Minister Urges Electricity Stakeholders To Explore Use Of Naira For Gas Purchase
… says it’s time to restructure the Transmission Company of Nigeria (TCN) into two entities: the Independent System Operator (ISO) and the Transmission Service Provider (TSP).
The Minister of Power Adebayo Adelabu has called on stakeholders in the electricity sector to look at a viable method for establishing a sustainable capital investment programme around gas processing, transportation infrastructure with its associated fiscal incentives, and policies that will attract/unlock investments into the production of Naira-denominated gas from inland gas basins, and in Non-Associated Gas fields from Nigeria’s various prolific hydrocarbon basins
He stated this while pointing out certain observable aspects within power sector that require the attention of all stakeholders at a retreat held recently on the happenings in the industry.
According to the minister, these observable aspects within the sector are the root causes of lack of substantial growth in the Nigerian Electricity Supply Industry (NESI).
These, he said, include the poor track record in contracting, contract management, and adherence to contractual obligations, in some cases, even by design.
He said with an impartial examination, it is evident that these identified factors erode confidence in the viability of the sector and pose fundamental challenges of inadequate capitalization and limited access to funds for the diverse players along the energy value chain, from gas supply to electricity distribution.
He stated that as at 20222, 70.5% of our grid electricity was generated by thermal plants, 27.3% from hydro, whilst solar and other power plants made up 2.2%.
“The good news here is that over 98% of the feedstock powering electricity generation in the country are transition or clean fuels, as Nigeria ramps up capacity to generate more electricity through renewable means such as solar, hydro, wind, bioenergy and others.”
The minister who described the using of the United States dollars as the price for gas utilized by the generating companies as a major issue in the sector, said this pricing mechanism is a hugely volatile variable that significantly affects the pricing of electricity to end-users.
He therefore advocated for a situation where there is a more preferable option that will ensure that the gas utilized by the GenCos is traded in Niara, saying that this would better manage the foreign currency-related inflationary trends that challenge the faithful application of the Multi-Year Tariff Order (MYTO) methodology.
“While we appreciate the interplay of contractual obligations, economics and the application of the Petroleum Industry Act, it must also be said that, as a matter of urgent national interest and economic survival, we must find ways and means to pursue domestic gas policies and incentivize stakeholders for the supply of gas for inland use in electricity supply, other industrial activities, and conversion to CNG and LPG for transportation and domestic uses respectively.”
“Therefore, I would suggest that one of the major deliverables from this policy-making process is a viable method for establishing a sustainable capital investment programme around gas processing and transportation infrastructure with its associated fiscal incentives and policies that will attract/unlock investments into the production of Naira-denominated gas from inland gas basins, and in Non-Associated Gas fields from Nigeria’s various prolific hydrocarbon basins.”
On the issues of Transmission Service Provider (TSP), Independent System Operator (ISO), which is made up of System Operation, and Regional Grids and a Super Grid, he said: “The NESI transmission sub-sector has been identified as a critical weak point in the value chain lately, a view widely shared. To align with the Electricity Act 2023 and the industry’s demands, it’s time to restructure the Transmission Company of Nigeria (TCN) into two entities: then Independent System Operator (ISO) and the Transmission Service Provider (TSP).
He said this restructuring must synchronize with the evolving landscape of State Electricity Markets, addressing calls for the decentralization of the national grid into regional grids interconnected by a new higher voltage national or super-grid.
“Essentially, we must ask whether the government should directly provide electricity nationwide or rather facilitate its provision. Drawing comparisons with China’s centralized model and the US’s diverse access models—like rural cooperatives and State-based utilities with regulatory oversight—presents various considerations. How to handle subsidies, cross-subsidies, and aligning the Rural Electrification Agency’s role with emerging State markets are vital questions that demand stakeholder scrutiny for effective resolution.”
On evolving a true and effective energy transition for Nigeria, he said, over 98% of electricity generated in Nigeria is through clean or transition fuels which shape the discourse and activities to be undertaken as we strive to achieve net zero CO2 emissions by 2060
He stated that the Ministry would like to see more utility-scale solar power plants by 2030, which brings added responsibility for investments in generation and grid stability to address the variability that transmission of renewable energy-generated power over long distances brings.
“This brings with it the need for distributed generation power systems from renewable energy-driven power plants, that are localized around clustered communities and embedded or captive areas while at the same time stabilizing our national grid and/or deploying super grids or regional-grids that can transmit generated power over long distances with minimal losses.”
“We need our investors, financiers and NESI value chain players to dimension the opportunities and electricity sector alignment with Nigeria’s Energy Transition Plan to ensure we meet our energy transition aspirations.”
Speaking on human resource development for the NESI, the minister said, “As we design effective solutions for every stakeholder along the electricity value chain, it is critically important for us to create a pool of personnel that can drive through the reforms and solutions as envisaged for the industry in both the public and private sectors. We must adopt a deliberate and inclusive model of human capacity development that supports all facets of policymaking, regulation, and the operation and maintenance of assets, plants, and equipment across the value chain.”
Emphasizing social inclusion and diversity, particularly regarding gender, he said is paramount, as he stated that there should be a deliberate and definitive model of human capacity development that will support all aspects of policymaking, regulation and the operation and maintenance of various assets, plant and equipment across the value chain.
“Human capital development strategies that are in tune with best practices should be enshrined within the industry especially for the private sector players to ensure talent retention, foster inclusivity, and promote diversity within the industry. This is an important topic for us to engage on at this Retreat. Without being prescriptive or definitive, I will expect probable solutions from stakeholders on the way forward.”
On Finance, Revenue Assurance and Capital Investment Programmes across the Electricity Value Chain, he stated that the heart of NESI’s proposed reforms hinges upon securing long-term financing across the entire value chain.
He said: “While past discussions highlighted concerns about the financial capacities of private sector players from the 2013 privatization, our focus must center on collaborative solutions to alleviate present liquidity challenges. Initiating this quest for robust investment involves attracting domestic institutional investors and reputable partners from well governed sectors within the electricity value chain.
“ At this Retreat, we’ve invited established infrastructure financiers and fintech innovators to infuse fresh thinking into our industry, aiming to develop innovative policies enabling capital investment programs and fiscal incentives that elevate the risk profile of sector opportunities to financeable levels.
A notable trend is the emergence of bilateral contracts between Gencos and Discos, alongside the formation of energy investment holding companies integrating generation and distribution assets. Encouraging our Pension Fund Administrators, who collectively wield over N17 trillion, to delve into understanding NESI and fostering bankable strategies for capital infusion is pivotal.”