The Nigerian Electricity Regulatory Commission (NERC) reports that the power sector faces ongoing grid stability and financial challenges in the third quarter of 2024. A recent initiative aims to improve resilience through “grid islands,” where grid segments, including key power plants, can function independently during system disturbances.
The Nigerian Electricity Regulatory Commission (NERC) has tasked the System Operator (SO) with exploring how the national grid can operate as dynamic islands. These islands would work as interconnected segments during normal operations but isolate themselves during faults to prevent nationwide blackouts.
Island 1, powered by Ibom Power 1, has effectively stabilised the grid during disruptions. The Commission encourages replicating this model in other parts of the grid. This approach could significantly reduce the occurrence of nationwide grid collapses, which have long troubled Nigeria’s electricity sector.
NESI’s Commercial Performance Review
Beyond grid stability, the Nigerian Electricity Supply Industry (NESI) financial performance remains crucial. Electricity customers’ payments to upstream operators like the Market Operator (MO) and the Nigerian Bulk Electricity Trading Company (NBET) ensure the sector’s functionality. NERC’s Q3 2024 review of NESI’s commercial performance evaluated several key metrics:
- Energy offtake performance
- Billing and billing efficiency
- Revenue and collection efficiency
- Aggregate Technical, Commercial and Collection (ATC&C) losses
- Payments to the MO and NBET
Energy Offtake Performance and PAC Regime
The Partial Activation of Contract (PAC) regime, launched in July 2022, determines how much energy Distribution Companies (DisCos) must off-take. Under PAC, DisCos assume responsibility for off-taking their Partially Contracted Capacity (PCC) under a take-or-pay model. This model requires DisCos to pay for their allocated capacity, whether or not they entirely use it, ensuring generation companies (GenCos) receive compensation for keeping their units available.
When the available power falls short, the SO prorates capacity across DisCos based on their PCC. A DisCo’s energy off-take ratio to its available PCC determines its “energy off-take performance.”
In Q3 2024, DisCos achieved an average energy offtake performance of 90.47%. Enugu (98.65%), Benin (98.01%), and Port Harcourt (95.11%) led the rankings, each offering more than 95% of their available PCC. Other DisCos fell below this level.
Energy Offtake Challenges
Due to the national grid’s energy deficit, disCos are expected to take 100% of their PCC. However, many fall short due to technical constraints and commercial issues, such as high commercial and collection losses. DisCos that fail to off-take their whole PCC still face costs, as they must pay NBET and GenCos for unused capacity. Current tariff rules do not allow DisCos to pass these extra costs on to customers, further straining their finances.
In Q3 2024, the average energy offtake at DisCo trading points reached 3,445.13 MWh/h, marking an 8.81% increase over Q2’s 3,165.93 MWh/h.
Billing, Revenue, and Collection Efficiency
Billing inefficiencies continue to hinder NESI’s performance. While energy generation and off-take occur, DisCos struggles with accurate billing and payment collection. High Aggregate Technical, Commercial, and Collection (ATC&C) losses signal inefficiencies, from energy theft and faulty meters to poor billing systems.
Revenue collection remains essential for maintaining the sector’s financial stability. Insufficient collection rates slow the flow of funds upstream, affecting GenCos, the Transmission Company of Nigeria (TCN), and regulatory bodies. Revenue shortfalls put additional pressure on the sector and could trigger further instability.
Tackling ATC&C Losses
One of NESI’s critical indicators is Aggregate Technical, Commercial, and Collection (ATC&C) losses. These losses highlight inefficiencies across the system, from physical losses caused by outdated infrastructure to commercial losses from energy theft and unmetered consumption.
Efforts to reduce ATC&C losses have not yet produced significant results. High losses undermine DisCos’ ability to generate revenue from the energy they provide, affecting their capacity to make payments to NBET and the MO.
Remittances to MO and NBET
The flow of payments to the Market Operator (MO) and NBET is a key measure of NESI’s financial health. DisCos must remit some of their revenue to these entities to maintain the electricity market’s stability.
In Q3 2024, weak revenue collection limited DisCos’ ability to meet their remittance obligations. This shortfall impacted the ability of NBET to pay GenCos for the energy they supplied, further straining the power sector.
Improving Grid Islands and Commercial Performance
Implementing grid islands and the PAC regime could help address grid stability and commercial performance. By enabling grid segments to operate independently, grid islands can serve as a safeguard during system disturbances, reducing the likelihood of nationwide blackouts. This system ensures regions a more reliable power supply, even during grid faults.
Meanwhile, NESI must continue improving commercial performance. Essential steps include reducing ATC&C losses, boosting billing and collection efficiency, and ensuring DisCos meet their payment obligations to MO and NBET.
NESI has improved grid stability and commercial operations, but challenges persist. The grid island model and the PAC regime offer promising solutions, but successful implementation depends on DisCos’ compliance and performance improvements. The future of Nigeria’s power sector depends on continued efforts to improve grid stability, financial performance, and overall operational efficiency.