A Review of the Nigerian Energy Industry

How MAN can key into captive power schemes

11 August 2015, Abuja – Recently, the Nigerian Electricity Regulatory Commission asked the Manufacturers Association of Nigeria to encourage its members to take up ownership of its embedded power generation scheme. Chineme Okafor writes that this option could make a world of difference for industries.

MAN-logoSignals from a recent meeting between the Nigerian Electricity Regulatory Commission (NERC) and the Manufacturers Association of Nigeria (MAN) suggest that a new partnership to improve electricity supply to Nigeria’s industrial clusters may be in the offing.

The partnership if adopted and implemented beyond the papers could possibly guarantee some cuts in cost of production for the country’s manufacturing sector, which has over the years paid more for the country’s infrastructural deficits, especially with regards to what it costs them to generate electricity for their productions.

By the  proposal,  NERC is simply asking MAN to consider the economic potential in its ownership of the embedded, captive power generation framework, which NERC has developed and deployed to enhance Nigeria’s aggregate power generation capacity.

Knowing the potential in terms of finance, capacity and influence possessed by MAN, a national industrial association that serves and represents nearly 2,000 companies in private and public sectors in manufacturing, construction and service sectors of Nigeria, NERC decided to place on the table this proposal for MAN to consider.

The commission equally placed before the association, its willingness to go all the way with it in developing workable structures that will allow it take advantage of the embedded power scheme. It,  in this regards proposed the formation of a small think-tank to examine and make recommendations on the best options for same.

From indications however, the final job of the think-tank is expected to result in the formation of a Special Purpose Vehicles (SPV) driven by MAN across the industrial clusters and which could procure additional dedicated power to their industrial clusters, or better still, explore other self-generating options as legally backed by the embedded generation regulations of NERC.
Why MAN should consider NERC’s option
Excluding other costs, power alone has been assessed to take up to 30 per cent of the production costs of manufacturers in Nigeria.

It is known however that one of the prerequisite for manufacturing productivity is adequate electricity supply and that the electricity crisis in Nigeria is clearly represented by such indicators that include blackouts and self-generating options amongst the industries.

Again, industrial clusters in the country have over the years literally run their businesses on self-electricity generation, thus taking less from the meager capacity that is generated into the national grid. This clearly tells that the option being proposed by NERC could serve better the interests of manufacturers.

Be that as it may, NERC wants the MAN to drive its plan to grow investments in embedded and captive electricity supply in the country, using its financial clout and technical competences. Based on this, NERC suggests that adopting embedded power supply remains a promising option for the manufacturers to drastically cut their production costs.

Simply, what NERC is asking of MAN is to consider developing small embedded power plants using the either of the country’s huge coal deposits or gas as feed stocks to power industrial clusters where its members are located.

NERC in its calculation considers that investments in such small size coal or gas-powered plants could be quite economical for MAN to promote especially amongst its members in bits of industrial clusters where either of the feed-stocks could be found in close proximity.

The Commission considers that at this moment and with regards to their needs, MAN’s investment in such embedded power framework could serve them better than their reliance on supply from the national grid, which has also proven to be unreliable and insufficient to heavy manufacturing outfits.

“For MAN, I think that the establishment of micro grid could be beneficial as it will provide commercially viable electricity to industries and free grid electricity that goes to industries for residential and other consumers,” Chairman of NERC, Dr. Sam Amadi told members of the association who were led by their President, Dr. Frank Udemba Jacobs to the meeting.

Similarly, Amadi hinted that the buy-in of the government could be guaranteed, having briefed Vice President, Prof. Yemi Osinbanjo on the objective of the meeting. He explained that getting adequate power available to industrial clusters in a reliable and quickest possible approach would serve the country’s economy better.

Regulations on embedded generation

Prior to now, NERC had signed two regulations-the Independent Electricity Distribution Network (IEDN) and Embedded Generation 2012 to open up Nigeria’s electricity sector for more investments in capacity growth.

The regulations, which came from an almost six months of intensive research and consultations with stakeholders in the industry were rolled out immediately they were certified good and applicable to the sector.

Their combined impacts are that communities, local and state governments as well as private investors in Nigeria like MAN can now generate and distribute electricity for use or sale to end users without recourse to the national grid.

These regulations, in essence freed investors from the ambiguities of generating and sending power to the national grid and therefore makes it easier for MAN to participate in the various options available to augment their electricity consumption capacities. Through this, MAN can both choose to generate, use and also sell excess capacity to any distribution network and at the same time earn money.

On embedded generation specifically, the NERC regulation permits investors, communities, state 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. This gives investors and distribution companies the opportunity to enter into bilateral power supply arrangements where all the necessary negotiations on use of network will be reached in line with regulatory dictates.

On independent electricity distribution networks, NERC also permitted other parties to take up investments in electricity distribution networks within areas that have no access to the grid or distribution network, or areas that are poorly serviced.

So, MAN can take up and build both generation and independent distribution network in industrial clusters of its members that are yet to be connected to an already existing distribution network.

By these regulation, MAN could invest in infrastructure for power generation and distribution with guarantees of return on such investments that it will deploy. It could first benefit in meeting up with its energy requirement and cutting down costs of production, as well as, earning money for excess capacity sold to distribution networks.

These regulations, in addition to helping MAN, augment supplies from the national grid, which it may eventually not need, will however address problems associated with poor quality of electricity supply vis-à-vis, reliability, sustainability and cost.
Opportunities in adversity

MAN could with this option, turn into fortunes, the adversities of its members across the country. The association has within its capacity, the wherewithal to take up concrete steps to procure additional power from embedded sources.

In reference to the opportunities that such option presents, Amadi stated that exploring embedded electricity sources will not only serve as interim stop-gap measures pending when there is considerable growth in the country’s on-grid generation supply, but will also give some business comfort to industries.

He posited that electricity distribution companies in the system were already looking at such direction and that alternative supply plan will perhaps serve as stabilising sources in the future when the country’s power generation profile grows up to the planned huge levels.

“Some of them (Discos) have supplies they want to procure quickly. The one from Egbin is available to be sold to two Discos,” he noted.

Amadi explained that sourcing for alternative sources of power by MAN will impact significantly on their productivity.

“We have the embedded generation regulation to enable short term provision of electricity. This will help us to cure the short falls quickly.

We had expected the Discos to take it up and run with it, we want your members to also do the same thing. The regulations 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 per cent. It will take care of the shortage for a period of time,” he added.

He also educated the association that instances of transmission losses which has also played hard on the country’s electricity supply, will be exempted from the scenario considering that supplies will be embedded.

As it stands, transmission losses in the range of 5 to 7 per cent, which are incurred in the course of transmitting electricity over distances, cost of constructing substations, transmission towers and Right of Way (RoW) payments would be eliminated if MAN embrace embedded generation.

Additionally, stability and reliability of supply from embedded generators, as well as the ability to design supply to match the demand capacities make embedded generation an excellent option for the transmission of electricity within clustered areas in Nigeria using various generation mixes. MAN from industry pundits stand to benefit more from this option.


– This Day

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