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Cushioning electricity shortage with embedded generation

electricity

Power Plant

DESPITE the huge investments by government over the last years, it is an open secret that the nation is unable to boast of reasonable power supply to is citizens.

Electricity supply which peaked at 4500 Mega Watts earlier this year nosedived to 1,327MWs, leaving the nation in darkness most of the time.

A 6000MWs installed generation capacity which government announced early this month is unable to come to actual fruition because of gas unavailability.

According to Chairman of the Nigerian Electricity Regulatory Commission (NERC), Dr. Sam Amadi, “We have not being able to hit the 6,000 megawatts target largely because of the unavailability of gas supply to power plants. If there is sufficient gas to power plants we will today have more than 5,500 megawatts. This will significantly improve power supply. Ordinarily we should not have a problem of gas supply to power because we are a gas country. But the truth is that having abundance of gas does not translate to gas supply to power plants.”

Faced with this myriad of problems, stakeholders in the nation’s electricity industry have now adopted the embedded generation concept as a urgent strategy to immediately procure electricity for customers, while waiting for national grid power to improve significantly.

The Nigerian Electricity Regulatory Commission (NERC)’s embedded generation regulation allows an independent power producer to embed power within the network of the local distribution company without going through the trouble of connecting to the transmission network.

This allows distribution companies to procure small power and dedicate it to ring-fenced customers 24/7 electricity supply.

Power investment expert, Dolapo Kukoyi, said the federal, states, and private sector power plant investors have immense benefits to gain from investing in embedded generation.

Kukoyi noted that embedded generation has the prospects to achieve national aspirations within a shorter time; reduce technical losses because of proximity to the network, and deepen the electricity market-capacity, standards, contracts and more bankable deals.

With embedded generation, he said discos would have access to more power supply more cash flows while more customers would be willing to pay.

According to him, “It presents an opportunity for discos to improve distribution network -either by themselves or by EGs- and performance. IPPs with excess power within a distribution network are able to sell their excess power to Discos, while industrial consumers can have the option of choosing the most suitable suppliers for them. It also introduces competition in the market.”

He went on: “At the state level, states are able to achieve power supply aspirations within their borders without constitutional constraints. State investments and owners of discos could work to state advantage. Power to be generated could be supplied to strategic state infrastructure and institutions: water plants, hospitals, schools, courts, and offices, street lightening. More industrial clusters and businesses with better power supply means more business, stronger economy and perhaps more willing tax payers.

“For power developers, IPPs can sell excess power to discos. It guarantees cost reflective tariff. There is immense potential market for power supply to housing estates, industrial estates/clusters, state governments and telecom installations. There is also the option to also supply power top eligible customers. No distribution lines ordinarily required when connected to a disco. No transmission costs would be incurred and no distribution license required.”

He emphasized the potentials in embedded generation. “NERC has taken the initial step with the regulations. Stakeholders need to make concerned efforts to build the legal, regulatory, contractual and financial framework,” he stressed.

Indeed, NERC regulation on Embedded Generation permits investors, communities, states and local governments to generate and distribute electricity for their exclusive consumption using facilities of existing electricity distribution companies or independent electricity distribution network operators.

Recently, electricity distribution companies in the country announced that they have adopted the embedded generation policy and have commenced procurement activities for mini grids to service some of their customers, without resource to the national grid.

Chief Executive Officers of distribution companies described embedded generation as the immediate solution to the problem of gas and other associated variables.

Chief Executive Officer of Ikeja Electricity Distribution Company, Engr. Abiodun Ajifowobaje, described embedded generation as a game changer, stressing that Ikejo Disco was on the verge of adopting to cushion the shortage from generation companies.

Amadi, on his part said distribution companies in the country had commenced different level of plans to embrace mini-grids to service some of their customers in the short term.

He said Discos like Eco, Ibadan and Ikeja had reached advanced levels of discussions for procurement of mini-grids an embedded power, stressing that embedded generation could take between 6months to 1 year to conclude.

“We have the embedded generation regulation to enable short term provision of electricity. It will help us to cure the short falls quickly. It will enable the Discos to establish mini-grids to service industrial consumers also. We are hoping that this would reduce manufacturing costs by at least 30%. It will take care of the shortage for a period of time,” he noted.

He stressed how water level and gas challenges had continued to plague the sector NERC has also reached out to members of the Manufacturers Association of Nigeria (MAN),  urging them to embrace micro-grids power generation model for industrial clusters, as a deliberate means to ensure cost effective and reliable electricity for production.

NERC says it is engaging with industrial clusters to form Special Purpose Vehicles (SPV) that can procure additional power dedicated to their industrial clusters.

NERC Chairman, Sam Amadi said at a NERC stakeholders’ forum in Abuja: “Although our regulatory interventions are leading to licensing of independent power producers who have financial and technical capabilities to generate more megawatts, we expect that it will take a couple of years before we see significant increase in available capacity because of the lead time required to construct and commission power plants.
 
“The good news is that NERC has started to provide framework or dealing with this challenge. A few years ago, we issued a regulation authorizing embedded generation and independent distribution of electricity. The Embedded Generation Regulation allows an independent power producer to embed power within the network of the local distribution company without going through the trouble of connecting to the transmission network. This allows distribution companies to procure small power and dedicate it to ring-fenced customers who could pay slightly higher price for 24/7 electricity supply.”
He noted how the Special Purpose Vehicles initiative would encourage adequate power supply to industries.
 
On how it would work, he explained: “Industries within a cluster can form an SPV and build equity and secure financing to construct 10 megawatt plant that will sell power to the local distribution company to serve exclusively to them. This ensures that they have relatively cheaper grid power and also secure sustainable business model for the supply of electricity. This initiative further increases the energy available for the local distribution company to supply to residential.
 
“NERC wants to promote this model as an answer to the acute shortage of electricity we will continue to experience until Bulk Trader procured power enters the market and NIPP power plants deliver their full capacity. We want to mobilize all industrial clusters in Nigeria to generate embedded power through a sustainable and market based business model that mobilizes resource quicker and more efficiently.

“We have to retool the old model of capacity growth through grid-based large power plants. Nigeria can champion a new model through micro-grids that leverage on available local feedstock and local financing through low-risk self-help. We have successfully tried this model in community development. It can succeed in electricity generation.”
On the problem of gas to power, the NERC Chief pointed out: “The first fact is that gas supply to power is outside the direct control of the regulator of electricity. So, we can’t predict accurately how much gas will be available. In MYTO 1 we forecasted that we would have enough gas to do about 9,000 megawatts. This was in 1998 before I came to NERC. This forecast failed because the gas people failed to deliver. We became wiser and began to benchmark the MYTO on more conservative, almost pessimistic projection of capacity growth. We expected to end 2014 at above 5,000 megawatts. But still our expectation on gas supply did not materialize.
 
“We have always known that gas supply is the Achilles heels of the sector. The fundamental problem is that the regulatory regime for gas transportation is different from electricity. So there is no strong coordination of the two sectors and this makes for poor project management. This is one of the first issues I raised when I was appointed Chairman of NERC. I raised it in several newspaper interviews and public presentations. I also discussed this with the Minister of Power then. Gas is the most vital feedstock for power today. Yet we have no decision authority regarding its availability. In other jurisdictions like in the UK and the US where we borrowed our model the regulator of electricity regulates gas transportation and supply to power plant. This makes for coordination and efficiency in the various pricing points. The new government has to review that situation.”
 
He described the embedded generation regulation as the biggest response to the lack of capacity in the short to medium term

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