As Nigeria deals with the new realities of COVID-19 pandemic, it is crucial for industries to evaluate what the future will look like especially from an energy perspective. In this paper, I walk through the new realities in the power and energy sector, and what industrial clients can do to adapt.

1. Responding with a sustainable energy strategy for your business in 2020
Electricity in Nigeria: COVID-19
Update
May 2020

2. Overview
COVID-19 in Nigeria & it’s implications on the energy cost of
your business
● Nigeria’s Power Sector
● COVID-19 & the macro-economic effects on your electricity bill
● The Market players, tariffs considerations, and sector outcomes
● Recommendations: Possible energy strategies for your business

3. Nigeria’s On-grid Power Landscape
Only 23% of Nigeria’s installed generation capacity gets to the end-user
● Installed Generation Capacity:
12,552MW
● Transmission Capacity Supply:
8,100MW
● Capacity Distributed: 2,929MW

4. Power Generation Mix
Nigeria’s two main sources of power generation are thermal (80%) and
hydro (20%)
The energy gap is filled
with off-grid power
generation options such as:
● Diesel Generators
● Natural Gas
● Solar
Nigeria generates 12.5 GigaWatts of electricity for a population of
200 million inhabitants. Business owners lose productivity and bear
high energy cost from unstable energy supply.
“Reliance on diesel-
generator increases
operational cost spent on
energy supply by 3x the cost
of power from the grid” ~
Source: Chinedu Igbokwe,
kpakpakpa

5. Economic Stress in 2020
Currency Depreciation, COVID-19, and other complications
The Global economy is facing disruption due to the spread of COVID-19. African economies
will face a good amount of stress:
● Nigeria’s healthcare capacity is weak and cannot handle a spike in cases.
● COVID-19 containment measures, although very important, could reduce FDI inflow into
the country due to global trade and travel restrictions during the year.
● 18-year low in oil prices causing a depletion in oil revenue.
● Naira currency is stressed and could be depreciated further.
● Reduced Government’s policies and debt management will be a huge determinant of
market forces.

6. Power Sector Fragility
Federal budget contraction could force the Nigerian
government to cut subsidies to the power sector
The power industry, although privatized, still gets
government assistance.
Subsidies from the
government may be
stopped moving forward
due to revenue
constraints.
The FGN currently pays ~70% of the
generation companies bills

7. The Market Players
Misaligned market structure provides no incentives for DISCOs and
other investors to keep investing.
The power companies are not profitable and the sector remains unattractive for
investments. Here’s why:
● DISCOs have little incentive to improve performance under the current tariff level.
With direct payments from the customer, the DISCO takes the revenue to cover their
cost and remits the remaining to NBET.
● NBET (established as a temporary payment system until market stabilizes) pays the
GENCOs and TCN. Due to the 70% shortfall in revenue collected from the DISCOs,
FGN covers the difference so that NBET can pay the GENCOs and TCN.
● GENCOs and TCN remain operational as they collect payment from NBET.
● FGN has to continue to look for other revenue sources to subsidize the power
industry.
● The End-Users continue to pay subsidized tariffs that are not sufficient to make the
power industry profitable. Which, in turn, means, stagnated investments in the sector,
and a continuous trend of inadequate on-grid power supply.
“7 years into
privatization, The FGN
through the CBN has
provided over N1.5
Trillion to the power
sector. Essentially, what
COVID has shown us is
that the economy is
fragile so it must let
market forces rule. The
market needs to be
liberalized to allow
stable revenue
generation and more
investment”
~ Head of Governance,
Stellaris Power Solution

8. The Market Players
Enforceable policy by NERC will determine the orientation of the market
forces and can create a vibrant power sector
Nigeria Electricity Regulatory Commission
(NERC)
This is the sole regulatory body responsible for
managing the electricity sector. From setting
tariffs to providing licenses, NERC is the single
most important organization in the electricity
sector. With that said, they play a major role in
ensuring adequate tariff levels are set for
revenue generation.
“Willing Buyer, Willing Seller”: The policy by NERC that will allow eligible sellers (GenCos, IPPs,
DisCos) to sell electricity at a cost-reflective tariffs to customers (Industries & high income residential) that
can afford it, in turn - liberalizing the power market and encouraging stable electricity. For lower income
residential and rural communities, the REA’s rural electrification program can support power shortages with
mini-grids and solar home system.

9. Proposed Tariff structure
NERC backtracked twice on policy implementation: signaling to private
investors that they cannot rely on Nigeria on-grid-market
● NERC understands the need to adjust tariffs to allow influx of cash for DISCO’s to
invest in more infrastructure.
● The DISCO’s have a public image problem - they are an easy target whenever an
increased tariff is proposed.
● NERC and ministry of power’s political will so far has not been sufficient to follow
through with tariff increase in face of mass protest.
● NERC’s management board should be restructured to have a performance based
compensation.

10. NERC Different Scenarios
Two main policies to be implemented that will ease the friction in the
power sector: performance improvement and tariffs
If NERC can implement policy that makes the power sector driven by market forces.
The companies along the power supply chain will become self-sufficient, electricity from
the grid will become more stable, and your businesses energy cost will drastically
reduce - due to reduction on the reliance of diesel generators.
Here are the current two policies in plan to be implemented by NERC to liberalize the
market:
• 2019 MYTO Minor Review: Multi-Year-Tariff-Order set to update and set the
electricity prices from 2020 to 2024
• Performance improvement plan (PIP): Submission of Performance Improvement
Plans (“PIPs”) to the Commission. The PIPs outline each DISCO’s plan for
improvement of service to end-use customer.

11. Scenario 2019 MYTO Minor review goes in
effect
2019 MYTO Minor review delayed even
further
Performance
improvement
Plan Done
Ideal Scenario: As cost reflective tariff
would resolve the underlying issues
with power industry
DISCO Back Track: High probability that
the DISCO’s will back track on their PIP
or reduce their remittance to NBET,
forcing FGN to increase their annual
bailout to Genco’s
Performance
improvement
Plan Not
Done
NERC Back Track: High probability
that protests from public will push
NERC to back track on tariff change.
Keeping Status Quo: The industry stays
as is, poor power supply. This is the most
likely scenario.
NERC Different Scenarios
Two main policies: performance improvement and tariffs

12. Solutions for the business owner
How should you be thinking about energy solutions in your business
from now till the end of 2020?
Peak Load Recommendation Comment
>10 MVA Negotiate directly with your DISCO or a
GENCO under the willing buyer, willing seller
This only works if you are close
to a transmission line
1 - 10 MVA Look at natural gas as an option Either piped Natural Gas or
Virtual Gas Pipeline
<1MVA Hybridize your diesel power generation with
solar.
Reduce your diesel costs with a
solar power solution
As a business owner, keep track of the NERC policies in the mid to long-term. In the short-term, here are
some considerations to minimize your energy cost and remain competitive in the market. Each
recommendation depends on the energy load of your business.

13. Key Data Sources & Resources
The situation surrounding COVID-19 is dynamic and rapidly evolving, on a daily basis. Although we have taken great care prior to producing this presentation, it represents
Stellaris’ view at a particular point in time. This presentation is not intended to: (i) constitute medical or safety advice, nor be a substitute for the same; nor (ii) be seen as a formal
endorsement or recommendation of a particular response. As such you are advised to make your own assessment as to the appropriate course of action to take, using this
presentation as guidance. Please carefully consider local laws and guidance in your area, particularly the most recent advice issued by your local (and national) health
authorities, before making any decision.
Disclaimer
Resources
• Nigeria: Power Fact Sheet - USAID
• Overview of Nigeria Energy Sector - GET.invest
• Despite current realities, TCN projects 20,000MW electricity transmission capacity by 2023 - Vanguard
• Your diesel generator – what does it truly cost your business? - kpakpakpa Inc
• Power industry – misaligned incentives and challenges in Nigeria - kpakpakpa Inc
• NERC: Power sector recorded N1.7trn tariff shortfall in four years - The Cable
• NERC Establishes Situation Room in the Wake of the COVID-19 Pandemic - NERC
• The Nigerian Power Industry: Mapped Out - kpakpakpa Inc
• NERC Order On The Transition To Cost Reflective Tariffs In The Nigerian Electricity Supply Industry - NERC
• Increase in Electricity Tariffs in Nigeria – 2020 - kpakpakpa Inc
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14. Thank you for your
attention!
CONTACT US
Email: Sales@Stellaris-Power.com
Phone: +234 816 230 5915
Website: Stellaris-Power.com