The privatisation exercise (in 2013) resulted in an influx of private sector participants, with over 29 operational power plants licensed by the National Electricity Regulatory Commission (NERC) as of 31 December 2021. However, electricity supply from the national grid remains inadequate as unmet demand is estimated at approximately 20,000 megawatts (MW). This supply gap is anticipated to worsen in the medium to long term due to significant population and economic growth, as well as growing industrialisation.
Nevertheless, in recent times, we have witnessed increased government efforts to improve the Nigerian power industry amidst lingering challenges. Specifically, we observe the widespread adoption of the newly-introduced Service Reflective Tariffs (SRT), which reflect and correspond to the quality of service experienced by end-users. While the SRT has increased electricity bills for end-users, the policy has enabled the government to eliminate industry subsidies, which we view positively.
With the implementation of the SRT regulation, which has begun to provide much-needed liquidity to market participants to bridge revenue shortfalls, the industry’s financial health in 2021 (particularly for generation companies) was acceptable, characterised by adequate profitability and moderate leverage metrics. In particular, the revenue of our sample GenCos grew by 14% to ₦498 billion in 2021, as a few operators scaled up electricity generation. We expect the Industry’s performance to continue to improve with the effective implementation of NERC rules. In addition, we anticipate the consolidation of all power sector legislation into a single electricity statute outlining the responsibilities of various operators. This, in our opinion, will help stakeholders comply with the law more quickly.
The Presidential Power Initiative (PPI), which is intended to provide an additional 25,000 MW of operational capacity to the national grid, is anticipated to provide significant benefit to the Industry in the near term. We anticipate that the upgrade and expansion of the transmission and distribution infrastructure will result in a nearly sevenfold increase in the supply of power and a decrease in the demand for generators. However, our expectations for this project remain constrained due to the current Russian-Ukrainian war, which is having a detrimental impact on the import of replacement components.
As the industry stabilises in the transitional electricity market (TEM) and begins its transition to the medium-term market, we anticipate that more independent power plants (IPPs) will enter the market, therefore bolstering the industry’s generation capacity. This will result in an increase in Nigeria’s energy consumption per capita of approximately 130KWH, bringing it in line with the averages of comparable emerging markets
