nigeria power baseline report - mypower.ng · generation and distribution companies and the...

Nigeria Power Baseline Report

This report was developed by the Advisory Power Team, Office of the Vice President, Federal Government of Nigeria in conjunction with Power Africa.

Disclaimer: The information provided is current as of 15 August 2015. The analyses and conclusions contained in this document are based on best available data sourced from the Federal Government of Nigeria. Despite all efforts to ensure the integrity of the inputs, accuracy is limited to completeness of the source data.

Contents

Foreword 1

Glossary of terms 2

Executive summary 3

Power in Nigeria 5

Overview of the power sector Reform timeline and major players

Generation 13

Primary energy – gas 17

Transmission 19

Distribution 23

Power sector performance from 27June to August 2015

1

ForewordThe Buhari administration is committed to delivering change to Nigeria’s power sector to benefit the lives of all Nigerians. Currently, over half of our population (~55%) does not have access to grid-connected electricity, and those that do, suffer from intermittent power supply. Stable and constant electricity is vital to the economic and social welfare of Nigeria. This is not a luxury, but a necessity for the development and progress of Nigeria.

This report was commissioned in conjunction with Power Africa to provide an objective perspective on the current state of the power sector and identify the key constraints, which will be the focus of the administration’s efforts in improving the sector’s performance. The report intentionally does not contain recommendations, but instead, presents an unbiased analytical picture of the current state of the sector.

The power sector is plagued with structural issues in all key areas: generation, gas supply, transmission and distribution. To name a few of these challenges, the operational capacity of the country’s power plants is less than a third of their installed capacity. Chronic vandalism has crippled oil and gas pipelines, creating gas shortages at power plants. Underinvestment in maintenance and infrastructure has constrained our transmission grid. Finally, high collection and commercial losses have impacted the financial viability of the privatised distribution companies.

Although these fundamental challenges still exist, since June, the power sector has recorded some operational improvements, mainly driven by increased availability of gas. In August, Nigeria hit historical highs for both peak generation (4,811MW peak generation on August 25) and total energy generated across the system (4,213MWh/h energy generated on August 5). Transmission losses fell by 10% (June to August 15th 2015) compared to the first four months of the year. In addition to the improvement in power supply, delayed decisions have been fast tracked to provide clarity to investors, including: a sovereign immunity waiver granted to progress development on the first tranche of project-financed IPPs; the execution of the first set of World Bank partial risk guarantees; the interim extension of the TCN management contract; and the imposition of a September 2015 deadline for the submission of the distribution companies’ revised tariff trajectories.

Though these improvements are laudable, they are only the beginning of the extensive change required in the power sector. This administration is dedicated to providing stable and constant electricity to all Nigerians, which has manifested in the post-handover improvement of the electricity supply.

This administration has also created a publicly accessible website (www.nesistats.org), which has brought a new level of transparency to the performance of all the power stations connected to the grid, as well as, the performance of the grid itself.

This report provides a common set of facts needed for all stakeholders to participate in the progressive change needed in the Nigerian power sector.

Professor Yemi Osinbajo, SAN

The Vice President Federal Republic of Nigeria

2

Glossary of terms

Acronym Definition

BPE Bureau of Public Enterprises

BSCF Billion Standard Cubic Feet

BSCFD Billion Standard Cubic Feet per Day

FGN Federal Government of Nigeria

IOC International Oil Company

IPP Independent Power Producer

kWh Kilowatt-hour

MHI Manitoba Hydro International

MO Market Operator

MoF Federal Ministry of Finance

MoP Federal Ministry of Power

MoPR Federal Ministry of Petroleum Resources

MWh Megawatt Hour

MWh/h Megawatt Hour/Hour

MYTO Multi-year Tariff Order

NBET Nigeria Bulk Electricity Trading Company

NCP National Council on Privatisation

NDPHC Niger Delta Power Holding Company

NEPA National Electric Power Authority

NERC Nigerian Electricity Regulatory Commission

NESI Nigerian Electrical Supply Industry

NGC National Gas Company

NIPP National Integrated Power Project

NNPC Nigerian National Petroleum Company

NPDC Nigerian Petroleum Development Company

OPTS Oil Producers Trade Section

PHCN Power Holding Company of Nigeria

SO System Operator

TCN Transmission Company of Nigeria

TSP Transmission Service Provider

3

Executive summaryNigeria is the biggest economy in Africa, with a GDP of USD569 billion (2014). However, its power sector is performing below the level of its peer countries. Over half of the population (~55%) has no access to grid-connected electricity and those who are connected to the grid suffer extensive power outages.

To improve the power sector, the Nigerian government has undertaken long-term structural reforms (which started in 2005 but gained momentum in 2010) focused on privatising legacy power assets and instituting regulatory reform. However, these reforms have proved insufficient and more must be done to address the challenges in the sector, which include sub-optimal utilisation of generation plants (partly due to insufficient gas molecule availability), inadequate transmission infrastructure and high distribution losses (with related liquidity and viability issues).

These challenges are evident in all four segments of the Nigerian power value chain:

� Generation. Today, Nigeria has 12,522MW of installed capacity, but due to maintenance, gas, water and transmission constraints, an average of only 3,879MW of capacity is operational (January to 15 August, 2015).

� Primary energy — gas. The majority (85%) of installed capacity is fuelled by gas. Availability of gas molecules is low due to insufficient production, economic disincentives, inadequate infrastructure and frequent vandalism.

� Transmission. Nigeria’s transmission system has the capacity to transmit ~5,300MW but is disrupted by system collapses and frequent forced outages. Currently, transmission capacity is higher than operational generation capacity, but transmission will rapidly become a constraint due to increasing operational capacity.

� Distribution. Nigeria’s distribution companies suffer significant losses, with ~46% of energy lost due through technical, commercial and collection issues.

4

Resolving the above is critical to improving the country’s power supply. The past three months (June to August 2015) have seen measurable improvements, including:

� A 26% increase in operational generation capacity (June to August 15, 2015 compared to January to May 2015)

� Decreased pipeline vandalism boosting gas supply

� A 10% reduction in transmission losses (June to July 2015 compared to January to May 2015)

� De-bottlenecking the 450MW Azura-Edo IPP and the 500MW Exxon Mobil Qua-Iboe IPP

� One-year extension of Manitoba Hydro International’s management contract for TCN

� Imposition of a September 2015 deadline for the submission of the distribution companies’ revised tariff trajectories

� Execution of the first set of World Bank partial risk guarantees to support financing of the greenfield IPPs

In spite of these green shoots of progress, Nigeria must fix some fundamental structural issues before supply can meet demand. The most critical issue is to ensure that the distribution companies have the revenues to settle their wholesale obligations, meet their operating expenditure requirements and invest in new capacity. Setting the right tariffs is just one piece of the jigsaw.

The required interventions cannot be isolated within a specific segment because of the interconnectedness of the power value chain, in which disruptions cascade across the whole sector, e.g., a decrease in power generation has an impact on the power distributed and in turn distribution collection losses have an impact on the financial health of all market players. Major cross-cutting initiatives are needed to develop the power sector and improve electricity supply.

5

Power in NigeriaToday, ~95 million Nigerians (~55% of the population) have no access to electricity and those who are connected to the grid face extensive power interruptions. Systemic issues affect all phases of the power value chain (generation, gas supply, transmission and distribution) forcing Nigerians to rely on self-generation. According to the World Bank, an estimated 41% of Nigerian businesses generate their own power supply to augment the national grid supply.

To remedy these issues, the Nigerian government moved to privatise the power sector with the Electric Power Sector Reform Map of 2005 and the launch of the Roadmap for Power Sector Reform in 2010. The former National Electric Power Authority (NEPA) was replaced by the Power Holding Company of Nigeria (PHCN), which was unbundled into separate generation and distribution companies and the Transmission Company of Nigeria (TCN).

Beginning in 2013, the generation and distribution companies were handed over to private owners with the FGN retaining a minority stake. The TCN is still 100% owned by the FGN but is currently under a management contract with Manitoba Hydro International (MHI).

Overview of the power sector

At 126kWh per capita, Nigeria lags far behind other developing nations in terms of grid-based electricity consumption. Based on the country’s GDP and global trends, electricity consumption should be four to five times higher than it is today.

For example, Ghana’s per capita consumption (361kWh) is 2.9 times higher than that of Nigeria, and South Africa’s (3,926kWh) is 31 times higher.

6

Nigeria’s power sector snapshot

Increase in electricity consumption required to match peer countries with similar GDP per capita

4-5x

Nigerians are without access to electricity, and those that do have access face extensive power outages

~95 million

Structural inefficiencies in power generation cause the under-utilization of Nigeria’s generation capacity

25%of potential energy reaches the end-user

self-generation costs

>2xmore than grid-based powerNigerians get a significant portion of their electricity from private generators at a higher cost (NGN 62 - 94/kWh) than grid-based (NGN 26 - 38/kWh) power

In 2013, Nigeria ranked 25 (from the bottom) on power consumption per capita

126 kWh/capita

7

At 45%, Nigeria’s electrification rate is low – much lower than that of Ghana (72%) and South Africa (85%). Furthermore, unreliable power supply forces both households and industry to rely on privately owned generators for much of their power. These generators are more than twice as expensive (NGN 62 - 94/kWh) than grid-based power (end user tariff of NGN 26 - 38/kWh).

There are three stages in the delivery of power to customers: generation at the power plant (requiring a source of primary energy, i.e., water or gas), transmission to the distribution companies and distribution to the end user.

Only ~25% of Nigeria’s 12,522MW of installed capacity reaches the end user. Widespread inefficiency means that only 3,879MW of this capacity is operational (average January to 15 August, 2015), with ~3,600MW transmitted and ~3,100MW distributed (Exhibit 1).

Most of the short fall (5,381MW average January to 15 August, 2015) is capacity that is unavailable due to obsolete equipment and poor maintenance or to ongoing maintenance and repair activities at existing power plants. Also, 3,262MW (average January to 15 August, 2015) is non-operational primarily due to gas, water, high frequency, and line constraints.

In addition, the financial health of the sector is below par, as the distribution companies are unable to collect sufficient revenue to pay their full market costs. As a consequence, all of the upstream sectors (TCN, generation companies, and gas producers) do not receive full compensation for their costs.

Exhibit 1Only 25% of Nigeria’s installed capacity is distributed

Source: Team analysis, TCN reports, Advisory Power Team

12,522

3,592

287

3,879

3,262

5,381

1,746

1,065216

4,055

1,864

Capacity2

transmitted

7,200 -75%

Capacity2

distributed Distribution losses

447

Capacity operational for generation

Installed capacity

Non-available capacity1

Transmission losses

Non-operational capacity1

5,338

~7.4% transmission loss

Estimated max.transmission capacity

Nigeria power sector energy flowMW

~6.9% commercial and 36.5% collection losses

Estimated max.distribution capacity

~12.5% technical loss

CONCEPTUAL

1 Refers to average daily capacity of units non-available and non-operational from Jan to Aug 15 2015; assumes peak demand2 Effective capacity for transmission and distribution post-losses; assumes peak demand

Generation Transmission Distribution

8

The key decision, policy, and regulatory bodies active in the sector are:

� The Presidency

� Nigerian Electricity Regulatory Commission (NERC)

� Ministry of Power (MoP)

� Ministry of Petroleum Resources (MoPR)

� Ministry of Finance (MoF)

� National Council on Privatisation (NCP) with its secretariat, the Bureau of Public Enterprises (BPE).

Exhibit 2Nigeria’s power sector privatisation timeline

MAR: Electric Power Sector Reform Act passed• NEPA unbundled• Power Holding Company of Nigeria

(PHCN) created consisting of – 6 generation companies

(GenCos)– 11 distribution companies

(DisCos)– 1 transmission company

(Transmission Company of Nigeria – TCN)

MAR: EOIs received; requests for proposal (RFPs) sent to shortlisted bidders

AUG: Launch of roadmap for Power Sector Reform to guide acceleration of EPSR reforms. One of the key tenets of the Roadmap was PHCN’sprivatisation

JUL: Technical and financial proposals from pre-qualified bidders received for PHCN successor companies (ex-Kaduna DisCo)

OCT: National Council on Privatisation (NCP) approved preferred bidders for legacy GenCos and DisCos (ex-Afam GenCo or Kaduna DisCo)

Privatisation timeline

2005 2009/10 2011 2012 2013 2014

Source: CSL 2014; press search

DEC 2010: Bureau of Public Enterprises (BPE) sends out advertisements for Expressions of Interest (EOIs) for PHCN successor companies

AUG:Northwest misses deadline for paying balance of bid price

DEC:Handover of Kaduna DisCo

NOV: Incorporation of11 new successor DisCosand 6 successor GenCos

SEP: Requests for proposal (RFPs) issued

MAR: Technically qualified bidders for NIPP GenCos announced

APR: Deadline of preferred and reserved bidders to pay bank guarantee of 15% of amount bid

AUG: Preferred bidder selected for Afam GenCo

MAR: Privatisation of Alaoji, Omoku and Gbarain NIPPGenCos temporarily suspended pending ruling on Ethiope Energy case challenging their disqualification

FEB–MAR: Shareholders and Share Sale Agreements signed and initial deposits (25%) paid by preferred bidders of 10 DisCos (ex-Kaduna)

MAR: Pre-due diligence conducted for re-tender of Kaduna DisCo and Afam GenCo

SEP: Share certificates and licences handed over to purchasers of PHCN Gencos

FEB-MAR: BOE and preferred bidders sign industry agreements and preferred bidders pay initial deposits

NOV: After several shifts in hand-over date owing to issues especially labourprotests, 10 DisCos were handed over on 1 Nov

OCT:Northwest meets the extended deadline for paying the balance

Reform timeline and major players

Since 2005, Nigeria has undertaken a long-term structural reform of the sector to improve the provision of power to its citizens. The Roadmap for Power Sector Reform launched in 2010 has provided major impetus. The government has developed the power sector from a single state-owned utility to an unbundled system with private participation and ownership of assets across generation and distribution (Exhibit 2).

9

There are seven main players in the daily operations of the power market:

� Nigeria Bulk Electricity Trader (NBET)

� Transmission Company of Nigeria (TCN)

� Nigerian National Petroleum Corporation (NNPC) and its key operational subsidiaries, the Nigerian Gas Company (NGC) and the Nigerian Petroleum Development Company (NPDC)

� Niger Delta Power Holding Company (NDPHC), which owns and operates the NIPP power plants and is responsible for completing construction of parts of the critical new transmission and distribution infrastructure

� Private sector natural gas producers: international oil companies (IOCs) and indigenous oil and gas companies

� The divested generation companies

� The divested distribution companies

The remainder of this document looks in detail at the four components of the power sector value chain (generation, primary energy – gas, transmission, and distribution) and their status.

11

NERC (NIGERIAN ELECTRICITY REGULATORY COMMISSION)

�Overarching power sector regulator � Responsible for licensing, tariffs, codes and other policies

�Creditworthy intermediary between DisCos, TCN and GenCos � Temporary role until sector achieves fiscal strength

TRANSMISSION CHARGES

RETAIL TARIFFS

POWER PURCHASE AGREEMENTS

VESTING CONTRACTS

1 Transmission and other service charges adminstered by market operator2 Average daily operational capacity from January to August 15, 2015

NBET (NIGERIAN BULK ELECTRICITY TRADING PLC)

GAS PURCHASE AGREEMENTS

Distributed capacity

~3,100 MWTransmitted capacity

~3,600MWOperational capacity2

3,879 MW

HYDRO

15%HYDRO- ELECTRIC PLANTS � 15% of installed capacity

� 3 hydro plants

GAS

85%GAS THERMAL PLANTS � 85% of installed capacity

� 22 gas thermal plants

Supplied to power plants

~0.8 BSCFDDaily production

~8.9 BSCFD

GOVERNMENT

PRIVATE

CASH FLOW

POWER FLOW

GAS FLOW

GENCOS (GENERATION COMPANIES) � 25 grid-connected power plants � Mix of public and private ownership

(privatised PHCN, NIPP and IPP)

TCN1 (TRANSMISSION COMPANY OF NIGERIA) � Owns and operates

transmission grid � Managed by

Manitoba Hydro International

DISCOS (DISTRIBUTION COMPANIES) � 11 privatised

DisCos � Sell directly

to customers and industry

GAS PRODUCERS � NNPC, IOCs, and Local Independents � JV, PSC, and Independent field

development

=+

CUSTOMERS � 8 million customers � 36% collection loss

12,522 MW Installed capacity

Nigeria’s power landscape

12





RETAIL TARIFFS


VESTING CONTRACTS







3,879 MW

HYDRO


� 3 hydro plants

GAS





~8.9 BSCFD

GOVERNMENT

PRIVATE

CASH FLOW

POWER FLOW

GAS FLOW










development

=+







RETAIL TARIFFS


VESTING CONTRACTS







3,879 MW

HYDRO


� 3 hydro plants

GAS





~8.9 BSCFD

GOVERNMENT

PRIVATE

CASH FLOW

POWER FLOW

GAS FLOW










development

=+



13

Exhibit 3Nigeria has 25 on-grid power plants1, concentrated in southern Nigeria

Source: TCN Reports, Advisory Power Team, NERC

1 Includes plants connected to the grid with at least one constructed turbine2 IPP: Independent Power Project – note Ibom, Omoku, Rivers IPP, and Trans Amadi are sponsored by state governments 3 NIPP: National Integrated Power Project plant

In addition, 3 more NIPP plants are under construction and NERC has issued licenses for additional on-grid projects with capacity over 9,000 MW, including IPPs such as Azura Power, which is nearing financial close

Power plant installed capacity MW

50-200 200-500 >500

Lagos

Bayelsa

Imo Abia

AkwaIbom

Adamawa

Bauchi

GombeKaduna

FCT

Nassarawa

Plateau

Taraba

Benue

CrossRiver

Enugu

EbonyiAnambra

Delta

Edo

KogiOyo

Ogun

Osun Ekiti

Ondo

Kwara

Niger

Sokoto

KebbiZamfara

Katsina

Kano

YobeJigawa

Borno

Rivers

GenerationBetween January and 15 August, 2015, Nigeria’s power plants sent out an average 3,317MWh/h of electricity daily from 25 grid-connected power plants (located largely in the south) with installed capacity of 12,522MW. The plants are run by generation companies including those formerly under the PHCN, National Integrated Power Project (NIPP), and Independent Power Producers (IPPs).

Eighty-five percent of installed capacity is generated by gas thermal power plants and the remaining 15% is generated by hydroelectric power plants (Exhibit 3).

Although installed capacity totals 12,522MW, the average available capacity (January to 15 August, 2015; 57% of installed capacity). Available capacity is capacity that could be used for generation but is constrained by internal plant issues – mainly maintenance and repair requirements. Some of these are routine general maintenance and inspections, but most are the result of unplanned issues (e.g., trips, faults, leakages, burnt components, vibration and filter issues) and units needing rehabilitation/overhaul.

14

22 GAS PLANTS

10,592MW

3 HYDRO PLANTS

1,930MW

INSTALLED CAPACITY25 gas-fired and hydro-electric power plants

REDUCED CAPACITY

21 PLANTS

MAINTENANCE AND REPAIR ISSUES

GAS CONSTRAINT 1,995MW

WATER CONSTRAINT 444MW

HIGH FREQUENCY 179MW

LINE CONSTRAINT 84MW

12,522MWINSTALLED

3,879MW

7,141MWAVAILABLE CAPACITY

AVAILABLE CAPACITYNon-availability reduced power generation by 5,381MW

OPERATIONAL CAPACITYGas, water management, transmission, and other constraints reduce power generation by 3,262MW

OTHER CONSTRAINTS 560MW

Nigeria’s power generation efficiency1

1 Available and operational capacity data points are daily averages from January to 15 August 2015

15

Although available capacity is 7,141MW, power plant operational capacity is even lower at 3,879MW (average January to 15 August, 2015; 31% of installed capacity).The key constraints to operational generation capacity are:

� Insufficient gas supply due to low production, insufficient infrastructure and vandalism

� Poor water management

� High frequency due to demand imbalances

� Line constraints due to inadequate transmission infrastructure.

These constraints cause the power industry to lose an average >NGN1.4 billion (USD7 million) of revenue1 daily.

Improving Nigeria’s power generation is key factor to resolving the power shortage. Ongoing refurbishment of existing generation plants and construction of new gas-fired power plants will help. However, building more generation capacity alone is not enough; it needs to be supported upstream with improved gas availability and downstream with additional transmission capacity.

Exhibit 4All plants have sub-optimal utilisation; 7 operate at less than 10% of installed capacity

136

180

150

110

294

724

561

720

504

190

450

414

600

335

500

760

720

450

434

335

570

480

900

685

1,320

0

0

0

0

0

2

64

67

69

76

111

131

153

163

169

171

173

179

182

189

262

374

375

455

539

Source: TCN Reports, Nesistats.org, Advisory Power Team

1 Average daily capacity Jan to Aug 15 2015 with data extrapolated for days on which data not available 2 Average of daily total across plants

Installed capacity1

MW Avg. available capacity2

MWAvg. operational capacity2, MW

31%

Power plant

TOTAL

0

175

0

0

270

3

234

158

219

91

184

159

508

280

306

260

444

328

374

277

431

463

536

587

941

Less than 10% operational

3,87912,522 7,141 54%57%

EGBINAFAM VIOKPAIDELTAJEBBAOLORUNSOGO GASIHOVBOR NIPPGEREGU NIPPKAINJIOLORUNSOGO NIPPOMOTOSHO NIPPOMOTOSHO GASSHIROROGEREGU GASSAPELE NIPPIBOMSAPELEALAOJI NIPPODUKPANI NIPPAFAM IV-VASCOOMOKUTRANS AMADIAES GASRIVERS IPP

IPPPRIVATISED PHCNIPPNIPPIPPPRIVATISED PHCNPRIVATISED PHCNPRIVATISED PHCNNIPPIPPNIPPPRIVATISED PHCNPRIVATISED PHCNNIPPIPPPRIVATISED PHCNNIPPIPPPRIVATISED PHCNNIPPIPPPRIVATISED PHCNNIPPPRIVATISED PHCNIPP

1 Using net, average and levelised, tariff of N20/kWh (i.e. net of all ATC&C losses) per MYTO 2.1 assumptions

(source: Nesistats.org)

17

Primary energy – gasNigeria has the world’s ninth-largest proven gas reserves (estimated 180,105 bscf). However, insufficient gas supply is the biggest constraint to available generating capacity and reduces operating capacity by an average of 2,060 MW daily.

Although the country has abundant reserves, its gas production is low – it ranks 22 on the global production scale. The low level of gas supplied to power plants is exacerbated by insufficient gas production for the domestic market. In 2014, total gas production was ~8.9 bscfd but less than 10% was supplied to the domestic power sector for generation.

This is insufficient to run the country’s gas thermal power plants. As a result, only 56% of gas plants’ available generating capacity is operational. An additional ~0.6 bscfd would be required to sustain current available generating capacity.

The low level of gas produced for the domestic market is the result of:

— Insufficient gas-processing and pipeline infrastructure. Long-term under-investment and delays in the delivery of planned gas infrastructure have resulted in a shortage of gas-processing and pipeline infrastructure. Lack of investment in gas-processing facilities and failure to complete already funded projects are key challenges. Regular vandalism of existing pipelines is another big challenge.

— Poor economics. Low domestic gas prices do not justify investment in gas development by upstream oil and gas companies. Recent tariff increases have improved the situation but it is estimated by OPTS2 that further increases are needed to fund projects requiring new infrastructure, e.g., processing facilities and pipelines. In addition, gas producers are not consistently paid for the gas they supply because the generation companies do not receive full remittances from the NBET due to downstream collection issues.

— Limited joint venture funding. From 2010 to 2013, the gas industry received ~USD6 billion less than required from NNPC to fully implement its joint-venture business plans (on a yearly average basis). Resolving these funding challenges could increase gas production by ~2.8 bscfd by 2020 under current fiscal terms.

— Regulatory issues. Nigeria’s oil and gas regulatory regime, specifically the Petroleum Industry Bill, has been under debate since 2008, causing investor uncertainty.

Gas is the primary feedstock for the Nigerian power industry and the failure to deliver has a large downstream impact on all players from generation to distribution. Current and future power plants will not meet power demand unless gas supply improves significantly.

2 Oil Producers Trade Section of the Lagos Chamber of Commerce and Industry

18

~8.9 BSCFD

10%41%

RE-INJECTED

CURRENT GAS TO POWER

POWER ~0.8BSCFD

POWER REQUIREMENTS FOR AVAILABLE CAPACITY1

lost to gas constraint1,995MW

of available capacity unutilized due to gas constraints

28%

needed for gas generation1.4BSCFD

27%8%

5%9%

EXPORTS

FLARED

PRODUCER- INTERNAL USE

POWER

INDUSTRY

1 Average available capacity of 7,414MW from January to 15 August 2015

Nigeria’s gas utilisation

19

TransmissionTCN manages the transmission system under management contract with Manitoba Hydro International. TCN consists of three departments:

1. Transmission Service Provider (TSP) that is responsible for the development and maintenance of transmission infrastructure.

2. System Operator (SO) that manages the flow of electricity throughout the power system from generation to distribution companies.

3. Market Operator (MO) that administers power market rules.

TCN is the last legacy asset to be reorganised and is to be structured to operate independently from the SO and MO.

Nigeria’s transmission network consists of 159 substations with a total (theoretical) transformation capacity of ~19,000MW and 15,022km of transmission lines.

Currently, transmission capacity (~5,300MW) is higher than average operational generation capacity of 3,879MW (average January to 15 August, 2015), but it is far below the total installed capacity of 12,522MW. When operational generation capacity grows to the same level as transmission capacity, transmission will become a critical bottleneck to electricity delivery – early signs were visible in July and August.

At an average 7.4% (January to July 2015), transmission losses across the network are high compared to emerging country benchmarks of ~2-6%. This reflects the critical infrastructure and operational challenges.

Ineffective maintenance and poor system management contribute to partial or total system collapses. The number of system collapses has fallen over the last seven years from a peak of 42 in 2010 to 13 in 2014 (Exhibit 5). The incidence of forced outages has not improved at the same rate and maintenance challenges persist with an average of just 67% planned maintenance works completed per month (February to July 2015).

20

One hundred and twenty-six approved TCN projects worth ~USD1.5 billion are underway to strengthen the transmission network and a further 118 NIPP projects have been approved (Exhibit 6). As in generation, however, delivery has been slow and only 22 of the TCN projects have been completed, primarily because of inadequate funding and invoicing delays (ongoing FGN funded projects are generally ineligible to access external funding reserved for new projects). Of those yet to be completed, ~30% have been underway for more than five years and eight were started in 2001. In addition, various external funding sources3 have been made available to finance new projects within the transmission sector. However, much funding has yet to be accessed as the number of bankable projects is low.

When complete, these projects could increase grid-wheeling capacity to ~7,200MW and the length of the network to ~21,000km.

3 From the African Development Bank, FGN Eurobond issue, French Development Agency, China EXIM, World Bank,

Japan International Cooperation Agency

Exhibit 5System collapses have declined over the last 7 years, but remain a significant challenge due to insufficient maintenance and poor system management

1922

1316

22

95

2020

6

8

4

3

20142013 2015 YTD1

42

2011

2424

13

8

19

20102009 2012

2

39

Source: TCN Reports

1 January to August 15, 2015

Number of collapses

TotalPartial

21

Exhibit 6Approved projects aim to stabilise and strengthen the transmission network

Transmission line, km

Grid wheeling capacity, MW

58

TCN

22

118

NIPP

60

126

104

Source: TCN Reports, Nesistats.org, Advisory Power Team, NIPP reports

5,338 1,892 7,230

15,022 6,013 21,035

Number of projects

1 As of May 2015 2 Assuming power factor of 0.85 per minimum stated in Grid Code for the Nigeria Electricity Transmission System 2014

Approved TCN and NIPP transmission projects1 Potential impact of projects approved

Completed

Not completed Potential increase from projects

Existing

Detailed

further

23

Exhibit 7In 2014, ~46% of energy was subject to technical, commercial, and collection loss

Source: NERC, Advisory Power Team

Annual MWh/h

-46%

1,003,976

-277,781

Collection losses

-123,183

Post-lossesEnergy delivered to DisCos2

Technicallosses

539,281

Commercial losses

-63,731

12% 6% 28%

1 N/B: Total energy lost estimated using individual Disco energy allocations and loss levels and energy. Unweighted average loss levels are: 12.5% technical, 6.9% commercial, and 36.4% collection

2 For 2014

DistributionAs a part of the privatisation programme, the Power Holding Company of Nigeria’s (PHCN) distribution network was broken up into 11 regional grids, which were then sold off to local and foreign investors, with a minority stake retained by the FGN . The resulting distribution companies vary greatly in terms of network size, number of customers and geographic area.

Based on the agreements with the Bureau of Public Enterprises (BPE), each distribution company is “allocated” an amount of grid energy. In reality, supply varies with some distribution companies receiving more and others less – often driven by the ability of the individual distribution company to accept the offered capacity.

The biggest challenge the distribution sector faces is the level of distribution losses (Exhibit 7). This includes technical, commercial (energy not billed for), and collection losses (energy billed but not paid for). When the distribution companies were privatised, the transactions assumed particular loss levels. After the asset hand-over, however, it became clear that the losses were much higher than had been estimated. In 2014, ~46% of energy was lost through technical (12%), commercial (6%), and collection losses (28%).

24

11 PRIVATISED DISCOS COVER A REGIONAL GRID

KANO

JOS

YOLAKADUNA

ENUGU

IBADAN

ABUJA

PORT HARCOURT

IKEJA

BENIN

EKO

755 107,254 12% 15%

1,187 104,702 15% 14%

581 8,093 13% 13%

819 25,078 9% 12%

1,750 24,355 9% 11%

1,128 12,466 11% 9%

466 12,227 8% 8%

459 26,653 7% 7%

598 21,041 6% 5%

557 17,989 8% 5%

345 6,505 4% 2%

ABUJA

BENIN

EKO

ENUGU

IBADAN

IKEJA

JOS

KADUNA

KANO

PORT HARCOURT

YOLA

VARIATION OF CUSTOMERS AND NETWORK DISTRIBUTION

AREA

ALLOCATED ENERGY1

DISTRIBUTION NETWORK(KM, 2008)

ALLOCATION (% OF GRID

ENERGY)

ACTUALAVERAGE

(JAN’14-APR’15)

NUMBER OF CUSTOMERS(‘000, 2014)

(% OF TOTAL ENERGY ALLOCATED)

1 Due to rounding percentages don’t add to 100%.

Nigeria’s distribution coverage

25

When the distribution companies took over the assets, they made commitments regarding grid expansion, number of new connections and capex to be spent on meters. By fulfilling their commitments, the companies will help bridge the distribution performance gap between Nigeria and its peers.

However, the distribution sector faces significant financial pressures. In March 2015, the regulator ruled that collection losses could not be passed on to consumers via retail tariffs. With collection losses set at zero, distribution companies would have needed to achieve dramatically lower loss levels to meet their loss commitments. Faced with this situation, several distribution companies declared force majeure, triggering a regulatory crisis and a temporary loss of investor confidence. The combined impact of these developments on the sector’s liquidity was very negative and constituted one of the first major (power sector) tests faced by the new administration.

In response to this challenge, the Presidency convened a series of meetings with the key stakeholders (NERC, the distribution companies, NBET and the CBN) to fashion a timely response. The result was (amongst other things), the reversal of the decision to set collection losses at zero and the imposition of the September 2015 deadline for the submission of proposed new long-term tariff trajectories by the distribution companies.

27

Power sector performance from June to July 2015Although fundamental challenges remain in the Nigerian power sector, operational improvements were observed in the three months between June and August 2015 largely driven by increased gas availability. The new administration can build on these improvements by accelerating actions to solve the core challenges of increasing generation capacity, providing gas for power generation, enhancing transmission infrastructure and improving the financial viability of distribution companies by minimising distribution losses. The administration has increased transparency and accountability by creating a publicly accessible website (www.nesistats.org) that shows the performance of all the power stations connected to the grid and of the grid itself.

Generation

Average operational generation capacity increased 26% from 3,565MW over the first five months of the year to 4,504MW from June to 15 August, 2015 (Exhibit 8) with an all-time high peak generation of 4,811MW recorded on 25 August, 2015.

Exhibit 8Average operational capacity has increased by 26% compared to the first four months in 2015

6,000

2,000

1,000

4,000

3,000

5,000

Source: Updated Gen Stats workbook, TCN NOR Reports, UDI database, Gx Template 15 July 2015

Operational capacityMW, daily1

Height of the fuel scarcity crisis

1 Data extrapolated for days on which data was not available

Discounting the outlier performance in May due to the fuel crisis, the increase has been 21% – from an average of 3,736 MW to 4,504 MW

Avg. 4,504Avg. 3,565

+26%

1 May‘15

1 Jan ‘15

1 Apr‘15

1 Feb‘15

1 Jun‘15

1 Mar‘15

1 Jul‘15

1 Aug‘15

28

Average operational generation capacity has improved. (June to August 15, 2015) increased to 4,504MW from 3,565MW over the first five months of this year

26%increase in power plant operational capacity

increasein gas available to power plantsIncrease in gas supply, which is in part due to reduction in vandalism, has led to increased generation

This administration has created a publicly accessible Website (www.nesistats.org) This website has brought a new level of transparency to the performance of all the power stations connected to the grid as well as the performance of the grid itself

transparencyand accountability

progresson greenfield IPPs Sovereign guarantee

waiver for Azura IPP approved First set of World Bank

Power Sector Guarantees for Nigeria’s greenfield IPPs approved

Nigeria’s power sector performance from June to August 2015

Decline in average transmission loss to avg. 6.9% over June to July 2015

10%reduction in transmission loss

4,811 MWpeak energy achievedAll time high achieved August 25, 2015 with a 14% increase in average energy sent out in June to August 15, 2015 compared to the first five months of the year

Nigeria’s power sector performance from June to August 2015

29

The 26% increase in operational capacity from June to 15 August is the result of improvements in 17 of the country’s 25 power plants. The top five plants accounted for ~75% of the increase, and Egbin power plant accounted for ~40% (Exhibit 9). Unit 2G4 of the Jebba plant went off-line for general overhaul at the beginning of June and is not expected back on-line until December.

Exhibit 917 power plants have improved operational capacity and 5 plants account for ~75% of the increase

0

0

0

0

0

309

115

2

453

128

166

368

61

171

167

160

41

173

152

58

139

41

345

122

417

DELTASHIROROEGBIN

IBOMOMOTOSHO GASALAOJI NIPP

ODUKPANI NIPPOLORUNSOGO GASOMOTOSHO NIPP

GEREGU NIPPIHOVBOR NIPPOLORUNSOGO NIPP

KAINJIOKPAISAPELE

AFAM IV-VAFAM VIGEREGU GAS

AES GASJEBBASAPELE NIPP

OMOKUASCO

TRANS AMADIRIVERS IPP

0

0

0

0

0

-139

-12

-2

5

9

15

17

19

32

34

39

43

46

52

54

72

85

91

91

365

Source: TCN Reports, Nesistats.org, Advisory Power Team

1 Data extrapolated for days on which data not available 2 Average of daily total across plants

Avg. operational capacity Jan to May

Avg. operational capacity Jun to Aug 2015 Difference

9393,565 4,504

26%

Power plant

AVERAGE DAILY TOTAL2

0

0

0

0

0

169

103

1

458

136

181

386

80

203

201

199

84

220

204

112

211

125

435

213

782

In addition, the average level of energy generated and sent out between June and 15 August, 2015 increased 14% over the first five months of the year.

The administration has also approved a sovereign guarantee waiver for the 450MW Phase 1 of the Azura-Edo IPP. This is a planned 1,500MW+ power plant facility near Benin City, Edo State, and the first of Nigeria’s new wave of greenfield IPPs. The ground was broken in October 2014, but progress stalled for the next eight months pending the sovereign guarantee waiver requested by promoters to de-risk the project. Construction is now expected to commence in September 2015. This will boost investor confidence and drive progress on additional gas-fired IPPs (including the Exxon Mobil Qua-Iboe IPP, the Century Power Okija IPP, and the Geometric OMA IPP) and the new wave of solar IPPs (including those being developed by Nigeria Solar Capital Partners, Pan-Africa Solar and Nova Power). In addition, the first set of World Bank Power Sector Guarantees for Nigeria’s greenfield IPP sector were executed execution on 21 August, 2015.

30

Primary energy – gas

Increased gas availability contributed to the 26% increase in average operational capacity from June to 15 August, 2015 compared to the period January to May, with a 10% reduction in gas constraints. A drop in pipeline vandalism is partly responsible for the improved gas supply. With 85% of power generation coming from gas thermal plants, resolving gas constraints is key to improving Nigeria’s power generation. Further supply, infrastructure and vandalism challenges need to be overcome to provide the gas volumes needed for greater power generation.

Transmission

From June to July, average transmission losses decreased 10% compared to January to May, 2015. In addition to the operational improvements, short-term clarity was brought to the transmission sector with a one-year extension of the MHI contract, which will expire on July 31, 2016. Per TCN4, the focus of the extension is to:

� Increase TCN’s capacity to transmit power in the grid to ensure that transmission is not a constraint to power supply

� Facilitate the unbundling of TCN into two new organisations, the Transmission Service Provider and the Independent System Operator

� Build the capacity of local management to lead these organisations at the end of the contract.

Nigeria’s transmission system does not have the capacity to transmit the installed generation capacity. Grid stability and capacity must improve to keep up with current and future installed generation capacity.

Distribution

The distribution landscape has made no clear operational progress. While energy generated and sent out increased from June to 15 August, 2015, some distribution companies have suffered load rejection.

Nigeria’s distribution companies suffer a 46% loss on energy delivered to customers, primarily due to commercial and collection losses. They need to minimise losses to protect the financial stability of the power ecosystem.

Other interventions are also urgently to sustain the liquidity of the sector and are being examined by the government. These include plans to implement new mechanisms to ensure prompt payment of the government’s electricity bills and additional credit support to distribution companies.

In the meantime, the reversal of the decision to zero collection losses has shored up investor confidence and expanded sector liquidity.

Conclusion

Although the improvements detailed above have increased confidence in the future of Nigeria’s power sector, large challenges remain in all phases of the power value chain if electricity supply is to meet electricity demand. The long-term viability of the sector is tied to the health and sustainability of all stages of the value chain from generation to payment by end users.

4 TSP press release “Federal Government Extends Management Contract With Manitoba Hydro International Ltd”, 16 July 2015

For more information please log on to www.nesistats.org, or contact:

Damilola OgunbiyiHead, Advisory Power [email protected]

Muyiwa AbiodunGeneration Team, Advisory Power [email protected]

Disclaimer: The contents of this study is the sole responsibility of the Advisory Power Team

nigeria power baseline report - mypower.ng · generation and distribution companies and the...

Documents