Electricity Emergency In Nigeria: Complementing Or Implementing Supply Shortfalls

by L.Chinedu Arizona-Ogwu

Electricity is a basic part of nature and it is one of our most widely used forms of energy. We get electricity, which is a secondary energy source, from the conversion of other sources of energy, like coal, natural gas, oil, nuclear power and other natural sources, which are called primary sources. Many cities and towns were built alongside waterfalls (a primary source of mechanical energy) that turned water wheels to perform work. Before electricity generation began slightly over 100 years ago, houses were lit with kerosene lamps, food was cooled in iceboxes, and rooms were warmed by wood-burning or coal-burning stoves. Beginning with Benjamin Franklin’s experiment with a kite one stormy night in Philadelphia in 1752, the principles of electricity gradually became understood.

Slipping back 100 years and comparing what was happening in the nation’s electricity supply industry then with now superficially paints a very similar picture. But, although the turmoil is equivalent, new skills are needed for the engineers, the managers, the leaders who will lead the electricity supply companies into the next century. Today we have a range of businesses in electricity supply and related equipment manufacturers which face significant challenges in the 21st century, which will bring to the fore the electrical engineer-a challenge which is waiting to be grasped and won. In particular the author discusses the drivers for change in the industry, liberalisation of the electricity industry, health and environmental factors, capital management, and the impact of the information age.

Electricity Emergency offers electric utilities and their regulators a process for making the most of the rapid changes and developments in today’s electricity markets. A utility or default service provider that actively participates in electricity markets, and that carefully chooses among the wide variety of different electricity products and resources, will be able to provide better services to its customers over both the short- and long-term future.

Electricity Emergency begins with the primary objectives of a utility or default service provider in obtaining electricity resources for customers. Providing reliable electricity services at just and reasonable rates will continue to be a primary goal of electric utilities.

Other objectives include mitigating risk; maintaining customer equity; improving the efficiency of the generation, transmission and distribution system; improving the efficiency of customer end-use consumption, and reduction of environmental impacts.

Electricity Emergency provides a process for utilities to determine and implement the mix of electricity resources that will achieve these objectives to the greatest extent possible. Portfolio management requires several key steps on the part of electric utilities or default service providers. Electricity Emergency managers must first prepare load forecasts that represent the best assessment of customer demands for generation, transmission and distribution services for the long-term future. They must then assess all the opportunities available for meeting customer demand through cost-effective energy efficiency resources. The next step includes assessing the wide variety of generation-related opportunities, including building power plants; purchasing from the wholesale spot market; purchasing short-term and long-term forward contracts; purchasing derivatives to hedge against risk; developing distributed generation options; building or purchasing renewable resources; and expanding transmission and distribution facilities. The next, and most challenging, step in portfolio management is to develop the optimal mix of these resources that will best achieve various objectives identified by the utility and promoted by the regulators.

With the current lack of retail competition, default service providers have little pressure or incentive to pass the benefits of their long term portfolios on to retail customers. State policy makers need to create the necessary conditions for the full benefits of successful electricity emergency to flow to retail electric customers It may also be that some default service providers only passively participate in the competitive electric market, by purchasing all of their generation from relatively short-term options. In so doing, they are missing many opportunities, and they are leaving their customers vulnerable to higher costs and greater risks. In order to benefit from competitive electricity markets, default service providers must participate more actively in procuring resources for their


Electricity Emergency is also important for those utilities that remain vertically integrated. It provides a means for these utilities to meet the traditional objectives of providing reliable, low-cost electricity services by taking advantage of the new and emerging opportunities available from the competitive wholesale electricity markets.

The restructuring of the national electricity supply industry including the power holding company of Nigeria ,PHCN is now a world-wide trend, with various programmes of de-regulation, liberalisation and trading creating new markets, opportunities, and risks.

Commercial organisations as well as regulators and governments, who may only have experience of managing electricity supply in a monopoly or highly regulated environment, therefore face major challenges in having to design and successfully manage the transition to a fully competitive environment. For those players in already liberalised markets, the financial, strategic and institutional pressures of change create a volatile business environment.

Modeling and Managing Competitive Electricity Markets is a unique course, which provides an intensive exposure to the key issues faced by any organization which is going through the process of adjusting to the on-going challenges of electricity market liberalization. If the looming electricity emergency declaration, could consume more than four-year work-span to research, invent and implement modalities that could overcome lapse-ridden trouble-shooting to the nation’s electricity industry, a landmark would be recorded. Using a distinctly model based approach; you will gain experience of how to develop new strategies, and manage risk in a market based electricity supply industry.

The intensity of electricity supply is determined by three main features: it cannot be stored economically in large quantities, its supply and demand must coincide and be maintained in real time and again, supply (production and delivery) of power to the consumer is often characterized by constraints – the transmission and distribution systems have their designed limit. The transmission losses, which occur in the form of heat, are proportional to the square of the current that passes through the lines. This means that the transmission and distribution lines can “meltdown”, if current that passes through them at any time is higher than what it was designed for. The consequence is total blackout or brownout, which occur often in Nigeria. Production resources have their generation limit and during high demand period the supply becomes perfectly inelastic. Loss of generation plant, or low lake levels as is the case in Nigeria (because high dependence on hydro and thermal) could make the problem worse-. Then, the electric system is highly capital intensive and requires long lead times for new expansion.

Because of these characteristics, not much can be done in a short-term when demand is so high that it can not be supported by the supply conditions. The only way to avoid the collapse of the (whole) system in a short-term (seconds, minute hours) is to disconnect part of the consumers from the grid or encourage consumers themselves to reduce their demand for power. In fact, most of power rationing in Nigeria could easily be avoided by investing in the demand side rather than the supply side. So far, all attention has been on infrastructure expansion– expansion of Kainji power station with additional 110 MW at the cost of $220 million, building 300 MW thermal power plant at Egbin, 400 MW Afam thermal, building 330 KV Omoku transmission lines at a cost of $60 million, Papalanto 161 kV transmission line at a cost of $30 million, etc.

It appears the government is the main investor in the power sector because the sector is not lucrative enough to attract private investment. Peak generator that run on natural gas and diesel oil are very expensive and thus investment may occur only when very high prices can be expected, and if there would be no risk of price cap by politicians. Because the government is the main investor, it could easily channel some of the money into demand side to help deal with peak demand problem instead of the usual supply-side upgrading. Integrated resource planning is the word. Most of the electricity we generate is used in our households, we can easily see the impact of the demand response if we are able to encourage and get each household to switch off one-60 Watts electric bulb when supply is constrained. The aggregate, of which, could avoid some of the expensive, and polluting thermal plants being constructed.

Economic theory asserts that the most efficient use of resources occur when consumption decisions are based on prices that reflect the marginal cost of supply. This price is normally defined by the intersection of demand and supply curve. In electricity generation, resources are ordered from cheapest to the most expensive. Expensive and polluting thermal power plants are fired after generation from hydro sources has been exhausted. That is to say that, when demand approaches installed generation capacity, each additional increment of demand imposes increasingly more cost to the generation company than the previous one. In other words, the marginal cost of electricity becomes most sensitive to changes in demand when demand is already high.

On the demand side, electricity demand does not differ from most goods. The demand for electricity exhibits declining marginal value (i.e., the marginal value of additional consumption declines as consumption increases). Electricity demand is characterized by a downward-sloping line, regardless of how electricity is priced. But, if the price that consumers pay is small and never varies, demand appears to be perfectly inelastic, and is characterized by a vertical described as Qpeak. Economic way to achieve demand reduction during periods of supply constraints is to increase prices. When prices are high, most consumers will reduce their demand for power. This will result in a shift of demand curve to left. If demand reduction is not achieve during this peaking period, investment in peaking generator or power rationing has to occurs to avoid the collapse of the whole system. It could graphically show a shift in demand from QPeak to Q’peak due to high price. The difference QPeak – Q’peak may be necessary to maintain supply-demand balance.

However, this may not work in Nigeria. Low income levels in the residential sector and the fact the electricity rates in Nigeria do not meet the two of the three priority objectives of rate design: 1) meeting utility revenue requirements, 2) economic efficiency, achieving demand response with high prices could result in a more chaotic situation. At the moment, PHCN and NERC are not meeting their revenue requirement and so economic efficiency still remains to be achieved. Though price may be part of the solution in Nigeria, it should not be the main solution. What can be done now in Nigeria is to appeal to consumers (through the media) to reduce their demand during such period. Investment in energy-efficient electrical appliances can also reduce the total load. Other solutions will require research into human behavior and how to live and function under electricity supply constraints.

My firm is working on the theory of constraint which can be applied in Nigeria. We believe that usage of resources must be change from a ‘demand and supply’ setting to one in which each user is either allocated a given amount of, or they choose to purchase a set ‘ volume of resources’ and based its use to that allocated portion. In fact, electricity use should be based on a principle such as that of pre-paid electricity meter or prepared telephone card. We need a system (a device) in Nigeria that can communicate to the people, the available resources remaining, the rate and the prediction of excesses or shortfalls. A System that can predict future demand and supply pattern, and can inform consumers about their responsibility in ensuring the continuity of supply. Communication between the supplier and the consumer is possible way to deal with our electricity constraints.

A student who receive a certain amount of money per month, say, N40,000, will be able to buy food, pay rent, entertainment, and other required necessities. The student would have budgeted that rent would cost N28,000 for the month. Food would cost N12,000 leaving N12,000 for power, entertainment, transportation and others. Generally, the student would continually manage his/her funds to ensure that he/she has a little left over at the end of the month for emergencies, but in most cases, the N40,000 per month is never exceeded. If the monthly limit was changed to N60,000, it is likely that the funds remaining in the student’s account would be similar to the N6,000 per month case. In fact, if monthly limit were reduced, the student would achieve more economic living, yet still maintain the same standard of living that he/she initially obtained, quite possibly not require more then than the N50, 000 each month.

With a set limit of ‘credit’ that is known by, displayed to and that can be easily and continually checked and analyzed by the consumer, a new lower overall net consumption ‘volumes, can be achieved.

Researching into how to function under resources constraint now will help Nigeria know how to live in resource constraint when the whole world gets there. To fulfill all our electricity need either now or in a future remains a big challenge. We are already in peak oil period. World static range of natural gas might be shorter when oil peaks. This means that, even if we are able to build more thermal power plant, firing fuel or resource may not be available in the near future. Water bodies around the world are loosing a significant portion of their volumes to global warming. Kainji dam is not an exception.

Since there is no relationship between wellbeing and growth, we can function well when we know in advanced, how to do with little before we come face to face with the reality. If we refuse to learn, resources will be stretched too thin for the quality of living that society has deemed unacceptable. It is obvious in the energy industry where Nigerians are frequently faced with blackouts and brownouts. The future of adequate electricity supply in Nigeria, and in fact in the whole world, looks uncertain.

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