To produce goods and services, transform raw materials into finished goods, as well as move goods and people, economic activity needs energy. One of the production inputs that determine the economic growth is the availability of energy.
The power sector is important to the economy primarily because it makes energy readily available in a variety of forms, in addition to its contribution to Gross Domestic Product.
Economic growth is closely related to the use of electricity. One of the main forces behind the nation’s overall development is electricity. A number of earlier studies revealed a strong correlation between a country’s economic development and its access to electricity.
Today’s energy sources include fossil fuels, biofuels, nuclear fuels, wind and solar radiation.
All three of the main production sectors — agriculture, industry and services — benefit from increased productivity powered by electricity. It raises the standard of healthcare, education and information access.
Supply and cost
According to a recent National Bureau of Statistics report on electricity, the total number of consumers was 10.63 million in Q1 2022 and 10.81 million in Q2, representing 1.67 per cent increase quarter-on-quarter. On a year-on-year basis, figure in Q1 2022 declined by 1.36 per cent from Q1 2021 (10.78 million), and also fell in Q2 2022 by 2.27 per cent from Q2 2021 (11.06 million).
Metered customers stood at 4.79 million in Q1 2022 and 4.96 million in Q2 2022, indicating a 3.53 per cent increase on a quarter-on-quarter basis. However, on a year-on-year basis, there were growth rates of 10.71 per cent and 9.54 per cent in Q1 and Q2 2022 respectively, when compared to 4.33 million recorded in Q1 2021 and 4.53 million in Q2 2021.
But customers on estimated billing stood at 5.84 million in Q1 2022 and 5.85 million in Q2 2022, showing an increase of 0.14 per cent on a quarter-on-quarter basis. On a year-on-year basis, estimated bills declined by 9.45 per cent in Q1 2022, and 10.45 per cent in Q2 2022 when compared to 6.45 million in Q1 2021 and 6.53 million in Q2 2021.
Electricity supply in Q1 2022 stood at 5,956 (Gigawatts/hour) and 5,227 (Gwh) in Q2 2022, showing a decline of 12.23 per cent on a quarter-on-quarter basis. But on a year-on-year basis, electricity supply declined from 6,172.19GW and 5,882.57GW reported in Q1 2021 and Q2 2021 respectively.
Power, revenue generation
Revenue generation by the Distribution Companies stood at N204.74bn in Q1 2022 and N188.41bn in Q2. This shows a fall on a quarter-on-quarter basis by 7.97 per cent. On a year-on-year basis, revenue collection rose by 11.42 per cent and 1.71 per cent respectively from N183.74bn Q1 2021 and N185.24bn in Q2 2021.
Regulation
The Nigeria Electricity Regulatory Commission says the Federal Government has fully divested its interest in the six Generation Companies, and sold 60 per cent of its shares in the 11 DisCos to private operators. The Transmission Company of Nigeria is still owned by the government. Afam Power Plc, Sapele Power Plc, Egbin Power Plc, Ugheli Power Plc, Kainji Power Plant, Jebba Power Plant and Shiroro Power Plc are the GenCos formed as a result of the unbundling of Power Holding Company of Nigeria. Three of the seven are completely sold, one is 51 per cent sold, and the others are on a long-term concession plan.
Despite that the NERC targeted 40,000 Megawatts of generating capacity by 2020 and needed to spend approximately $10bn per year on the power sector for 10 years to achieve this, in the post-privatised power sector, the Nigerian Bulk Electricity Trading Plc purchases power from GenCos and independent power plants at agreed prices stated in Power Purchase Agreements and resells to DisCos, who deliver the power to the end consumer.
According to a study, every one per cent increase in power outage (in terms of hours) was associated with a 2.86 per cent decrease in GDP. “This translates to a loss of about $28bn in GDP,” according to the study.
Impact of electricity on business
Businesses all over the world are very concerned about infrastructure (or a lack thereof). In particular, high tariffs and unreliable electricity supply are barriers to entrepreneurship. Business owners ranked the availability of electricity services as the fourth-biggest barrier to their commercial activities in the 2018 World Bank Enterprise Survey, which included 139 economies. Complicated connection procedures can make getting a new electricity connection difficult. Once connected to the grid, businesses may experience blackouts that limit production or force them to use generator, which is not cheap, for self-supply.
The connection process is governed by numerous laws and regulations covering quality of service, general safety, technical standards, procurement practices and internal installations. The process also involves various entities, including utilities, municipalities, testing agencies, regulatory agencies and safety agencies. While the speed of the connection processing —as determined by the steps, time and cost to obtain a new connection — is significant for businesses, it only accounts for a small portion of the performance of the power sector as a whole.
Power outages have a significant negative impact on businesses and the economy as a whole, affecting everyone from small households to large industrial plants. World Bank Enterprise Survey has it that businesses in Chad reported a value loss of 9.8 per cent of total sales as a result of power outages in 2018. Studies have also shown that inadequate electricity supply has a negative impact on productivity and investment capacity.
Additional research has it that capital (both domestic and foreign) tends to flow to nations that can provide dependable electricity that is reasonably priced. Given these difficulties, it is essential to ensure that the electricity supply is reliable and that tariffs are transparent to mitigate the negative effect of prolonged and frequent power outages, as well as make electricity more affordable.
Most of the time, a long-term strategy involving significant capital investments in the power system is needed to mitigate the negative effect of unreliable power infrastructure. According to Doing Business research, there are numerous practical steps that governments can take to guarantee a more dependable electricity service, including: establishing minimum quality standards for service continuity; making timely investments in power system infrastructure; and purchasing automated systems to more quickly identify network faults and restore service.
Electricity services are among the most regulated sectors of the economy, and research has shown that the quality of regulatory institutions is related to sector performance. A study of 28 developing economies revealed that high quality regulatory governance is associated with higher per capita electricity generation.
Further, energy regulators play a variety of roles across economies, from overseeing the quality of electricity supply to establishing maximum thresholds for the duration and number of power outages to determining electricity tariffs for final consumers. In this regard, an independent energy regulatory agency may be required by governments to promote an efficient and dependable energy sector operation.
Need for transparency
Customers need transparency in electricity tariffs to plan their expenses, better understand the utility billing system, and contest charges when necessary.
Businesses require advance knowledge of changes in expenditure to effectively forecast overhead costs. In some countries, utilities must announce tariff changes for several billing cycles in advance. In others, the regulator assists in ensuring that tariffs are published through various media outlets and that adequate information is provided to customers, so that they can calculate their electricity costs.
