Revamping the power sector

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Today we turn our attention to Nigeria’s power sector, which remains topical given its relevance to the much awaited industrial take-off. The cost of self-energy generation weighs heavy on household pockets and continues to eat into the profit margins of businesses operating in Nigeria. Power generation capacity from the grid is c.7, 000MW while distribution capacity is still c.5, 000MW. Meanwhile, the FGN estimates national energy demand at 22,230 megawatts (MW).

  • The sector suffers from liquidity issues across its value chain. This is partly linked to non-reflective cost tariffs as well as commercial losses aggravated by consumers’ apathy to payment, arising from estimated billing and poor quality of power supply in most areas.
  • According to the Nigerian Electricity Regulatory Commission, in Q1 2018 there was a 62% collection efficiency by DISCOs: from the N171bn billed to consumers in the first quarter, only N107bn was recovered.
  • There has been some traction in ramping up alternative sources of energy. Power generation from the three hydropower generation companies (Kainji, Jebba and Shiroro) accounts for c.30% of Nigeria’s daily power generation.
Energy generation, 2018 (MW)

Sources: Federal Ministry of Power, Works and Housing; FBNQuest Capital Research
  • We understand that the Nigerian National Petroleum Corporation (NNPC) is considering powering its retail outlets with solar. Furthermore, while in China earlier this month for the China-Africa Cooperation Summit, the FGN signed two separate MoUs on biofuel project development. The FGN is seeking investments for about ten large biofuel complexes across the country.
  • A better energy mix of non-renewable and green energy will accelerate the process of attaining power for all. Based on our analysis, if “full power” is attained and made routinely available, this could add at least two percentage points to annual GDP growth.