Power Generation: Slack regulation of gas supply to plants worries NERC

22 April 2015, Abuja – The Nigerian Electricity Regulatory Commission (NERC) has said its lack of control of gas supplies to power plants in Nigeria’s electricity industry means that it is unable to project and guarantee accurately the country’s generation capacity year-on-year.

nerc1-300x300NERC stated that in as much as it is unable to exert some level of control over gas supply to power plants, it will be difficult for it to drive electricity generation up to the level it has set in its Multi Year Tariff Order (MYTO), but that there could be some improvement with the Transitional Electricity Market (TEM).

Describing gas supply as the “Achilles heel” of the country’s electricity industry, NERC explained that it would be fitting to bring the governance of the electricity industry and gas supply under its purview to make for a coordinated regulation over both complementary sectors, the way it is practiced in the United Kingdom and United States.

Chairman of NERC, Dr. Sam Amadi, in an explanatory email on the low generation status of the power sector, told THISDAY, yesterday in Abuja that the fundamental problem of the sector was that the regulatory regime for gas transportation to power plant remained different from the electricity sector.

Amadi noted that gas as the most crucial feedstock in electricity generation today in Nigeria remained outside of NERC’s control, thus ensuring that it is completely handicapped in estimating and planning for the amount of electricity that should be generated in the sector at every point in time.

Transportation of gas from producers to end users in Nigeria’s power sector is chiefly undertaken by the Nigerian Gas Company (NGC) under terms mostly determined solely by the ministry of petroleum resources.

NERC in this regards expressed its desire that such arrangement be reviewed to give it some measure of control over gas that is supplied to the country’s electricity industry.

“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,” Amadi said.

He further stated that: “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.”

Speaking on the industry’s low generation status lately, Amadi said: “It is true that there is not much increase in generation capacity for the past couple of years. This has created the wrong perception of failure of the power sector reform.

The question is why have we not grown more capacity? We have not been 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.”

He explained that: “This will significantly improve power supply. For one, we will have roughly an average of 10 hours steady supply across many cities. Many critics will ask why gas is an intractable problem. Ordinarily we should not have a problem with 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. The first fact is that gas supply to power plants 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 forecast 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 materialise,” he added.

The NERC chair noted that the second fundamental cause of the gas problem is the problem of commerciality which he said has been addressed.

“Until recently there was little incentive for gas suppliers to dedicate more gas to power plants or build gas infrastructure to cope with growth in electricity demand. First, the price for gas to power has been very low, below market price. Additionally, before the recent intervention, the power sector had an overwhelming gas debt burden.



– This Day

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