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INVESTMENT OPPORTUNITIES IN THE NIGERIAN POWER SECTOR

Anthony Ezeamama's picture
Senior Associate Detail Commercial Solicitors

Anthony Ezeamama is a Nigerian based lawyer with a broad base legal experience advising on electricity, oil & gas, infrastructure and tax advisory practice areas. Anthony regularly advise...

  • Member since 2021
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  • Nov 26, 2021
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  1. GENERAL OVERVIEW

This article is the first of its series where the author, Anthony Ezeamama will be highlighting the various investment opportunities that exist in each segment of the electricity value chain in Nigeria.  The focus of this particular article is to introduce the key segments of the Nigerian electricity industry and its structure before and after it was opened up to private sector participation. On the other hand, the various investment opportunities that exist in each segment of the electricity value chain will be considered in the subsequent articles.

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Essentially, a typical electricity grid system in the world over is made up of three (3) core segments which are: generation, transmission and the distribution segment. Each of these segments are critical in ensuring that electricity reaches our homes and businesses on a continuous daily interval.

a. Generation Segment

The generation segment is where the production of electrical energy occurs. In this regard, electricity can be generated using different energy sources such as fossil fuels (natural gas, coal and other petroleum derivatives), nuclear energy and renewable energy sources. In the same vein, electricity can be generated using different technologies such as (1) gas turbines, (2) hydro turbines, (3) wind turbines, (4) nuclear plants and (5) solar photovoltaics among others. Currently in Nigeria, 81% of the electricity supplied to the national grid is generated using thermal power plants option (primarily gas turbine generators) while the rest are majorly generated from hydro plants. Renewable energy like solar, wind, biomass and geothermal are negligible-to-non-existent, while nuclear generation is unpopular in this part of the world[1].

b. Transmission Segment

Transmission on the other hand involves the transportation of the generated electricity from the power plant to where it is needed (usually to the distribution substation or end users) using transmission lines. Electricity is transmitted at high voltage to reduce losses that may occur before it gets to the end users. In this regard, the generated electricity is stepped up to a high voltage using step-up transformers at the generation/transmission boundary. In Nigeria, generated power is stepped up to 132 kilovolts (kV) or 330kV for long distance transportation (i.e. from one state to another or several others) and when it gets to the delivery point, the voltage is reduced using step-down transformers. Power is stepped down using 330/132 kV and132kV/33kV substations[2]. The transmission system hands over to the distribution system at 33kV voltage level.

c. Distribution Segment

Further to the above, electricity distribution value chain involves the transportation of the generated electricity from the transmission networks to end-users. The high voltage electricity that is used for transmission from the generator is converted into lower voltages by substation transformers and then delivered to customers via wires over poles. In Nigeria, an electricity distribution system consists of the following:[3]

  1. 33kV line from transmission 132kV/33kV substations;
  2. 33kV/11kV injection substations where power at 33kV is transformed to 11kV;
  3. 11kV lines for movement of electricity into residential areas and business clusters;
  4. 11kV/0.415V service transformers for stepping down the 11kV to 415 V for final end use;
  5. 415 V service lines that go into residential and commercial buildings.
  1. STRUCTURE OF THE NIGERIAN POWER SECTOR PRE AND POST LIBERALIZATION

Prior to 1998, the Nigerian power sector was vertically integrated. This means that the government through the National Electric Power Authority (“NEPA”) was responsible for the entire power sector value chain (i.e. power generation, transmission and distribution)[4]. However, in 1998, a major step towards the liberalization of the power sector took place with the amendments of two (2) key power sector legislation which are: the Electricity Act 1990 via the Electricity (Amendment) Decree, 1998 and the NEPA (Amendment) Decree, 1998. These amendments provided the legal basis for private sector participation in the power sector, albeit the participation is limited to the generation segment of the electricity value chain. This in effect terminated NEPA’s monopoly in the power generation and paving the way for independent power producers such as Enron/AES to enter the generation segment. Despite the amendment of these two (2) laws, the power sector under NEPA was characterized by poor operational performance with only 426 Local Government Area (“LGA”) councils connected to the national grid out of the 774 LGAs in Nigeria. In fact, the situation was so critical that out of the 426 connected LGAs, only the headquarters of some of these LGAs were connected and not the entirety of residents in the LGAs[5].

Consequently, in 2005, the full liberalization of the Nigerian power sector occurred with the enactment of the Electric Power Sector Reform Act (“EPRSA”) of that year. The EPSRA has as part of its objectives the development of a competitive electricity market in Nigeria; the establishment of an independent electricity regulatory body which is the Nigerian Electricity Regulatory Commission (“NERC”) and the licensing and regulation of the generation, transmission, distribution and supply of electricity.

Following the enactment of the EPSRA, the Power Holding Company of Nigeria Plc. which was the successor of NEPA was between 2013 to 2014 unbundled into 18 companies which consist of six (6) generation companies, eleven (11) distribution companies and one (1) transmission company. In the case of the privatized generation companies, the government essentially divested its 100% interest in some of the generation assets while in the case of the distribution companies, the government sold 60% equity stake to private investors and retained 40% equity interest through the Bureau of Public Enterprises and the Ministry of Finance Incorporated. Also, the federal government retained 100% equity stake in the transmission company (i.e. the Transmission Company of Nigeria Plc.).

 

[2] The Electricity Value Chain published by Nextier Power – Volume 1 – 1st August, 2020

[3] The Electricity Value Chain published by Nextier Power – Volume 1 – 1st August, 2020

[4] With the exception of a few generation plants owned by the international oil companies

[5] The Nigerian Electricity Power Sector by Ayodele Oni – Page 30 to 31

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Thank Anthony for the Post!
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Matt Chester's picture
Matt Chester on Nov 26, 2021

You don't mention any of the digital technologies that will be coming to the sector-- do you foresee that playing  key role in the development of the Nigerian power industry? 

Anthony Ezeamama's picture
Anthony Ezeamama on Nov 27, 2021

Of course, Nigeria is open to incorporating innovative models into its energy mix to meet the enormous demand for power by millions of homes and businesses. The regulator which is the Nigerian Electricity Regulatory Commission continues to be creative in this regard.

However, the traditional energy generation sources in Nigeria as at today are generation from fossil fuel (particularly natural gas) and hydro power generation. Renewables continue to make in road gradually to the energy mix although its contribution at this time is negligible.

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