The enormity of the economic, social and environmental effects of failed efforts to end the electricity crisis calls not only for a better understanding of the key causal factors in the dilemma but also for a rethink of the policy strategies to steer the economy along a new pathway of reliable and adequate electricity supply. The Nigeria electricity reform resulted in transiting from the century-long industry paradigm of vertically integrated natural monopolies to a new paradigm in which investment and production decisions became more market-determined, and the state’s role changed from ownership to regulatory oversight function. Nigeria effectively joined the global electricity reform trend in 2005 when the Electric Power Sector Reform Act (EPSRA) became law, and the Nigerian Electricity Regulatory Commission (NERC) was established as an independent regulator. The unbundling and privatization of generation and distribution assets in November 2013 ended the first phase of reform. However, transmission remained under state control.
But after more than a decade of industry reform and nine years after the unbundling and privatization of the generation and distribution segments of the Nigerian electricity value chain, the Nigerian electricity supply industry (NESI) is still marred by the following challenges:
- Huge electricity shortfall due to inadequate generation, transmission and distribution capacity in the face of a high level of suppressed demand. Though nominal generating capacity reached 7,000 MW in 2017, operational capacity hardly exceeded 4,000 MW for six consecutive months in the past decade. Recently, the government stated that the wheeling capacity of the transmission system had reached 7,500MW. Still, the distribution capacity is yet to consistently deliver 5,000 MW to consumers in a market where suppressed, and unmet demand and self-generation are estimated to exceed 20,000 MW. Also, the average operational generation capacity is 3,879MW, far below the total installed generation capacity of 12,522MW.
- Transmission and distribution network losses in Nigeria are among the largest in the world. Network losses are in double digits in Nigeria compared to the single digit in comparator countries. The high level of losses is symptomatic of the technical inefficiency in the sector.
- High level of electricity theft and fraud which account for the bulk of non-technical losses in the industry. Two key factors driving electricity theft/corruption at the distribution level are the slow pace of installing pre-paid meters for most residential customers and the bypassing of meters. The slow pace of installation of pre-paid meters by the distribution companies has resulted in estimated billing of residential consumers whose common complaint is overbilling. Other forms of electricity theft include meter tampering, illegal connections and tapping into the distribution lines.
- Low level of electricity access in Nigeria, with only six out of every ten people having access to electricity. This is in marked contrast to universal access in North African countries like Egypt and Algeria. The national average of 60% masks the wide gap between urban and rural electricity access. In 2014, only one in four had access in rural areas. The huge urban-rural divide is a challenge to the goal of inclusive economic growth and development.
- Flaws in the market design. The current design does not promote competition or cost efficiency in the industry, nor does it address how to effectively and efficiently solve the network system’s serious capacity shortages, affecting supply reliability and quality. With essentially no reserve margin, handling capacity shortages and reliability by the network is almost automatic load shedding, given the lack of flexibility in the existing system to deal with contingencies that frequently arise in the network.
The electricity sector is capital-intensive, and most of the solutions to the challenges mentioned above are tied around adequate funding. There is a need for effective network rehabilitation and upgrades – more than half of the operational power stations are over two decades old. Most of the transmission networks were built in the 1960s and have not been upgraded, whilst the power sector is trying to achieve a wheeling capacity of 20,000MW with the same dilapidated and obsolete systems. The transmission network system requires a significant amount of investment to expand wheeling capacity, improve reliability and stability and reduce transmission losses.
To curb the high level of electricity theft and fraud, thorough assets and customer enumeration must be carried out. All electricity customers should be captured in a central database whilst rolling out smart meters to every customer so that they can be appropriately monitored and, thus, mitigate commercial and collection losses. There is also a need for evidence-based research to expose the different pathways to electricity corruption. The Distribution Companies (DisCos) and NERC should get involved in such analysis for a proactive response to this revenue-eroding activity.
In addressing the issue of electricity access, mini-grids and embedded generations must be deployed, especially in these rural and remote areas. Private investors could partner with the government to achieve these projects.
NERC could redesign the tariff structure to support the growth of a robust and efficient electricity market that balances the interest of consumers on the one hand and electricity providers on the other hand. Creating and sustaining well-functioning markets at both wholesale and retail levels and thereby institutionalizing competition in the electricity market to achieve the delivery of an adequate and reliable supply of electricity to end users is essential. The new market design should allow retail competition to be distinct from supply services by distribution companies. Such is the best design from the consumer’s perspective because it enables customers to choose where to buy electricity and, thus, ensures competition downstream.