News - December 1, 2022

Private finance model can help Nigeria realise its electricity generation target, says NBET

By Bassey Udo

The adoption of the standard private finance template in the execution of power projects could help Nigeria realise its electricity generation capacity target, the Nigerian Bulk Electricity Trading (NBET) has said.

The project finance template relies on mobilization of private sector loans to execute power projects, while the government provides the revenue document that would give the investor the money to recoup his investment and pay back the loan.

With current electricity generation capacity at about 5,000 megawatts, the country is targeting a 20,000 MW capacity in the foreseeable future.

However, realising this target has been hampered by the dearth of new investments due to unattractive investment environment.

Speaking in Lagos on Tuesday at the 2nd edition of the Power Correspondents Association of Nigeria (PCAN) workshop, Head, Strategy, Coordination and Corporate Communications of NBET, Eugene Edeoga, cited the example of Azura Power project as a standard private finance contract template that can significant change the situation.

Edeoga who spoke on the partial activation of contracts in the power sector said the promoters of the Azura power project were allowed to source for private financing to invest in the initiative with guarantee from the government for them to recover the cost of their investment.

However, Edeoga lamented that despite the huge investment, which has boosted power generation in the country, off-takers are not buying the electricity the company has generated.

“The country has just 5000 megawatts electricity. We are saying we need 20,000 megawatts. These people have made investments, or have built power plants that are generating electricity, the question is: Why is that a resource challenged country of over 200 million people that is generating just 5000 MWs; that is doing road shows all over the world to attract investments now sees an investor that is ready to use private funds to build a power plant and generate electricity, why are we not taking the power? That’s the critical question we should be asking, rather than why NBET is paying for power not consumed,” Edeoga said.

He said NBET, which is the country’s bulk electricity trader, purchases electricity from 25 electricity generation companies (GenCos) that have various contract arrangements with NBET.

Under the existing power purchase agreements (PPAs), Edeoga said while some of the GenCos full power off taking agreements that are already active, others have interim or partial agreements executed pending the finalisation of their PPAs.

“For the GenCos that have PPAs, some of the PPAs are active, while others await the fulfilment of conditions for full activation. Despite the execution of full termed PPA with energy and capacity payment obligations between some of the on-grid GenCos and NBET, the PPAs have not taken effect due to inadequate capacity to wheel the generated power to consumers.

“For other GenCos, no PPAs were signed, and energy was being supplied to the grid and paid for by NBET on a best endeavour basis.

“In both cases, NBET would pay the GenCos only for the energy dispatched. The impact of this was both on the consumers and the investors.
For consumers, a significant portion of the generation capacity in the Nigerian Electricity Supply Industry (NESI) were stranded and could not be delivered, while for investors, the investments in the generation companies could not be recovered due to the sub-optimal utilisation of the assets,” he said.

He said the effective implementation of the private finance strategy for the execution of power projects, by ensuring the necessary guarantees required for investors to recoup their investments, could be the best way to realise the country’s aspiration to raise its power generation capacity.

In his presentation at the workshop, the Managing Director of NBET, Nnaemeka Ewelukwa, said the administration of the PPAs and other contracts resulted in realizing over N5 trillion from payments for electricity since February 2015 to date.

Ewelukwa used Azura Power, the first private financed power project in Nigeria, with an investment of about $1 billion in building a power plant that is generating electricity, the as
a model for the success story for the implementation of the PPAs.

The MD disclosed that in addition to the regular PPAs, NBET also executed contract agreements with 14 solar Independent Power Projects (IPPs) for the generation of one gigawatt (1GW) of electricity.

With NBET as the anchor for the FGN-World Bank Power Sector Recovery Programme (PSRP), he said the electricity bulk purchaser caused the World Bank to provide about $750 million for the Power Sector Recovery Operations (PSRO) loan.

Besides, he said NBET was also instrumental in FGN’s budgetary appropriation to redress tariff shortfalls in the electricity market.

Other achievements of the agency, he recounted, include the facilitation of privatisation of generation companies (GenCos) through PPAs with core investors, privatisation of GenCos and distribution companies (DisCos) in 2013

He listed the executed PPAs to include Afam Power Plc and Afam Three Fast Power Limited (N105.3 billion and $343.6 million respecrively); successful and transparent management of the N1.3 trillion Payment Assurance Facility (aided a 30 percent increase in the highest peak generation ever attained, from 4500MW (February 2015) to 5,800MW (March 2021), due to capacity recovery by generation companies.

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