Business

Harmonising NESI with Electricity Market Rules for Efficiency

Nigeria’s quest for reliable electricity supply was recently furthered with the consummation of the privatisation of successor generation and distribution companies created from the unbundling of the now defunct Power Holding Company of Nigeria (PHCN). Over the years, efforts to make reliable electric power available to Nigerian homes and businesses had been approached with so much hope, but yet experienced so much frustration, as past governments paid little attention to real issues of the sector, while voting huge sums of budgetary allocations that were often mismanaged.
 
The decision to transfer operations in Nigeria’s power sector to private entities stem from the fact that the country’s economic growth, prosperity and national security are all dependent upon the adequacy of her electricity supply industry. The link between sustainable electricity supply and economic development is such that over the past two decades, Nigeria’s stalled expansion of her grid capacity, which not only crippled her productive and commercial industries, but resulted in high cost of self-energy generation options, with attendant minimal growth in job creation for a country with a large and rapidly growing population.
 
Key Milestones
The federal government on November 1, 2013 eventually handed over the privatise power utilities to their new owners who had successfully acquired them through a privatisation programme that is largely adjudged to be transparent and perhaps, the largest to have been holistically consummated. The key milestones also achieved so far include: the establishment of appropriate electricity tariff regime and review mechanism by the Nigerian Electricity Regulatory Commission (NERC) through the Multi-year Tariff Order (MYTO) framework; setting up of a bulk electricity trader that will carry out contract management and bulk electricity trading until such time as the industry has developed a settlement, accounting, managerial and governance systems required for successful bilateral contracting; engagement of a management contractor for the Transmission Company of Nigeria (TCN) and the initiating of some forms of credit enhancement options for independent power producers in the sector, in form of Power Purchase Agreement (PPA).
These milestones, as well as the transfer of operational base of Nigeria’s power sector transferred to the private sector, cannot be said to be an end in itself but only a means to the ultimate objective, which is providing stable electricity supply across the country.
 
Keeping Gains, Checking Loopholes
In realisation of this caveat and perhaps, being mindful of the need to close up possible loopholes that could render useless, already expended efforts that have sustained the process thus far, NERC in alliance with the initial Stakeholders Advisory Panel (iSAP) of NESI organised a workshop in Abuja to amend extant market rules guiding operations in the transitional and medium stages of Nigeria’s electricity market.
iSAP, which is currently chaired by the Managing Director of Nigerian Bulk Electricity Trading Plc (NBET), Rumundaka Wonodi, is one of the market governance panels of NESI that is saddled with such responsibilities as reviewing the market rules and the grid code; proposing and or approving amendments thereto on an ongoing basis and advising NERC on such specific technical issues relating to the operation of the Market Operator (MO) administered market. The responsibilities as specified in Rule 42.2(a) of the market rules and in line with standard practice, also required that the panel provides an opportunity for all classes of market participants to work together toward fair and applicable rules that would ensure fair and disciplined Nigerian electricity market.
 
While anticipating the Transitional Electricity Market (TEM) to be tentatively declared on March 1, 2014, both NERC and iSAP agreed that the review of rules governing the market has become necessary to reflect current developments and the new structures within NESI. The amendment as stated will touch on key outstanding issues, such as, the market operator/market rules systems and procedures already in place; system operator/grid code systems and commencement date for all the formal contracts amongst others.
 
The market rules are set of regulations that govern commercial transactions and relationships between market participants in the power sector, while the grid code determines how operations are conducted on the system operator-controlled grid. These rules have been in existence since February 2010 and were reviewed in 2012 by iSAP to address certain observed errors and inconsistencies as well as to harmonise them with the grid code. The observed errors and inconsistencies then were due, in part, to the evolving structure of the market, yet the current amendments as disclosed by Wonodi also became necessary in order to keep operations and management in sync with the current realities of the market structure.
 
Sustainable regulatory integrity
Chairman of NERC, Dr. Sam Amadi, stated at the workshop that palpable growth in the efficiency of Nigeria’s electricity market will partly be guaranteed only if new investors in the generation and distribution companies of defunct PHCN decide to stick to extant market rules and avoid the temptation of seeking government’s interference in their operations in the new electricity market.
Amadi, who harped on the need to safeguard regulatory integrity through respect of market rules, explained that the usual somewhat penchant of investment promoters seeking some form of government interventions in operations of privatised sectors of economies ostensibly to pervert extant rules guiding operations of these markets, will not guarantee the much-needed improvement in NESI if the new investors opts to take such path.
Amadi noted that while the industry is preparing to assume TEM by March 1, 2014, it is equally hoped that extant market rules guiding the operation of the sector will be strictly adhered to by operators, adding that the commission expected that all participants in the market will adhere to the market rules without having to invite government officials perhaps, to interfere in the workings of the market.
 
The NERC chair warned of the negative repercussions of disregard for market rules when he further explained that such interference could become unhealthy to the growth of the electricity market, whilst interrupting expected flow and synchronisation of established operational codes employed in the market.
“The market is run by rules and not by calling the president or vice president and we need to ensure the integrity of regulatory regime in the market. The market rules ensure competitive and efficient market participation. This is a holistic review of the market rules to reflect the changes in the market especially the coming of the new investors and it is obligatory for every market participant to participate because at the end of the day, you will have to play by the rules,” Amadi said.
 
Government’s Position
To possibly douse fears of participants’ disregard for market rules as expressed by NERC, Minister of Power, Prof. Chinedu Nebo, who was represented at the workshop by his technical adviser, Prof. Chidiebere Onyia, disclosed that while the government was willing to extend to the new investors the required support to make the most of their investments, it will equally insist on transparent and accountable operations in the sector.
Nebo insisted the government will avoid instances of unnecessary or contrary demands from the new investors as it hopes to sustain clarity in regulation of the sector through NERC and extant regulatory instruments in the sector.
According to him, the inclusion of all market participants in the review workshop showed the level of transparency expected to be ensconced in the running of NESI. He added that with such inclusiveness and expected contributions from participants, their chances of influencing the quality of market rules that would govern their operations had been enhanced, thus, foreclosing their possible disregards for market rules.
From its point of view, NERC has repeatedly stated that growth in capacity of Nigeria’s electricity market is not just a matter of changing the industry’s operational guard from public to private, but more of sustaining regulatory integrity, which should in turn rub off on the integrity of operations within NESI. The commission has also declared its intent to ensure that right market procedures are constantly exercised by all in the sector for greater efficiency.
 

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