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Nigeria’s Power Sector: Focus on sector recovery and expansion [free access]

December 11, 2017

The Federal Government of Nigeria’s efforts to restructure the electricity market dates back to 2001 when the National Electric Power Policy (NEPP) was initiated, and then followed up with the passing of the Electric Power Sector Reform Act (EPSRA) into law in 2005. With the EPSRA in place, the country in the past decade launched a far-reaching set of power sector reforms, which ultimately led to the unbundling and privatisation of electricity generation and distribution companies (first phase) in 2013.


The initial design of the reforms envisaged four stages of development, ultimately resulting in a competitive, efficient, private sector-led power sector regulated by the Nigerian Electricity Regulatory Commission (NERC), with the Ministry of Power providing general policy oversight. However, despite being four years into the reform process, the reforms are still at the second stage—Transitional Electricity Market (TEM)—and have not progressed in a timely and efficient manner. The country’s electricity sector has remained fraught with underdeveloped transmission and distribution infrastructure, poor financial liquidity, and politically-influenced governance systems, all of which have kept the sector down and inefficient. Given the current state of the power sector, further stages of market evolution from the TEM are not likely to be reached in the near future.


In line with the sector’s need for quick and stable intervention, the Nigerian government and the World Bank recently launched the Nigerian Power Sector Recovery Programme (PSRP) 2017–2021. The programme focuses on supporting implementation of power sector reform, reducing losses in the distribution companies, enhancing the sector’s financial viability, increasing access to electricity services and mobilising private sector investment. In addition, Nigeria’s electricity transmission infrastructure is grossly inadequate and is one of the key factors responsible for stranded generation capacity, which has become a characteristic of the country’s electricity grid. To this end, the country is also focusing on taking up a robust grid rehabilitation and expansion plan and has secured financial aid from international lending institutions for its tranmission segment.


Sector overview

Nigeria’s current installed power generation capacity is around 12 GW, comprising 2 GW of hydro and 10 GW of gas-fired power plants. However, the available capacity that can be generated and dispatched ranges between 3 to 5 GW, largely due to gas supply constraints resulting from non-payment for gas supply and gas pipeline vandalism. Nigeria’s power generation sector comprises power generation facilities that until recently were owned by Power Holding Company of Nigeria’s (PHCN) generation companies (which have now been privatised), independent power producers (IPPs) and National Integrated Power Projects (NIPPs).


Nigeria’s transmission network primarily comprises 132 kV and 330 kV voltage lines. In 2016 the country had a total network of 6,680 km of 330 kV lines, 7,780 km of 132 kV lines, 330/132 kV substations with an installed transformation capacity of 10,166 MVA, and 132/32/11 kV substations with an installed transformation capacity of 11,660 MVA. Transmission development activities in Nigeria are mainly undertaken by the Transmission Company of Nigeria (TCN) and Niger Delta Power Holding Company Limited (NDPHC), constituted to develop transmission lines associated with 10 power plants under the NIPP initiative.


The country’s distribution network is split into 11 zones and comprises 33 kV, 11 kV and low voltage circuits with a system nominal frequency of 50 Hz. The distribution segment is operated by 11 private players post the first phase of power sector reforms.


Sector recovery initiative

In line with the country’s commitment to sustainably develop the power sector, the Nigerian government has launched the PSRP 2017–2021. The Federal Executive Council of Nigeria approved the programme in March 2017.


The PSRP involves a comprehensive package of interventions for the next five years to improve power sector performance across the supply chain and bring it to a sustainable state. The PSRP includes the following components: financial interventions to fully fund historical and future financial deficits of the sector; operational/technical interventions; governance interventions; and policy interventions.


The government has developed the PSRP in close coordination with the World Bank. The International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) are expected to support private sector investments in the upstream and downstream segments of the power market. The government is also seeking funding from other development partners to support PSRP implementation.


The lack of a deep financial base has remained a major challenge to the sector, and with the PSRP in place the government aims to eliminate historical revenue deficits of the power sector worth NGP420 billion, as well as debts owed to the market by its ministries, departments and agencies (MDAs). The PSRP would also ensure that payments for future electricity services to the government’s MDAs are netted through a payment mechanism to be developed by it, allow the sector to operate a cost reflective tariff, as well as meet up with its approval of the Central Bank of Nigeria (CBN) to support the Nigerian Bulk Electricity Trading Plc (NBET) to guarantee its payment obligations to the generation companies.


As mentioned before, the country’s transmission infrastructure is grossly inadequate and is a key factor responsible for stranded generation capacity, a characteristic of the country’s electricity grid. Transmission capital projects, like other infrastructure projects in the country, have suffered major setbacks in execution due to lack of financial resources. While the government has been funding some of the projects through budgetary allocations, these have hardly been sufficient. To overcome this deficit, the Nigerian government recently approved a new project financing model for TCN. The government has selected the contractor finance model through which private investors will be invited to bid, procure and build sections of TCN’s transmission projects. The government is expected to auction projects worth USD200 million for the first tranche under this new model. Private contractors or investors can fund TCN projects and TCN will be allowed to repay them over time from its revenues. This is one of the ways in which the government plans to set TCN on a strong financial path. It is also expected to free the government from supporting TCN through budgetary allocations, which are hardly sufficient for the company’s transmission plans.


In addition, the distribution companies, which are accused of inefficiency in the market, would also be covered by the PSRP as it would push to see them improve their performance through balanced incentives. These incentives would involve thought-out metering programmes, upgrade of distribution and transmission interface, restructuring and recapitalisation of distribution companies’ financial frameworks, and implementation of credible business continuity models, to aggressively drive down their aggregate technical commercial and collection (ATC&C) loss figures.


Network expansion plans

To make electricity supply less vulnerable to disruptions, and more affordable, available and reliable, the Federal Government of Nigeria has set targets for the country’s energy mix to exploit Nigeria’s potential for coal, solar, wind, biomass, and large and small hydroelectric power generation. The country’s average generation capabability is expected to reach 10,325 MWh/h by 2019 and 30,000 MWh/h by 2030. Thermal-based capacity will account for more than three-fourths of the total installed capacity by 2020. The majority of the upcoming generation plants are expected to be operated by the private sector.


The Nigerian government is set to release an additional NGN701 billion intervention fund to the NBET. With this the government plans to embark on a broader restructuring of the electricity sector to achieve a more systematic development of the power market, especially for renewable energy. In addition, the NBET has released the first tranche of about NGN12 billion to 10 generating companies from the intervention fund.


The Nigerian government has drafted a transmission plan to increase the country’s wheeling capacity from 5,300 MW in 2016 to 7,200 MW by 2017 and finally to 20,000 MW by 2022. The country presently has approximately 127 ongoing capital projects. Of these, 22 are critical and targeted for completion in 2017. To achieve its ambitious transmission plan, TCN requires a massive infusion of capital, which neither the Nigerian government can provide, nor the domestic banks can raise for an already debt-laden company. In line with this, the country in the recent past has secured and is seeking concessionary loan deals with multilateral lending institutions.


In November 2017, TCN secured a grant of USD406 million from the World Bank to undertake the expansion of the Geregu, Port Harcourt, Umuahia, Kumbotso and Gombe substations, and the installation of a supervisory control and data acquisition system (SCADA). In addition, it has sought a USD200 million loan from the African Development Bank (AfDB) to boost electricity in the northeast region of Nigeria.


Earlier, in August 2017, TCN received more than USD1.55 billion from the World Bank, AfDB, Islamic Development Bank (IsDB), Japan International Cooperation Agency (JICA) and the European Union (EU) in order to revive stalled projects and expand its electrical grid.


 In addition, state-owned NDPHC has announced plans to invest USD1.5 billion to improve the transmission network in Nigeria. The move is in line with the company’s investment in other relevant sectors, which include several transmission, distribution and gas projects to bridge the infrastructure gap in the sector.


Off-grid solutions such as pay-as-you-go (PAYG) solar systems are emerging as an important source of access to electricity in the rural areas of Nigeria. The country is shifting its focus to off-grid solar-powered kits, consisting of a single rooftop solar panel and a suitcase-sized battery. These are being used to electrify rural homes, power small appliances, mobile phones and fans, using the nation's abundant solar energy. Netherlands-based Lumos has sold 30,000 kits in rural Nigeria, and aims to sell as many as over 10 million PAYG sets in the next five years, at an estimated cost of USD2 billion.


Table 1: Key projects under implementation in Nigeria


Voltage (kV

Length (km)

Scheduled completion

765 kV transmission supergrid project



After 2020

Ajaokuta–Abuja–Kano line



After 2017

Benin North–Oshogbo–Olorunsogo line



After 2017

Egbema–Benin North line



After 2017

Mambilla–Jalingo–Gombe line



After 2017

Mambilla–Makurdi–Ajaokuta–Benin North line



After 2017

North-core transmission interconnection [Birnin Kebbi (Nigeria)–Malanville (Benin)–Niamey (Niger)–Ouagadougou (Burkina Faso)]




Nigeria–Benin interconnection reinforcement project




Note: NA – not available
Source: Global Transmission Research


Going forward

Nigeria is well endowed with both renewable and non-renewable energy resources, and hence has the means to address existing power shortages and promote the drive to increase current installed capacity significantly by 2030 and beyond. The country’s focus going forward should be on the next phase of expansion, which would include diversifying the energy mix, addressing tariff issues and developing off-grid energy, as well as securing the investments needed for the expansion and rehabilitation of the transmission and distribution networks.