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Why Nigeria’s Power Plants Under-performed in 2023

By Yange Ikyaa

Nigeria is credited with 12,643 megawatts of installed electricity generation capacity, but in 2023, an official report indicated that only a paltry 4,211 megawatts of electricity was produced in the third quarter of the year.

The report, which was authored by the Nigerian Electricity Regulatory Commission (NERC) for the quarter, showed that the country’s ageing plants are claiming huge costs on account of recurring maintenance needs, even as liquidity crunch and gas supply bottlenecks put the power plants at the lowest end of energy delivery.

This low generation capacity persists after government authorities in Nigeria had projected a 40,000-megawatts electricity generation threshold for the period spanning from 2013 to 2023, marking 10 years of the country’s power sector privatization.

Even though the generation segment of the Nigerian electricity market is widely considered to be the strongest of all the segments, according to the report under review, over 20 of the 27 electricity generation plants connected to Nigeria’s electricity grid are in shambles, with some producing as low as just 0.2 per cent of their installed capacity.

It further indicated that, of all the plants in question, only Azura, Paras, Dadin Kowa hydro, Jebba, Shiroro, Okpai, and Rivers IPP produced 50 per cent of their installed capacity, while the rest performed between 44 per cent to 0.2 per cent, bringing the average generation capacity of the country’s power plants to a meagre 33 per cent.

With the overall plant availability factor of all grid-connected plants standing at 33.31 per cent in the third quarter of 2023, it therefore means that over two-third of installed capacity in the Nigerian Electricity Supply Industry (NESI) was shut down.

According to NERC data, only seven plants had an availability factor greater than 50 per cent, and Azura IPP had the highest availability factor of 90.04 per cent, while Alaoji NIPP had the lowest availability factor of 0.2 per cent. Mechanical outages top the chart as the largest driver of plant unavailability, constituting a major problem plaguing Nigeria’s electricity market. These outages have been blamed on the ageing of many of the power plants, with the average power plant in the country put at 21 years.

However, ageing power plants are not the only problem in the NESI, as NERC reported that liquidity challenges in the upstream segment of the industry which culminates in underpayment of Gencos’ invoices continues to create constraints for the seamless running of their power plants.

“Without sufficient cash flows, GenCos are unable to maintain their generation units which lead to extended outages. The liquidity challenges have also prevented operators of the privatised generation assets from recovering capacity which had been inoperable prior to privatisation,” said the Commission in 2023.

NERC also lamented persistent lack of reliable gas supply to the plants due to gas infrastructure constraints on the national gas network and the absence of fully effective gas purchase agreements.

In the face of all these, unforeseen circumstances, such as accidents, have continued to also play their own negative role in the NESI. According to NERC, about 126 electricity-related accidents were recorded between January and September 2023.

These are mostly attributed to illegal connections, unsafe conditions/acts; wire snap, vandalism, explosions and electrocution fuel the incidents. Only in the nine months from January to September last year, NERC reported that there were 72 injuries and 79 fatalities.

The Nigerian government recently revealed that electricity companies operating in the country are in a deficit of N2 trillion, or $2.5 billion, which is required to revive the industry and provide a steady power supply nationwide.

Media reports have quoted Olu Verheijen, Special Adviser to President Bola Ahmed Tinubu on Energy, as saying that Nigerian electricity firms are burdened with excessive debt and insufficient capital, constraining their ability to invest in expanding household electricity distribution.

Lagos, she said, delivers only 1,000 megawatts to a city of 25 million people, but by contrast, with roughly the same population, Shanghai supplies more than 30,000 megawatts at peak demand.

According to Verheijen, inadequate pricing, patchy revenue collection and a dilapidated national grid have left most residents in Africa’s most populous nation to rely on generators for power supply.

In her words, “We need to set policies that facilitate reorganization and recapitalization and bring in new partners with new capital.”

Verheijen further mentioned that there are plans to make electricity tariffs cost-reflective alongside the recapitalization. This move is expected to enhance the liquidity and sustainability of the power sector.

According to her, if tariff adjustments are not implemented, the weakness of the naira, which experienced a 50% drop against the dollar last year, coupled with escalating inflation, could drive energy subsidies up to a tune of N1.6 trillion in 2024.

Against this backdrop, the Federal Government has allocated N344 billion to the power sector in the 2024 budget, an increase of 43.9 per cent when compared with the N239 billion it received last year.

According to Nigeria’s 2024 appropriation bill, the power sector’s personnel cost is estimated at N4.59 billion. Valuechain findings showed that the Federal Ministry of Power has an allocated overhead cost of N2.63 billion and the capital costs amount to N336.88 billion in the 2024 budget, amounting in a total allocation of N344.097 billion for the sector. However, last year, the Ministry got N239 billion, with personnel cost standing at N5.32 billion.

In 2023, a number of Ministries, Departments and Agencies (MDAs) of government in Nigeria spent an estimated N22 billion on generator maintenance due to the country’s unstable grid power supply. The amount was spread across over 200 MDAs and it could be higher, as many other agencies did not present their generator expenses in the 2023 budget proposal.

Nigeria has the lowest access to electricity globally, with about 92 million persons out of the country’s 200 million population lacking access to power, according to the 2022 Energy Progress Report released by Tracking SDG 7.

In 2022 alone, the country’s national grid collapsed eight times. To ease their operations, private businesses and government establishments often rely on alternative sources of electricity, mainly diesel and petrol generators.

Last June, the World Bank said that Nigeria will need about $100 billion in the next 10 years to tackle the challenges in its energy sector.