering" a difficult, fragile, uncertain and too fickle an off-take option for an IPP to base an investment decision.

It seems clear that the Embedded Generation Model needs to be comprehensively formulated and implemented to generate the operational momentum that is required to breathe life into this model. And, with the best will, whilst it remains wholesomely appropriate for NERC to demonstrate astuteness and foresight in "showing the way", it is at policy and implementation level that Embedded Generation needs to be galvanized. More formal measures, guidelines and directions need to be formulated at policy level. It is suggested that, ideally, a commercially run entity using the model of the Niger Delta Power Holding Company (NDPHC) but run differently from the Bulk Trader be established to midwife the process. Its purpose will be to formulate these policies; implement them; establish, with private sector participation, embedded generation pilot schemes across the country that demonstrate its workability which will pave the way for full scale IPP involvement. All these can be achieved within shorter lead times.

Large generation projects justifiable demonstrate the strongest prospects of dealing with our electricity deficits. But, at the moment, they remain exactly that – prospects. Several of them continue to be hampered by some of the problems already discussed. These, critically, are responsible for the lukewarmness in commitment at off-take where the reluctance to commit to Power Purchase Agreements (PPA) continues to hamper investment funding. Although this latter position is improving and PPAs will soon become reality, huge funding to untested prospects remains a persisting cause for concern for lenders and investors. But this situation, unfortunately, offers no immediate, short-term dividends which means that scaling down investment targets – and consequently, expectations - in power generation must be the way forward.

Embedded Generation is clearly the future of power generation in Nigeria given the disparity between demand and actual generation. Alongside reclaiming short term lost capacity, this is the shortest route to growing power generation resources in Nigeria. It represents the only way in which smaller projects can be turned around quickly with new markets being developed much more easily. Smaller scale power generation opens up the fuel space in a manner that allows hitherto expensive electricity from renewables to compete. Some of the problems being experienced now could have been micro-managed with greater efficiency and better results including State, even Local Government participation in generation may even become possible. With the benefit of hindsight, its role in the reform programme, taking account of its quite critical significance could have been more comprehensively captured and integrated whilst the bulk generation envisioned for greater effect and national access through the National Grid pursued. In essence, it makes astute thinking to giver further, closer attention to scaling up its implementation aggressively.


By Andrew Obinna Onyearu
Lawyer and Energy Consultant from Abuja


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