May 7, 2024

N1.3trn debt weighs down GenCos availability capacity to 35%

N1.3trn debt weighs down GenCos availability capacity to 35%


• Monthly invoice rises to N240 billion

• FG’s 6,000MW target ambitious, expert

By Obas Esiedesa

Despite having 27 power plants connected to the National Grid with an installed capacity of 12,249 Megawatts, a huge debt of N1.3 trillion has pushed generation companies’ plant available capacity to just 34.66 percent or 4,251.81MW in the first quarter of 2024, latest data from the Nigerian Electricity Regulatory Commission, NERC, has indicated.

This is a drop by 7.7 per cent when compared to GenCos plant availability capacity of 4,605.72MW recorded over the same period last year.

The data showed that plants available capacity was 37 percent or 4,459.41MW in January 2024. It dropped in February to 32 per cent or 3,957.16MW and improved marginally in March to 35 per cent or 4,338.88MW.

Actual energy generated to the national grid, according to the Commission’s operational performance of power plants showed a sector struggling to survive. The power grid recorded 3,180.45GWh, 2,642.09GWh and 3,084.02GWh in January, February and March 2024, respectively.

GenCos blame poor payments from NBET

The GenCos blamed the dwindling plant capacity availability on poor payments from the Nigerian Bulk Electricity Trading Plc (NBET) which has led to the accumulation of N1.3 trillion debts.

The companies in a position paper presentation to the Senate Committee on Power which is investigating the April tariff increase for customers in Band A, said the supplementary Multi-Year Tariff Order issued by NERC has further complicated the challenges faced by them because it gave priority to market payments to other participants.

A copy of the document which was sighted by Energy Vanguard disclosed that GenCos invoice to the market has risen to N240 billion monthly.

The companies stated: “The GenCos have over the years been at the receiving end of the Nigerian electricity market inefficiencies. Mainly, these inefficiencies are those of lack of sanctity of contract, poor liquidity, revenue shortfalls and poor grid operations. These revenue shortfalls stem from low remittances from the market (DisCos) and delayed market subsidies/intervention.

“Whereas the regulator has made attempts to define and differentiate between market shortfalls and tariff shortfalls, the vexed issues of idle capacity and the concomitant capacity payments mean that whatever tariff the regulator designs will always fall short of capturing the true cost of generating power in Nigeria. Capacity payment in every market forms a critical factor to these investments especially in servicing the debts and equity component of the costs involved.

“This fact is further corroborated in the PPA (power purchase agreement), generally set at a level designed to recover fixed and long-term variable costs such as debt service, fixed O&M costs and other fixed costs/charges and equity return.

“Capacity payments (available or deemed) are global norms in the electricity supply industry and play critical roles in enabling the Generating Companies (GenCos) who have mobilised debts and equity financing options to optimize their power generation capacities as well as make such capacities available when called upon.

“The current practice of ignoring that component shatters the aim of the reform and prejudices the GenCos ability to meet financial ratios imposed by the Lenders, and certainly reduces the Investors’ returns. It also restricts and undermines the robustness of the electricity market by deflating the appetite or ability of investors to invest, with detrimental long-term effects of decreasing power plant financing options. This recognition will demonstrate this administration’s desire for growth in the power sector and ensure that investors are attracted and are compensated as the current anomaly in the market is being corrected by reinstating available capacity payments.

“This issue will persist until resolved in a manner that is fair to GenCos. Not resolving the issue of capacity and deemed capacity payments will continue to raise the pivotal question of how much good faith has been extended to GenCos as it concerns the privatisation of the power sector assets. The cost of maintaining available capacity is part of GenCos’ inevitable costs that cannot be wished away. It is on this ground and on the grounds of energy supply assumptions that GenCos requests another look at the recent tariff review and ensure that all components are captured in line with the contract”.

The GenCos called for full capacity payments that would enable them to maintain and improve available capacity as well as aid implementation of the capacity recovery plan. They also demanded for urgent settlement of GenCos unpaid invoices/ improved disbursement from the outstanding debts
When contacted for comments, the CEO, Association of Power Generation Companies, APGC, Dr. Joy Ogaji said simply: “As GenCos, our concern is that NBET pays its bill in full and on time. Whether the government chooses to pay from its funds or customer collections, it is the government’s decision”.

Expert reacts:

In his reaction, energy market expert, Mr. Lanre Elatuyi explained that poor liquidity was at the heart of the drop in plant availability capacity, noting that without finances it would be difficult for companies to maintain their plants.

“Plants’ available capacity has dwindled due to mechanical faults that have not been attended to due to poor liquidity in the sector, and also due to gas constraints. Many plants are poorly maintained, suffer feedback issues as a result of poor grid operations, and the need for required maintenance is made difficult by poor revenue to the GenCos as a result of low remittance in the industry.

“Also, load offtake from the DisCos hasn’t improved substantially, so it becomes difficult for the GenCos to embark on any capacity expansion”.

On the plan by the Minister of Power, Adebayo Adelabu to increase generation 6,000MW by the end of the year, Elatuyi said: “It is very ambitious of the Minister to mull the idea of 6000MW before the end of the year. Going by the fiasco of Partial Activation in 2022, and with no significant investment in DisCos distribution capacity, the idea of 6000MW in less than six months is merely a political statement.