February 25, 2024

GENCOs lose N12 billion over non-payment for unused power in December



Industry data obtained from the power generation companies, GENCOs, in Nigeria incurred losses of about N12.80 billion in December as a result of non-payment for deemed capacity.

The term, deemed capacity simply means the electricity generated and ready for distribution or capacity that should have been delivered by the GENCO, but was rejected on the instructions of system operator’s to reduce same to achieve grid balance and stability.

By implication, the GENCOs incurred this losses in the process of generating the electricity in question but could not sale it and since electricity is not a product that can be kept on the shelf the cost is borne by them even when it’s not their fault.

According to the 2021 Generation Capacity Loss Data, GENCOs payment loss rose to N12.80 billion in December 2021, against N10.08 billion recorded in the corresponding month of 2020.

Also, available generation capacity for December stood at 6,515.35 megawatts against 6, 221.40 in 2020, while the average generation capacity dropped to 4, 334.40 mw from 4, 504.35 mw.

The report further revealed that about 2,248.50mw of the GENCOs’ generation capacity are currently stranded, compared to 3,742.43mw in 2020.

Meanwhile, the development has denied the nation of substantial power which could have been utilised to boost economic and other activities sector-wide.

It has also constrained GENCOs from generating revenue from their unutilised power over the years, especially as data showed that although available generation capacity exceeded 5,000mw, it has not resulted in 100 per cent invoice settlement.

According to one of the reports, “The current situation in the Nigeria Electricity Supply Industry, NESI, represents an absurdity of sorts, all the legacy and National Integrated Power Projects, NIPP, power plants are operating with quasi Power Purchase Agreements, PPAs, which clearly presents a scary situation for any investor, as no guarantee of any sort is in place to assure any form of return on investments.

“GENCOs investors are exposed to the vagaries of an investment climate bereft of a private-sector friendly regulatory environment. Left to look to robust assurances from multilaterals, export credit agencies, ECAs, development finance institutions, DFIs, and insurers to mitigate these risks, either through guarantee instruments, political risk insurance, or the ‘halo’ effect that multilateral entities like MIGA provide.

“The implication is that project lenders price these risks in their interest rate margins and carefully scrutinise the project for weaknesses that may allow the relevant authorities to backtrack on their commitments, a major risk (lack of sanctity of contract). Power remains a national problem, as over 40 per cent of the GENCOs available capacity is not being enjoyed by consumers due to constraints.”

However, due to system constraints, the generated power is rejected or forced to be reduced to match the infrastructure that transmits and distributes this power to the customer.

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