Presentation at 2011 WAPIC Abuja, Nigeria

Transcription

1 New Regulatory Framework in the Privatized Power Sector in Nigeria Cost Reflective Tariffs and Subsidies Presentation at 2011 WAPIC Abuja, Nigeria Dr. Sam Amadi Chairman, Nigerian Electricity Regulatory Commission 29 th November 2011

2 Outline The Electric Power Sector Reform Act 2005 Objectives of the Reforms NERC-The Regulator Consumer/Investor Rights and Obligations The Multi Year Tariff and the Major Review Realities and Challenges in the NESI Conclusion 2

3 The Electricity Reforms Act The Electric Power Sector Reform Act (EPSR Act), 2005 aims to: To develop competitive electricity supply industry Has established the Nigerian Electricity Regulatory Commission; To provide for the licensing and regulation of the generation, transmission, distribution and supply of electricity; To enforce such matters as performance standards, consumers rights and obligations; To provide for the determination of tariffs; and to provide for related matters. - ensure adequate supply of electricity; 3

4 Objectives of the Reforms ensure that prices charged by licensees are fair to consumers and also allow for reasonable earnings for efficient operation; ensure the safety, security, reliability, and quality of service ensure fair and balanced regulation for all stakeholders. regulate all facets of the industry from generation, transmission, system operation, distribution and trading in electricity. 4

5 Objectives of the Reforms To promote efficient, orderly and fair market in the Nigerian Electricity Supply Industry (NESI). To ensure that the NESI is internationally attractive and sustainable. To administer the licensing process and the general administration of the industry. 5

6 LEGAL LICENSING AND ENFORCEMENT 1. EPSR Act requires all players in the industry to obtain licences for all activities ranging from: Electricity generation, excluding captive generation and generation not exceeding 1 megawatt Electricity transmission System operation Electricity distribution ( except for capacity not exceeding 100 kilowatts) and trading in electricity. 6

7 License Mandatory Requirements 2. Licensees are required to: Comply with the conditions of the license and the requirements of the licensed business as set out in the Act and Regulations approved by the Commission in accordance with the Commission s statutory duty to monitor all licensees. Comply with rules, codes and standards produced or approved by the Commission in accordance with the Commission s statutory duty to monitor the efficiency and performance of licensees. Comply with the Act, regulations, license terms and conditions Provide efficient service and Maintain standards Ensure appropriate pricing and consumer rights protection 7

8 License Mandatory Requirements Comply with rules, codes and standards produced or approved by the Commission in accordance with the Commission s statutory duty to monitor the efficiency and performance of licensees. Comply with the Act, regulations, license terms and conditions and provide efficient service Maintain standards, Ensure appropriate pricing and consumer rights protection 8

9 Regulations & Codes The Commission has in pursuant to its powers under the EPSR Act has put in place the following regulations: Reporting Compliance Regulation 2009 Application for License Fees Regulation 2010 License and Operating Fees Regulations 2010 Business Rules Grid Code Distribution Code Health & Safety Manual Regulation for Captive Power Generation 9

10 Regulations and Codes (Cont) Customer Complaints Handling Standard and Procedures Customer Service Standard Connection and Disconnection Procedure Meter Reading, Billing, Cash Collections and Credit management for Electricity Supplies MYTO Methodology 2008 Tariff Order Market Rules 10

11 Other Ongoing Initiatives Regulation on Acquisition of Land and Access Rights For Power Projects Regulation on Independent Electricity Transmission Network Regulation on Independent Electricity Distribution Network Regulation on Embedded Generation Various ongoing Regulations 11

12 Enforcement Sector development dependent on clear and precise rules and regulations: EPSR Act 2005 governing law Various regulations License Terms and Conditions Codes In addition to putting all regulations in place, there is necessity for effective enforcement and dispute resolution within the sector. Commission committed to effective enforcement. Supplementary rules and regulations being developed to implement a good dispute resolution mechanism for operators and consumers. 12

13 Customer Obligations The electricity customer has the following obligations Pay bills for electricity consumed. Pay security deposit requested by the Disco and other requirements for connection stipulated by NERC. Vigilant protection of electrical installations. Cordiality towards electricity workers. Use energy efficiently. 13

14 Customer Rights Right to safe & reliable electric service Right to accurate to properly installed electric meter; transparent billing and refund of over billings Right to prompt investigation of complaints Right to information; Scheduled power interruptions, disconnection of electric service and reconnection of electric Service upon payment. Right to file complaints before NERC. The right to be heard and seek redress The right to consumer education 14

15 Investor/Utility Rights Right to recover full efficient cost Right to financial viability Right to a reasonable return on capital Right of access to national grid and distribution network Right to incentive for improved efficiency and quality of service 15

16 Regulatory Issues in RE Power Supply The main regulatory issues in renewable energy based power supply are: Tariff setting Guideline for plant sighting Guideline for power evacuation Interconnection rules & standards Model PPA Regulatory incentives Determination of Renewable Portfolio Standard should be based on Potentials and total cost

17 Tariff Principles MYTO sets tariffs for the three electricity sectors based on certain principles and assumptions, namely: Cost recovery/financial viability licensees recover efficient costs, including a reasonable return on capital Signals for investment tariffs should encourage an efficient level and nature of investment (e.g., location) Certainty and stability of the tariff framework enables private sector investment Efficient use of the network tariffs should reflect the marginal costs that users impose on the system, influence efficient use and reduce cross-subsidies Allocation of risk the tariff framework should allocate risks efficiently to those best placed to manage them 17

18 Tariff Principles (2) Simplicity and cost-effectiveness the framework should be simple and not costly to implement Incentives for improving performance it should incentivise cost reduction and quality of service Transparency/fairness it should be transparent and ensure open access to monopoly networks Flexibility/robustness it should cater to unforeseen changes in the market Social and political objectives it should provide for the achievement of social goals such as universal access and demand-side management 18

19 MYTO Methodology- From General Assumptions to Disco Retail Tariff Inputs to the tariff forecasts of load, capacity, fuel costs, investment, levels of losses, customer numbers, O & M costs and other economic and technical data Generation costs, life cycle cost methodology Transmission tariff Building Blocks Distribution & retail tariff Building Blocks Final retail tariff To consumers 19

20 INPUT MYTO II Model Structure Data / Assumptions Generation, Transmission & Distribution Load Forecast COMPUTATION Load Calculations Generation New Entrant Model Transmission Costs Distribution 11 Distribution 11 Costs Costs Costs (11) Investor Module (IPP) Transmission Depreciation Distribution 11 Distribution 11 Depreciation Costs Costs (11) Investor Module (DISCO) Generation Wholesale Prices Transmission Tariffs Distribution 11 Distribution 11 Tariffs Costs Costs (11) Regulatory fee Regulatory fee Regulatory fee BT Charges OUTPUT Tariff Summary (End-user Tariff)

21 Periodic Reviews Major Review Given the status of sector reform and privatisation, we recommend that another Major Review should be undertaken within three (3) years and not five (5) years Minor Review Considering the need for efficient and credible power procurement, Minor Reviews should include newlycommissioned generation, power sent out from stations during and system planning data to be developed by TCN as variables to be considered Also recommended that Minor Reviews be conducted semi-annually 21

22 Revised Financial Assumptions Assumption Old New Gearing 70/30 30/70 Nominal risk free rate (%) Exchange rate (N/US $) % above CBN rate Nominal market Rate of Return Nominal cost of debt (%) Real pre tax WACC (%) 5 10 Inflation

23 Daily Generation Projections Scenario MW Capacity 4, 000 4, 200 4, 500 5, 000 5, Capacity 5, 750 7, 500 9, , , Capacity 5, 750 7, 500 9, , , 761 Scenario 2 is the base case scenario where PHCN Successor Gencos improve performance, NIPP projections are achieved and stranded IPP capacity is released 23

24 Tariff increase In ensuring that electricity tariffs are henceforth costreflective, tariffs will increase from an average of N10/kwh in 2011 to at least N24/kwh in 2012 The Minister of Finance has indicated that there will be a maximum subsidy of N100bn in 2012 and N50bn in 2013 This subsidy will only reduce the consumer tariff by N3.8 in 2012 and N1.4 in 2013 We must consider strategies for bringing down the consumer tariff to a more acceptable level to both investors and consumers 24

25 Revenue Requirements Regulated costs (N '000) Total Generation 326,629, ,297, ,085, ,237,416 Total Transmission 46,405,795 62,521,172 78,482,958 96,057,671 Total Distribution 233,240, ,282, ,040, ,767,831 Total 606,275, ,100,735 1,024,609,308 1,214,062,918 Regulated Tariff Average tariff (NGN/MWh) (Revenue collected sales) 24,073 22,717 23,172 23,917 25

26 Revenue Requirements 26

27 Effect of Proposed Subsidy on Tariff Option 1 (no subsidy) Base year Regulated average end-user tariff Percentage increase in price 154% -7% 2% 2% 5% Subsidy (N/kWh) Subsidy (Nbn) Option 2 (2 yr subsidy) Regulated average end-user tariff Percentage increase in price on % 3% 10% 2% 5% Subsidy (N/kWh) Subsidy as percentage of tariff 15% 6% 0% Subsidy (Nbn)

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