Nations run on energy and when they do not have that energy, they cannot effectively advance. The juice of the global modern economy is electricity: the amazing technology which ensures that our laptops, air-conditioners, factories, microwaves and practically any process in modern commerce and industry function. You can extrapolate from a nation’s energy consumption to understand its progress to industrialization.
But my country, Nigeria, is a simple example of a country that wants to industrialize without electricity. It believes that it can attain the status of one of the world’s leading economies, without the amazing technology that has transformed the world, from North America to Asia, from Europe to South America, and beyond, for decades.
According to the Nigerian Electricity Regulatory Commission (NERC), the electricity industry regulator, Nigeria generates about 4,000 MW of electricity daily. To benchmark, South Africa’s Eskom generation division has Coal-fired Power stations with an installed capacity of 45,389 MW:, according to International Energy Agency. This means that South Africa’s has a capacity in the 11X of what Nigeria currently generates. This does not include the pockets of largely small renewal energy generating entities which both countries support with South Africa also ahead of Nigeria in that space. South Africa has a total capacity of 5,069 MW from independent power producer covering solar, and wind, as of 2015.
Electricity generation capacity, Nigeria (source: NERC)
Structure of the Electricity Sector
Nigeria has three defined identifiable divisions in its electricity business: generation, transmission and distribution. The generation entities are huge companies which generate electricity which are then transmitted across the country. The distribution companies (Discos) now make them available in homes and offices. All these three divisions are broken. The generation division, which is privately-managed, can generate capacity which the transmission cannot absorb thereby reducing the incentives to invest more in generation. To manage this problem, the Nigerian government established NBET (Nigerian Bulk Electricity Trading Plc) to help stabilize these relationships, removing the risks from each of these arms of the power business. Nearly everything is privatized, though the transmission arm is like quasi-privatization.
At the distribution level, Discos control the electric poles, transformers, and practically owns the territory, they operate. No room was left for innovation and competition, in case those Discos cannot perform. That has become the weakest link in Nigeria’s electricity policy: Entrepreneurs cannot easily generate and efficiently sell energy to consumers. This has made it challenging for consumers to be served with alternatives even when what Discos are giving them is sub-par. Fixing the electricity sector in Nigeria, cannot happen, without revisiting the rights and controls Discos have, and also how they can partner with independent power producers (IPP), across Nigeria.
What Government Can Do
We identify and recommend the following steps, supporting what many policymakers have noted, across Nigeria for years:
- Unbundle the Discos: Have a policy that mandates Discos to have defined working relationships with IPPs with capacity to generate at least 10MW. Where the IPPs have excess, the Discos will buy the power from them, under defined agreements. This will simplify the negotiation as the Discos are bigger and can easily muscle out the IPPs. Government will have to define the agreements so that IPPs can enter into them automatically once they meet the conditions precedence, without having to independently negotiate with Discos.
- Energy Fund Guarantee: Government does not need to support entrepreneurs who may decide to put efforts in the renewals like solar, wind and others across Nigeria to generate power which they can sell to the discos. However, government can provide guarantees when they need help to raise capacity. This means government must first ensure they have the capacity to execute. The billions of naira government has been injecting in the generation, transmission and distribution, can partly benefit these entrepreneurs. Through this mechanism, capital can get into the hands of some savvy entrepreneurs, who can contribute to improve our energy sector.
- Policy on Wind and Solar Farms: Though the problem may not be obvious, now is the time for government to put a policy on this. What is the maximum allowed generation capacity? Which waters or areas can entrepreneurs invest? How can they do this since governments own the waters (think wind turbines in water)? What are the environmental issues they must look? Government must publish a white paper on IPP within the nexus of wind, solar and others in Nigeria, to provide guidance for those that want to invest at scale.
- Install Smart Metering: The energy sector will not be exciting for innovators until Nigerians have meters in their homes and offices. We suggest for government and Discos to do all necessary to ensure these meters are installed. Our recommendation is for government to give loans to the discos, as they appear incapable of funding this process. The consumers should not be forced to pay for the meters. At below 25% of metered customers, few entrepreneurs will like to invest in Yola region. Even Abuja region could not achieve more than 45% of metered customers. Simply, Nigeria has to move into the 21st century with the capacity to meter energy usage and bill accordingly.
Energy As A Service (EaaS)
The future of electricity adequacy in Nigeria will involve the mix of what the big generating entities are doing and the minor support from the small IPPs. Renewal power like solar and wind will be critical. For the renewal entrepreneurs to succeed, they will have to pioneer a new business model which will make it possible for customers to pay for service without owing energy assets and infrastructure. At the moment, that is not happening. People that want solar power are expected to spend money on solar infrastructure. That has to change.
Our suggestion: entrepreneurs must look into a business model that ensures they deliver Energy as a Service (EaaS). Simply, EasS is a system which ensures that consumers of electricity pay for only the power consumed with all aspects of maintenance, repair and service handled by the companies or entrepreneurs providing the solution to them. This ensures that the risk moves to the companies, saving the entrepreneurs in case the products are defective, since they only pay, only what is consumed. For this to work, the companies may require a contract, `enforceable on them meeting all terms of product reliability and quality. The long-term contract is necessary since the companies will invest money to setup the equipment and can only recoup the investments over time, as the consumers use and pay for only services consumed or used. NERC can play a role here to setup a system that provides the legal backing to EaaS with all meters linked to Bank Verification Number to ensure those not paying are blacklisted from the financial system.
Under this scheme, it will be easier for communities, villages and cities to negotiate their power needs with IPPs who will then work with Discos to meet their needs. As the buying moves from regions to communities, incentives for innovation in reliability and service will emerge. Within five years, Nigeria will quadruple its power capacity.
This is a moment for innovators to redesign the power sector in Nigeria. I do propose for governments to develop a roadmap that will bring entrepreneurial energy in the power sector. The model of EaaS will be catalytic as years of experiences with poorly-designed solar projects have made it harder for consumers to believe in solar and other renewals. With risk of owing assets taken out of them, a golden moment will come. As the power is generated, government needs to push Discos to open their systems to allow power get into homes and companies so that we can put Nigeria on the path to greatness.