Despite Nigeria’s vast energy resources, the country’s inability to deliver adequate power has remained a constant concern. Following the privatisation of important portions of the sector’s value chain, such as generation and distribution, in 2013, optimism was high. However, privatisation has not yielded the intended results. According to the SDG7 tracking report, Nigeria has the world’s largest energy deficit, with 90 million people lacking access to power, ahead of the Democratic Republic of Congo (70 million), and Ethiopia (58 million). According to the Nigerian Electricity Regulatory Commission’s (NERC) latest quarterly report for Q4 ’20, the average daily electricity production in Q4 was just under 4,400 megawatts (MW), up from less than 4,000MW in the previous quarter.
However, the level of power generated is paltry for a country with a population size of over 200 million, and whose power demand has been estimated at 11,000MW to over 100,000MW, depending on the source.
According to industry insiders, self-generated electricity in small petrol and diesel generators might be as much as 15,000MW.
The NERC report also reveals a concentration in power generated for the grid, with the top-five power plants accounting for over half of the country’s on-grid electricity output.
Nigeria’s energy mix lacks diversification, with gas (thermal) accounting for c.75.3% of electricity generated in Q4 ’20; hydro contributed 24.7%.
This highlights the need to generate power through multiple sources including on-grid/off-grid renewable sources.
We understand that the Nigerian mini-grid market offers significant revenue potential due to its high cost which often amounts to 2-3x the cost of on-grid generated power.
The transmission and distribution companies regularly grapple with high losses. The average transmission loss was c.7.2% in Q4.
The issues of cost-reflective tariffs, proper metering, and electricity theft are at the forefront of the industry’s problems.
Despite some tariff reviews, the average cost of electricity for Nigerian household at c.USD0.06/kilowatt hour (KWh) is significantly lower than the global average of USD0.14/KWh.
Industry sources estimate that the federal government (FG) subsidises electricity consumption with a monthly sum of c.NGN30bn. According to the FG, its subsidies to the sector amounted to c.NGN1trn between 2019 and 2021.
On the distribution end, the aggregate technical, commercial & collection (ATC&C) losses recorded by the sector was 47.1%, higher than the 15% figure that is seen as best practice internationally, and the c.22.1% allowance as stated in the Multi-Year Tariff Order (MYTO).
The fact that just NGN169bn of the NGN260bn in energy bills issued by DISCOs was settled highlights the sector’s liquidity challenges.
The settled sum is much lower than the NGN246bn total invoice issued to the DISCOs by the Nigerian Bulk Electricity Trading Company (NBET) and the market operator.