• Decry N6.2tn debt, neglect of capacity payments
•Say only 35% of invoiced amounts settled in recent years
Emmanuel Addeh in Abuja
Nigeria’s power generation companies have attributed the country’s persistently low electricity output averaging about 4,000 megawatts from an installed capacity of 15,500MW, to deep-rooted regulatory distortions and operational constraints within the electricity market.
The 4,000MW average generation represents roughly 25.8 per cent utilisation of the total installed grid capacity, a figure the generation companies described as an anomaly for a country of Nigeria’s size and energy needs.
In a detailed clarification issued in Abuja, the Association of Power Generation Companies (APGC), the umbrella body of the Gencos, said misconceptions surrounding capacity payments, Power Purchase Agreements (PPAs), and market design have obscured the real reasons behind what it termed ‘stranded and underutilised’ capacity in the sector.
Signed by its Chief Executive Officer, Dr. Joy Ogaji, the association said the Nigerian Electricity Supply Industry (NESI) was structured as a contract-based market, but critical elements of those contracts are either being ignored or applied selectively, thereby transferring disproportionate risks to Gencos.
Under standard electricity market arrangements globally, the Gencos argued that generators are compensated not only for the energy actually dispatched and consumed but also for the capacity they make available to the grid. This, they said, ensures that plants recover fixed costs incurred in maintaining readiness to generate power.
However, the Gencos argued that in Nigeria, capacity made available is no longer fully recognised within the commercial framework. Instead, they explained that only “called-up” capacity, the portion of electricity the transmission network can wheel and the distribution companies can take, is being settled.
According to the association, this practice has disincentivised investment in recovering mechanically unavailable capacity, estimated at about 7,000MW of the 15,500MW installed base. With no assurance of being paid for available capacity, Gencos contended that there is little commercial justification for committing fresh capital to plant rehabilitation.
“From the foregoing, the legacy Gencos and the NIPP plants in the market have been operating without adequate sector risk protection, hence exposed to various operational and regulatory risks.
“This singular reason has kept the sector at about 4,000 MW of average grid generation, for many years, notwithstanding an installed capacity of 15,500MW. This is a clear anomaly in the market, and Gencos, for the record, have kept the records of such losses to date, as a regulatory risk,” the APGC explained.
The group pointed out that electricity, unlike other commodities, cannot be stored at generation plants. Once produced, it is metered and transmitted instantaneously for consumption. As such, it stated that generation planning depends heavily on system instructions and contractual guarantees embedded in PPAs.
Under existing rules, APGC argued that Gencos declare their available capacity daily in line with their Net Dependable Capacity (NDC), which forms the basis for allocation by the System Operator (SO) to distribution companies. But the association said that even when plants are ready to generate at declared levels, they are frequently instructed to ramp down to ensure grid stability.
In such circumstances, the Gencos argued that natural justice and contractual provisions require that they be paid for the declared available capacity, including the energy that would have been generated but for system constraints.
They maintained that fuel costs, labour expenses, operations and maintenance charges, and financing obligations are incurred upfront to keep plants operational, regardless of whether energy is eventually dispatched.
The association further decried what it described as a troubling scenario in which only a handful of active PPAs are recognised in the market. It warned that the absence or weak enforceability of PPAs makes it difficult to secure Gas Supply Agreements (GSAs), since gas suppliers require firm contractual backstops before committing volumes.
The group also decried the about N6.2 trillion owed Gencos in outstanding receivables. The debt, it said, does not even reflect their full contractual entitlements, given that only about 35 per cent of invoiced amounts have been settled in recent years.
Describing the liquidity crisis as severe, the association said persistent non-payment has rendered many Gencos technically insolvent, constraining their ability to maintain turbines, service loans, manage foreign exchange exposure, and expand capacity.
The Gencos also referenced the Multi-Year Tariff Order (MYTO), Nigeria’s incentive-based regulatory framework, arguing that the current settlement practice negates its core objective of cost recovery and performance-based regulation. By short-changing generators while shielding inefficiencies downstream, the market design, they said, has made poor performance contagious across the value chain.
On allegations that its debts are inflated, the association insisted that invoice verification processes are rigorous and transparent. Metered data, it said, is obtained from tariff meters and cross-checked by market and system operators before preliminary and final settlement statements are issued. Allegations of inflated invoicing, it maintained, are unfounded within the tightly monitored framework.
Ultimately, the Gencos argued that Nigeria’s electricity growth cannot be achieved without restoring contract sanctity and properly incentivising available capacity. In critically underserved markets, they noted, available generation capability should broadly align with average generation.
“Unfortunately, Gencos’ increased capacity has not translated to a corresponding increase in power supply to consumers. This has become a big challenge and an inhibitor to the NESI, defeating the effort of the Gencos in recovering unavailable capacities, considering the massive, fixed charges incurred to keep the Gencos machines and units running to make power available.
“It is international industry best practice in critically underserved countries that available generation capability should be equal to average generation (energy utilised). In Nigeria, available generation has met increased stranded capacity,” the Gencos emphasised.
