GENCOs suffer revenue losses of more than 42.6% drop in energy consumption

Non-payment of bills due to unused electricity caused the power generation company, GENCO, a huge loss of revenue between January and November 2021.

Authoritative industry reports made available to journalists showed that Nigeria’s average unused electricity generation fell to 2,254.64 megawatts, MW in 2021 from 3,742.43 MW in 2020.

Drop, Naija News includes is mainly due to the lack of infrastructure.

At least one decline in the amount of N147.05 billion was recorded between January and November 2021, due to non-payment for unused electricity.

The above figure showed a huge drop of N256.03 billion during the corresponding period of 2020, indicating a decrease of 42.6%.

Specifically, the highest unused power of 3,291.15 MW was recorded in September 2021 compared to 4,489.00 MW recorded in April 2020, while the lowest unused power of 1,634.87 MW was recorded in February 2021 against 2,081.00 MW recorded in November 2020.

The report above, Naija News understands that adequate investments have not been made in the sector over the years.

It is rightly observed that the inability to transmit and distribute adequate electricity to consumers, including households and businesses, after eight years of privatization has deprived the nation of substantial power which could have been used to stimulate economic and other sector-wide activities.

The development also muzzled the revenue that should have been generated by the GENCOs.

According to one of the reports, “The current situation in Nigeria’s electricity supply industry, NESI, represents something of an absurdity, all the National Integrated Power Projects, NIPP, Power Plants are operating under quasi power purchase agreements. electricity, PPA, which clearly presents a scary situation for any investor, as there are no guarantees of any kind in place to ensure any form of return on investment.

“GENCO investors are exposed to the vagaries of an investment climate that lacks a regulatory environment conducive to the private sector. It remains to look to strong assurances from multilateral agencies, export credit agencies, ECAs, development finance institutions, DFIs and insurers to mitigate these risks, either through guarantee instruments, political risk insurance or the “halo” effect provided by multilateral entities such as MIGA.

“The implication is that the project’s lenders assess these risks within their interest rate margins and carefully examine the project for weaknesses that could allow the competent authorities to renege on their commitments, a major risk (lack of character sacredness of the contract). Electricity remains a national problem, as more than 40% of the available capacity of the GENCOs is not used by consumers due to constraints. However, due to system constraints, the generated power is rejected or forced to be reduced to match the infrastructure that transmits and distributes this power to the customer.

Naija News understands that monthly unused capacity was 50% up in 2020 before falling to around 30% at the end of the year, when available GENCO capacity would have been forced to decline due to systemic challenges.

The report also noted that stranded capacity has steadily increased since 2013 to date, so the increase in GENCO capacity does not translate into a corresponding increase in consumer power supply.

The report adds that, “It is international industry best practice in severely underserved countries that available generation capacity equals average generation (energy used).

“In Nigeria, available generation has reached increased stranded capacity as the generation PPA with NBET provides for a capacity payment which is not being made.

“Citing world Bank In 2021, due to these electricity problems, around 85 million people, or 43% of the Nigerian population, would not have access to the electricity grid, making Nigeria the country with the largest electricity access deficit. energy in the world. This has become a big challenge and inhibitor for the Nigerian electricity supply industry, NESI, weakening the efforts of generation companies to recover unavailable capacities and explore capacity expansion, given the massive fixed charges. incurred to keep these units available.

Naija News understands that investors have also lamented that they earn less or nothing by investing in the power sector, so no new investors would show interest in joining the bandwagon.

One of the experts who expressed his dismay at the development, Group Managing Director, Sahara Power Group, and Chairman, Ikeja Electric Plc, Kola Adesina, noted: “The challenge currently hampering the power sector is the lack of a commercially viable plan. Those of us who have invested haven’t made any money. So why would anyone want to invest? If you want to invest, you must first talk to existing investors and find out whether or not they are making money.

“We don’t make money. But if we stop the problems affecting investing, there would be improvement because money likes to go where the money is. So if the sector is conducive to investment, if the commodity price is right, if the policies are clear and consistent, if the regulations are fair and known to everyone, then so much money will be available.

“Previously, until we created service-based pricing, it was taken over by the system and adopted as a way of life. Where is the service-based tariff when people enjoy 20-22 hours of electricity? In Nigeria, it would be foreign. But today it’s happening. We now need to sequence the number of hours people enjoy electricity and charge them accordingly. So things are looking up compared to 2013.

“But are they as good as they should be? No. So we are not where we wanted to be, but we are better than before. We were producing 2,200 MW and 2,500 MW when we took over. Now we have grown to over 5,000 MW. But is this how we should have grown? No, it’s slow.

Adesina, however, said now is the time to deliver more electricity to consumers who should be able to pay. He acknowledged that even if the government pays, it is not sustainable.

He said: “My own framework will be that consumers pay for the electricity they get. It’s simple. Governments shouldn’t be the ones paying, but consumers should be. Until we deregulate the sector to the point where consumers should be responsible for the power they receive, we will not go as far as we should.

“That’s because the danger of a subsidy in any form is that the money used to subsidize can be used elsewhere. The question is: what is the government subsidizing? Is it production or consumption? But in Nigeria, it’s consumption. If you subsidize consumption, you will not be doing well with the economy. If the government tells those of us who work in the sector that it wants to refine our production, we understand, but not consumption.

He added: “Anyone who wants to consume should pay for it. Then you will see phenomenal system growth. We don’t have enough power plants. Total installed capacity is approximately 14,000 megawatts for a nation of over 200 million people. It’s ridiculous. So what would motivate investing in this space? It’s hard but it’s the hard truth.

“The problem is now an emergency as some of the GENCOs cannot support their businesses with a heavy debt burden amounting to billions of naira. Nigerian Bulk Electricity Trading, NBET, as a means of protecting itself from the obligations imposed on it, offered disclaimers (exculpatory) clauses and several versions of the quasi power purchase agreement, PPA granted to legacy plants through the security trust deed, PPA activation agreements and other covenants transferring its obligation to a third party to bear.

“Rather than activating the PPA agreements, the blame is traded by both NBET and the DISCOs for their failure to provide the necessary guarantees for five years, leaving the GENCOs in limbo bearing all the associated risks, as there is no There is no risk management framework in the sector The lack of adequate risk management mechanism implies that the problem of the sector persists unabated since the GENCOs are not able to bear all the risks.

Meanwhile, the chairman of the Nigeria Consumer Protection Network, Kunle Kola Olubiyo, had in an interview with reporters earlier, called for massive investments in transmission and distribution to transmit and distribute more electricity to consumers.

Olubiyo, who reportedly spoke with Vanguard, noted that several businesses are currently being scuttled in the private and public sectors due to weak and unstable power supply, adding that many locally produced products and services are not competitive in the global market. , mainly due to the high cost of production.

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