Nigeria: Ogaji - Gencos Now Rely On Alternate Revenue Sources to Run Plants

18 December 2018

Abuja — Electricity generation companies (Gencos) in Nigeria's power market now rely on other sources of revenue to keep their operations running as well as to ensure that power is supplied to the national grid, the Executive Secretary of Association of Power Generation Companies (APGC), Dr. Joy Ogaji, has disclosed.

Ogaji told THISDAY that the Gencos' revenues had been hit hard by the lack of contract sanctity in the country's power market.

She stated that the market now runs on a 'best endeavour' which is lose and gives room for repeated business conjecture.

Speaking further, Ogaji said: "The third determinant is the need for effectiveness of contracts. One of the notable functions of a contract is to facilitate forward planning and to make provision for future contingencies.

"The current market situation gives room for conjectures, no contract is binding, and all are on best endeavour."

According to her: "The impact is more on the Gencos, who due to lack of (effective) contracts to backstop the gas supply agreements (in terms of bankability), are in a tight corner.

"Instances abound where Gencos have had to resort to other means other than the electricity market to support the gas and other services just to put power on the national grid."

She noted that while the electricity market has the potential to absorb significant investments and provide rewarding returns on those investments if the market is allowed to run on competitive basis with little or no government interference, the current situation was different.

"The lack of sanctity of contracts have resulted in huge debt burden on the generation companies (Gencos) who are never fully paid for power generated and supplied to the market.

"It is imperative to note, that successor/legacy Gencos, signed performance agreement with the Bureau of Public Enterprises (BPE) with performance targets in recovering capacity. All generation companies signed Power Purchase Agreement (PPA) with the Nigerian Bulk Electricity Trading Plc or Bulk Trader (NBET) with associated obligations on contracted quantities. Hence, the market should be very much aware of these obligations so as to enable performance of all parties," she added.

Ogaji, stated that to optimise the current generation capacity of the country's power sector, planning would be essential, especially with regards to taking into cognisance the gestation period for power development.

She said: "There is need for massive investment in transmission and distribution networks in the country. Power Gencos have the capacity to increase their output in the near term. However, an increase in power generation without a resultant increase in Transmission Company of Nigeria's (TCN) wheeling capacity and improved distribution infrastructures will continue to lead to stranded power generation.

"Nigeria has about 13,000MW of installed capacity, a transmission capacity of about 5,000MW and distribution that hovers between 3,500 and 4,200MW.

"A further challenge is the constant request from the System Operator to make the Genco power plants operate at base load contrary to their design to operate optimally and efficiently at base load.

"Operations of these turbines far away from their base loads imply a reduction in efficiency or in other words an increase in consumption of gas (for the thermal) by as much as 15 to 20 per cent, a cost not captured or contemplated by MYTO."

Continuing, she said: "Gencos are caught in the middle of a weak transmission network and a poor commercial market structure. If answers can be given to Gencos most pressing or pertinent questions such as; can we be fully dispatched?

"Can we get gas? Who is paying for the power? What is the clear line of sight for collection and remittance? Then, power supply issues of the nation will be a thing of the past."

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