Two power exchanges India are reporting revenue in millions of dollars, an outcome that could become a reality for the Nigerian Bulk Electricity Trading Company (NBET) if it evolves into a power exchange post-transition market of the Nigerian Electricity Supply Industry.
NBET was created by the Federal Government in July 2011 to manage the electricity pool in the power market and catalyse new investments by using its capitalisation to guarantee new investments into the sector. But as the market moves past the transition phase, having failed to realise these goals, it should begin to reimagine its future beyond settling market invoices.
NBET was designed as an interim or transitional structure in the power sector to provide assurance of payment to GenCos, as well as to provide assurance of supply of electric power to DisCos post privatization of the nascent electricity market but it cannot guarantee either.
For years it barely had the capacity to settle more than a third of the market invoices of GenCos. Though, it claims settlements have gone up to 70 percent of market invoices, but it lacks the ability to activate Power Purchase Agreements (PPAs) and firm Gas Supply Agreements (GSA) with Successor GenCos, and none of the ten NIPP GenCos have PPAs with NBET.
However, NBET’s handicap isn’t so much a result of its inefficiency. It is a victim of the Federal Government’s decision to interfere with the market structure in March 2015 when former President Jonathan suspended the implementation of the progressive MYTO tariff increase.
This led to the declaration of the interim market into a power market that should be heading to the transition phase, to accommodate the tariff shortfall created by freezing tariff increase.
Nigeria modelled its power sector capitalisation after India’s but frequent interference by the government hasn’t helped Nigeria to see outcomes similar to India’swhich has seen more success. Developing NBET into a forward-looking power exchange could be the first step towards catalysing real investments into the sector, some analysts say.
“NBET could evolve into a proper wholesale electricity trading company or electricity trading exchange, similar to the India Electricity Exchange (IEX) or Power Exchange India (PXIL),” said Odion Omonfoman, an energy consultant and the CEO of New Hampshire Capital Ltd.
India has two power exchanges and between them conducts millions of dollars worth of transactions every year. A third is currently in the works and could come on stream by the end of the year.
The Indian Energy Exchange (IEX)created in 2008 pioneered the development of power trading in India and provides an electronic platform to the various participants in the power market, comprising State Electricity Boards, Power producers, Power Traders and Open Access Consumers (both Industrial and Commercial). It also has the Power Exchange India Limited (PXIL), the first institutionally promoted power exchange, created in 2008.
They are both regulated by the Central Electricity Regulatory Commission (CERC), and they have thousands of registered clients, private generators and industrial electricity consumers.
The exchanges are structured to cover the whole country and they operate as electronic exchange for trading of power. They handle power trading and transmission clearance simultaneously. They are also involved in renewable energy certificates covering all spheres of the value chain.
NBET’s evolution into an exchange could tremendously improve liquidity in the power sector and catalyse new investments into power plants, new transmission infrastructure and even renewable energy projects for smaller communities if it follows the Indian model. It will give investors confidence and provide comfort for financiers just as it did in India.
“But for this to happen, NERC would have to reign in the excesses of some badly operated and recalcitrant DisCos that have no compulsion to provide reliable electricity supply services to their customers,” said Omonfoman.
NBET is on the verge of renewing its licence, a critical necessity to maintain its ability to settle debts in the market. It cannot novate its contracts to DisCos and does not even have the financial capacity to do so. Its audited statements are yet to be released seven years into its operation and uncertainty has persisted over its capitalisation.
Omonfoman argues that the renewal of NBET’s license should be done with a view to winding down the organisation over a defined period and obligating it to publicly audit its books and activate PPAs and GSAs now dormant and those it currently manages.