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IPPs to lose 7,500MW to gas shortage

By on July 4, 2014

The developers of Independent Power Projects in Nigeria may still have 7,500 megawatts of their projected generating capacities left idle owing to unavailability of gas.

They are projecting gas-fired capacities of 18,000MW, but current realities in the gas supply chain arrangement structured by the Nigerian National Petroleum Corporation, can only support about 10,500MW. This depicts an idle capacity level of 7,500MW given the projection of the IPP developers.

A report by the Presidential Task Force on Power titled ‘The Power Sector In Focus,’ indicated that, “IPP developers are projecting gas-fired capacities close to 18,000MW; however, based on the current NNPC Strategic Gas Plan, there is only enough gas for 10,500MW.”

The current Transmission Company of Nigeria network expansion blueprint projects national power wheeling capacity of 20,000MW, according to the report.

“Therefore, unless gaps can be closed and capacity increased at a faster rate in the gas and transmission value-chains, these will become the limiting factor in the quantity of power that can be supplied to end consumers,” it explained.

The level of energy produced was said to be inadequate for the generation of adequate funds from customers to pay market overheads and maintenance.

The Multi-Year Tariff Order II assumes a certain average level of power generated by the generation companies for wheeling to the distribution companies and onward sale to their customers.

If the market cannot achieve these levels, then the ability of the market to cover its costs adequately will be called into question, the report added.

Currently daily averaged power generated put at 4,875MW had not been met, it noted. With the return of Escravos Lagos Pipeline System, daily averaged power generated has been 3,800MW.

The report stressed, “Unless the market can generate and wheel this amount of power, the market will have immediate issues achieving liquidity in the short and solvency in the medium to long term. There is adequate available capacity in the privatised sectors of generation and distribution to meet these power levels; the issue arises due to parts of the value chain owned and financed by the Federal Government.

“The issues include stranded generation where there are available turbines but inadequate gas supply to operate due to supply issues, transport issues.

“There is also the issue of trapped generation where there are available turbines but inability of transmission to evacuate due to network capacity issues, as well as network reliability – operational and maintenance issues.”

Current power assumptions, the report maintained, may not be achieved given the current project timelines in critical gas and transmission projects.

If this occurs, this will result in a market unable to adequately generate the funds to cover its fixed and variable costs; of which the inability will present itself by shortfalls in energy sold and subsequently in market payments, it added.

The report prescribed tariff recalculation (under new assumptions); acceleration of ongoing projects; and execution of new projects, as some of the remedies for the situation.

Currently, the Interim Rules Order prescribes minimum payments that each distribution company must produce and minimum payments that each generation company must receive. These amounts are meant to represent targets that are achievable and which when performed should be able to keep the market in a well-defined shape on its progress to the Transitional Electricity Market stage.

These minimum payments were not being met and consequently during this post-handover period, market liabilities, the report emphasised, were building up.

A large part of this issue, it noted, was lack of visibility in what was happening at the retail end of the market where payments were being made.

“Within a regulated market, as soon as a market participant is unable to meet its obligations due to circumstances beyond their control, they are obliged to open their books to the regulator or its agent. This has yet to happen and as such there is increasing discomfort within the market as to who is and who is not justly bearing the discomfort during the Interim Rules Period.

According to the report, there had been no improvement in the post-handover commercial performance, as performance is comparable to the Power Holding Company of Nigeria, and distribution companies still do not remit even the minimum payments demanded by the Interim Rules Order.

It warned, “If continued, this will lead to: increasing market liabilities; decreasing market liquidity and solvency; and market failure.

“Money paid to the generation companies has not improved either. If continued, this could lead to: plant shutdown by new owners or their financiers; reduced confidence from financiers in Niger Delta Power Holding Company privatisation.”

Meanwhile, the current power supply situation in the country has gone very bad in the past days, with most households and businesses experiencing hours of blackout.

In the intervening period, some areas have yet to experience a minute of power supply.

The Special Adviser to the Minister of Power on Power Systems, Mr. Jonathan Ogbonna, who had confirmed the drop in electricity supply to our correspondent, attributed the development to the shutdown of the Utorogu and Ughelli East gas plants.

The Federal Government had on June 2 announced the shutdown of Utorogu and Ughelli East gas plants.

The Minister of Power, Prof. Chinedu Nebo, had said the closure of the plants was to ensure their proper maintenance.

Nebo said the closure of the gas plants would affect the output of power generation stations relying on them for gas supplies.

“This will no doubt have an impact on the output of the power stations fed by these gas plants, which include Egbin and Omotosho. The plants to be shut for short periods of time on different dates will inevitably result in the temporary loss of generated power,” he said.

 

[Punch]