The Electricity Tariff 2019: What’s The Way Forward?

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THE PROBLEM STATEMENT

With Nigeria’s tremendous energy resources, it is ironic and unfortunate that Nigerians have to face severe outage and power shortage, (Nigeria is highly energy deficient). This situation poses a complex challenge for the Nigerian Government and raises important questions on relevant economic policies in play. With only 3800 MW against an estimated demand of 10,000 MW, Nigeria has considerable sup-pressed and unmet demand due to the epileptic power supply and high tariff from the distribution company. At about or above 40% of Nigeria’s population has access to electricity with the rest of around or below 90 million people living in the dark, yet the distribution companies are making tariffs unbearable for the masses. The challenges are numerous which includes inadequate and erratic availability of gas supplies, limited transmission lines (causing power lost from the generating companies), and poor water management at hydropower plants (which time leads to low voltage outputs) and operational inefficiencies, to mention a few. Results have shown that SMEs and the industrial sector die before birth, while for others in order to grow, they moved to another country leaving Nigeria and Nigerians at the mercy of generator which most times are not sustainable.

THE POLICY SOLUTION

The Nigerian government and the NESI agreed and designed the Distribution/End-user tariff policy. Distribution/End-user tariffs reflect the costs of the entire value chain for the Nigerian Electricity Supply Industry (NESI), beginning with fuel for generation plant, on to wholesale generation, through to transmission, distribution, metering, and billing, and finally to the consumer.

The tariff is designed to curtail revenue shortfalls for electricity distribution companies due to the disparity in generation cost, distribution cost, and end-user costs, with intentions of moving the industry towards a cost-reflective tariff thereby providing investors with the right incentives and increased confidence to commit capital. That is to say, until customer choice is introduced, the end-user tariffs will be regulated in order to protect the interests of customers. (NERC, by law, is required to ensure that prices are cost-reflective; but also, to ensure that losses are reduced and as little as possible of the costs of such losses are passed on to customers).

In addition, the tariff was designed or meant to stop the continuous subsidy of electricity by cash strapped federal government as customers pay the right price(the Commission has National Electric Power Policy and EPSR Act 2005, provide guiding principles for the setting of lifeline tariffs for low-income consumers that are to be the same across the country. Thus, a uniform lifeline tariff of =N=4 per kWh).

Other means for power should be considered and used to reduce the dependence from the hydropower in order to feed heavy consumers. Although it appears that progress may have stalled on the solar power projects estimated to cost circa US$2,500,000,000 due to the failure of the FGN to approve the Put-Call Option Agreements for the solar projects, as a result of the FGNs disapproval of the tariff agreed by the project sponsors and NBET, we expect that the issues will be resolved shortly going by the FGNs commitment to encourage renewable power projects in Nigeria.

 

 

 

NIGAC CONSTRUCTIVE POSITION/ TAKE                                                                   

The metering system (Pre-paid meters) should be encouraged to help the pricing measures and set an end-user tariff to cover the costs of electricity (energy & capacity), transmission use of system cost, regulatory and market administration charges, and costs associated with metering, billing, marketing, and revenue collection.

The adoption of energy conservation policies should be encouraged by the government. The government should improve on renewable energy (like solar energy which the northern part of Nigeria has in abundant and wind energy which is also in abundance in states with plateaus). Nigeria’s unreliable electricity cost it’s economy above $29 billion a year but the solar energy alternative could save billions if used.

In addition, the government should outlaw the use of electrical gadgets and devices that waste electrical energy and encourage the use of models of these gadgets that save energy (energy-efficient LED bulbs).

 

 

 

 

 

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