A Perspective on Nigeria s Electricity Crisis

Transcription

1 A Perspective on Nigeria s Electricity Crisis November 24, 2015 WAPIC Conference Lagos, Nigeria Robert Dickerman Enugu Electricity Dist. Co.

2 STATE OF NIGERIA S POWER INDUSTRY Among the lowest Power Generation per Capita in the world. No expansion capacity -- Limitations in gas, transmission and distribution infrastructure. Shortage of gas as fuel. Gas priced below market, creating little economic incentive for producers to supply the industry. The NDPHC (NIPP) generation auction is falling apart over fuel supply and gas pipeline issues. No Integrated Resource Planning. Stranded assets everywhere. Customers only pay for ~ 50% of energy received and the entire value chain (Genco/TCN/Disco) is virtually insolvent. Investment is severely constrained. Vicious Cycle Continues 2

3 FOCUS We must not let the URGENT crowd out the IMPORTANT URGENT Poor energy reliability IMPORTANT Energy reserve margins above peak load Affordability of energy, including replacement generation Security of supply of fuel Poor Service Delivery Fraud & Corruption Financial Liquidity Well-functioning support, delivery and customer service infrastructure Transparency & Accountability Financial Liquidity 3

4 GENERATION AND TRANSMISSION Annual average MW generating* PHCN Successor 1,976 1,676 1,535 1,549 IPP 1,173 1,037 1,114 1,098 NDPHC (NIPP) TOTAL 3,557 3,298 3,301 3,410 * Based on System Operator reports, using part years for 2012 and 2015 GENCO generation has been rising this year, holding around 4,500 MW in the past few months due to higher gas supply The NIPP plants cannot perform well enough to sell, due to poor planning and constraints, but their capacity is around 5,000 MW TCN has 7,000 MW of wheeling capacity, but line congestion limits the system to only about 5,500 MW The peak energy ever wheeled was just under 4,800 MW in August

5 GENERATION BY FUEL TYPE Annual average MW generating* Gas Fired MW 2,638 2,613 2,725 2,867 Hydro MW Total MW 3,557 3,298 3,301 3,410 * Based on System Operator reports, using part years for 2012 and

6 GENERATION PER CAPITA Electricity Supply per Capita * Nigeria India China South Africa UK S Korea UAE USA kwh Multiple of Nigeria Iceland 53, USA 12, UAE 10, S Korea 10, UK 5, South Africa 4, China 3, India Nigeria 156 Iceland 0 10,000 20,000 30,000 40,000 50,000 60,000 KwH Multiple * World Bank Iceland generation mostly for aluminum production only 320,000 people 6

7 NATURAL GAS FOR POWER GENERATION Gas for Power Energy Production GWh 23,176 22,872 23,857 25,061 Gas Purchases (LHV) GBTU 247, , , ,227 Amount in USD M USD Amount in Naira M Naira 79,800 80,300 95, ,800 Price of Natural Gas ($/MMBTU) Delivered Fuel cost Market Price of Natural Gas * * Annual estimate based on part years for 2012 and 2015, using MYTO conversions During a period of flat generation, gas costs increased sharply because the price of gas increased Still, this price is far below market price, causing supply shortages of both gas and power * Spot LNG prices crashed in 2015 because Asian LNG is tied to crude oil prices by contract 7

8 DEMAND BY CLASS OF TRADE Electricity demand ( delivered) Unit % Total GWh 100% 25,181 23,269 23,282 23,999 Residential GWh 59% 14,857 13,729 13,737 14,159 Commercial GWh 19% 4,784 4,421 4,424 4,560 Industrial GWh 7% 1,763 1,629 1,630 1,680 Special GWh 15% 3,777 3,490 3,492 3,600 Street Lighting GWh 0.4% * Annual estimate based on part years for 2012 and 2015, using MYTO conversions Demand growth is limited by the critical shortage of supply All energy produced, net of technical losses, is consumed About 40% of energy delivered is not paid for, leading to the financial illiquidity in the NESI Industrial demand is very low, indicating an area of needed economic development 8

9 TRUE ENERGY DEMAND TRUE ENERGY DEMAND in Nigeria is tricky to calculate. It is: Observed Demand = Energy used, not necessarily paid for + Latent Demand = That which would be used immediately if available + Suppressed Demand = Expansion of consumer and business demand if perceived to be coming online = True Energy Demand By example, since 29,000 GWh of energy were produced in 2014, net of transmission and technical losses, 23,000 GWh were consumed. Another 12,000 GWh were self generated and consumed, creating Observed Demand of 35,000 GWh. Estimates are for another 40,000 GWh of Latent Demand and 20,000 40,000 GWh of Suppressed Demand Around 100,000 GWh of True Demand in 2014 is equivalent to ~15,000 MW! 9

10 PRESCRIPTION FOR THE FUTURE SHORT TERM: Fix fuel supply infrastructure to NDPHC plants Address NESI liquidity problem MEDIUM TERM: Plan & Implement a 20,000 MW INTEGRATED energy system LONG TERM: Manage supply growth to keep ahead of demand growth, with 15-20% reserve margins

11 OUTLINE OF 20,000MW ENERGY SYSTEM FUEL SUPPLY: Natural gas priced at market, supplied from domestic or international sources Robust gas and coal infrastructure to support generation growth GENERATION: Recondition existing 7,000 MW Gencos & 5,000 MW NIPP plants Construct additional 10,000 MW of generation capacity TRANSMISSION: Refurbish & Construct additional 13,000-15,000 MW of evacuation capacity DISTRIBUTION: Refurbish & Construct additional 10,000 MW of evacuation capacity 11

12 FUEL SUPPLY ASSURANCE We need supply assurance of fuel, no matter the domestic production, industrial demand or power demand: 1. Completely deregulate the price of gas for power to remove gas supply as a limitation on gas-fired generation growth 2. Identify and explore the feasibility of coal production in the states with coal resources. Coal Generation capacity may be 5,000-10,000 MW based on reserve estimates 3. Build an LNG regasification (receiving) terminal, connected to the domestic gas pipeline system, to have the flexibility to buy LNG (gas) from any market in the world and ensure security of supply. The LNG terminal will pay for itself many times over with a lower cost of gas, increased supply and the economic value of far more energy production.

13 MARKET STRUCTURE NEEDS Need viable, cost-reflective tariff to support the entire energy value chain Need regulatory consistency signals a stable market Need responsible customer behavior and law enforcement regarding tampering and energy theft Need enabling monetary policy and foreign exchange and repatriation rules

14 CAPITAL NEEDS -- 20,000 MW System Generation Capex Recondition Equipment (Genco) Recondition Equipment (NIPP) New Construction (10,000 MW) New Gas Pipelines Buyout NIPP Capital Transmission Capex Refurbish HV Network New Construction (lines, substations) Distribution Capex Refurbish MV, LV Networks New Construction (lines, substations) Credit Support for Fuel Purchases TOTAL CAPITAL NEEDS $1 Billion $1 Billion $12 Billion $2 Billion $6 Billion $1 Billion $7 Billion $500 Million $2 Billion $7.5 Billion $40 Billion

15 CAPITAL RAISE -- $40 Billion $40 Billion represents about N9 Trillion, or 3 times the Foreign Direct Investment (FDI) ever raised in one year by Nigeria It would be a challenging amount to raise, but Nigeria now represents the largest potential energy growth market in the world Many global sovereign funds, private equity funds and hedge funds are dedicated to generation and energy infrastructure projects, looking for markets We must be able to convince investors that Nigeria has changed and that investor principal will not be at serious risk of loss

16 SOVEREIGN RISK Very serious issue from the investors perspective How will we convince investors to part with $40 Billion? We must take two steps to address this issue: 1. Demonstrate Integrity and Transparency in the way we manage the funds and their deployment. Hire Big 4 Audit Firm to audit and protect all funds from leakage 2. FGN must provide a SOVEREIGN GUARANTEE against loss of principal funds invested in public projects and all fuel purchases 16

17 AFFORDABILITY OF GROWTH Can Nigeria s economy support 20,000 MW? Will national income rise sufficiently to pay for reliable energy? An average monthly bill is N3,000 today If we have 20,000 MW and virtually uninterrupted power, the average bill might be N12,000 How much will the economy grow, and when? 17

18 INTEGRATED RESOURCE PLANNING To embark on the 20,000 MW vision, we must use Integrated Resource Planning This involves detailed planning of all resources needed for a project, including its precedents and dependencies All project capital and deployment tasks must be planned in an INTEGRATED way Project completion dates must be realistic and completed around the same time To avoid a situation such as the one we have with NIPP plants Constructed, but without sufficient fuel supply, fuel infrastructure, or evacuation capacity! 18

19 GLOBAL INVESTORS WILL ASK Can Nigeria support and sustain a 20,000 MW system? Will residential and business customers be able to pay for that much energy? Why didn t the NIPP generation plants go to financial close, after 10 years of development and tremendous capital investment? Why are the private sector market participants struggling financially? What went wrong with the privatization of the PHCN Gencos and Discos? How can investors manage or understand regulatory risk in a market where regulations have been in constant turmoil? Is this the right time for massive investment in Nigeria, or is it still too early? 19

20 NEXT STEPS 1. Form a Domestic Solution Team to address changes in policy, law and process 2. Form an International Investment Team to market Nigeria for energy investment, with a focus on generation 3. Restructure NERC with a focus on Regulatory Stability 4. Develop critical energy infrastructure budgets for 6 months, 12 months, 36 months 5. Accelerate gas infrastructure development for NIPP plants 6. Accelerate expansion of critical TCN evacuation capacity 7. Solve the NESI liquidity crisis TIME IS OF THE ESSENCE 20

21 DOMESTIC SOLUTION TEAM MOP, NERC, NBET, NNPC, NGC, TSP, SO, CBN Mission: Unblock flows of gas and energy, improve power supply & reliability quick wins. Improve market confidence in regulator and supporting agencies. Focus: Gas-to-power, gas infrastructure, transmission expansion, new generation projects, repair regulatory structure Policy: Immediately reset Gas-to-Power pricing. Let the price float, indexed to domestic industrial and global LNG pricing Empower a focused infrastructure team to implement fixes to gas pipeline supply and enhance security of gas pipelines Develop capital budgets for energy investment and infrastructure. Develop project plans for deployment of new capital. 21

22 INTERNATIONAL INVESTMENT TEAM Mission: Begin bilateral discussions in key markets leading to immediate infrastructure investment in Nigeria (equity & debt) Create highly empowered team: Energy Expert Capital Market Expert International Lawyer Representative of the President Representative of the Ministry of Finance Representative of the Ministry of Power Public Relations expert Target Audience: Large Private Equity Firms, Hedge Funds, Investment Banks with a focus on energy and infrastructure Markets: US, China, UK, Japan, Germany, India, South Korea, Turkey, Australia, Egypt Message focus: Changes in FGN: Integrity, with zero tolerance for corruption and fraud Nigeria is open for business with transparent processes. Be part of the largest energy growth market in the world. Develop a prospectus for Nigerian infrastructure investment Schedule investment seminars in Abuja for interested parties 22

23 CREDITS DATA SOURCES AF Mercados PWC System Operations US Energy Information Administration ( World Bank (data.worldbank.org) International Energy Agency ( 23

24 This Can Work With: Integrity, Transparency How: Integrated, Apolitical