Competition in power sector as TEM begins November

The transitional electricity market (TEM), a stage that will ensure accountability and boost further investment in the Nigerian electricity market is expected to come on stream in November, BusinessDay has learnt.

It was gathered that the Nigerian Electricity Regulatory Commission (NERC) had in a meeting on Wednesday considered the launch of the TEM in about two months’ time.

TEM represents the intermediate step to move the electricity market in an orderly manner from an integrated whole utility to a fully competitive market structure with more differentiated players.

The electricity market is currently operating under a set of government interim rules. The interim rules were developed and issued by NERC in December 2013 to conduct the market in the pre-TEM phase until the declaration of TEM. The interim rules order was later modified with the revision taking place with effect from May 1, 2014.

“We are very much eager for

TEM to commence. From a generating company (Genco) point of view, this will mean an increase in potential revenue from the current 60 percent capacity charge and 100 percent energy charge to 100 percent capacity charge and 100 percent energy charge,” Ade Fadeyibi, managing director and chief executive officer, Transcorp Ughelli Power Limited, one of the power firms privatised last year, told BusinessDay.

“In addition, monies owed Transcorp Ughelli Power since takeover by the market are expected to be paid once TEM commences. This will also bring a potential re-definition to the current definition of capacity charge as the amount of turbines currently producing power to the grid. This will bring NBET into the market fully and ensure full payment of revenue to the Gencos,” he said.

For distribution companies (Discos), on the commencement of TEM, they would experience the introduction of three months energy receipt LC (cash-backed) which is a condition precedent for them. Most of them are still on baseline remittance which is not the full payment for energy received for them. They would also have to start paying for 100 percent energy and 100 percent capacity charge.

The declaration of the TEM is expected to kick-start a fully contracted and rules-governed electricity market wherein the sanctity of contracts shall be full to protect market liquidity and incentivise increased investment.

The TEM, which was originally scheduled to be declared on March 1, 2014, was put on hold to ensure that all the condition precedents before it comes on stream are fully satisfied.

Apparently, part of the cause of the delay of TEM is the fact that power generation in the country has not reached the expected level. Daily power generation, which is supposed to be 4,875 megawatts (MW) hour/hour based on the Multi-Year Tariff Order, was 3,887.9MW as at September 7, 2014.

Gas supply, which has continued to put a damper on generation capacity, has seen some improvement in recent times.

BusinessDay had earlier reported that the delay in the declaration of the TEM was holding down the implementation of several agreements, including power purchase agreements (PPAs), gas supply aggregation agreements (GSAA) and gas transportation agreements (GTAs), which would have unlocked the potential of the Nigerian electricity supply industry.

For instance, the declaration of the TEM would make it mandatory for the Nigerian Gas Company (NGC), a subsidiary of NNPC, to be penalised in the event of failure to deliver on its gas supply commitments to the power producers, in line with the Gas Supply Agreement signed in 2013.

Also, any power-generating station that fails to deliver on its electricity supply commitment to the national grid, according to the PPA signed with Nigeria Bulk Electricity Trading plc (NBET), will also be sanctioned.

This means NBET will not be paid for power not supplied to the distribution companies (Discos) that ultimately lose revenue for failing to supply improved electricity to households and businesses.

Other agreements that have been signed but are yet to be operational as a result of the delay in the declaration of TEM include transmission use of service agreements, grid connection agreements and ancillary services agreement.

The Electric Power Sector Reform Act (EPSRA) 2005 established three market stages that define gradual competitiveness in the power privatisation market, which include TEM, mid-term electricity market and final/mature electricity market.

Businessday