The Association of Power Generation Companies (GenCos) has raised alarm that Nigeria’s electricity industry is edging toward collapse over huge unpaid capacity charges.
The power producers said they are owed more than N6.2 trillion for electricity generated and consumed, noting that only about 35 per cent of the amount has been paid since 2015.
They argued that the current practice of recognising only “called-up” capacity — the volume of power the distribution companies and transmission network can take — while ignoring available capacity sends the wrong signal to both local and foreign investors.
In a statement signed by the Chief Executive Officer of the Association, Dr Joy Ogaji, the GenCos said the liquidity crisis has contributed to a drop in supply, with average grid generation hovering around 4,000MW despite an installed capacity of 15,500MW.
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“This has severely impacted our ability to invest in capacity maintenance and expansion. We’re not getting paid for available capacity and it is disincentivizing us from investing in recovering mechanically unavailable capacity, estimated at 7,000MW.
“Electricity is not stored at the power plants. Once it is produced, electricity leaves the generating plant, is metered, then travels at the speed of light and is consumed within a millisecond. It is a scary scenario for any investor, as no guarantee of any sort is in place to ensure any form of return on investments.
“The lack of Power Purchase Agreements (PPAs) and inefficient transmission and distribution are major challenges.
“We’re caught in a vicious cycle of poor performance, and it’s contagious. The current market design, as envisaged, is not reflected adequately in the incentives and enforcement measures for performance.
“Electricity requires huge investments, recouped over very long periods. How can it operate on a voluntary basis?”
The statement further stressed that “GenCos have kept to the terms of all industry and privatisation agreements as well as the Power Purchase Agreement since the takeover on the 1st of November 2013.
In exchange, they have been rewarded with liquidity challenges, default on contractual terms, regulatory risks, and increased market volatility.”
The GenCos called for urgent reforms to entrench a contract-based electricity market and uphold the sanctity of agreements.
“We need a level playing field, where we can operate efficiently and effectively. The sector’s sustainability is at stake and we urge the government to take immediate action,” the statement concluded.