Future Electricity Outlook for Future Electricity Outlook for Lagos StateLagos State

byby

Prof. Adeola Adenikinju, Akande Abiola and Olayiwola Saheed

Centre for Petroleum, Energy Economics and Law

Out

lines

Out

lines

o Introductiono objectiveso Conceptual Issues o (State of Electricity consumption in Lagos)

oMethodologyo Electricity Projection (Demand and supply)and

o Investment Requirements

o Concluding Remarks

“As the bedrock of any development agenda, this administration has always considered the provision of stable power supply as being of the utmost priority. The provision of potable water, functional telecommunication services, uninterrupted information and communication services, security operations, traffic management, healthcare and education are all dependent on the availability of constant and stable electricity…the people of Lagos State have been deprived of one of the essentials of decent living;…for too long. This problem has its roots amongst other things in the lack of accurate data as to the actual power/energy requirements of the people of Lagos State.”

- Mr. Babatunde Raji Fashola (SAN)

Electricity and Economy of Lagos State

Energy plays a vital role in the economic, social and political Energy plays a vital role in the economic, social and political development of an nation. History of economic development development of an nation. History of economic development shows that there is a direct linkage between energy shows that there is a direct linkage between energy consumption and economic development process. consumption and economic development process.

A State that cannot control its energy sources cannot control its future development. Energy shortages could be a binding constraint on the economic development ambition of any nation. Adequate access to energy is crucial for the economic transformation of the any State. It is one of the fastest ways to cut rural poverty, boost productivity among women, and accelerate education and health outcomes, especially among the people living in rural and semi-urban centres. (UNDP,2005). Being the commercial and economic capital of Nigeria implies that Lagos State requires a lot of electricity to thrive.

Introduction

Being a hub of sort in Nigeria, as well as in the West-African sub-region, it is obvious that the economic activities in Lagos State would definitely keep driving energy (electricity) consumption upwards in the coming years. This is particularly with the desire for the State to propel Nigeria into becoming one of the BRICS (BRINCS) countries by 2020.

To achieve this, how much of electricity is required to meet the demand of the Mega city ? How will the gap be filled? What is the cost implication of the electricity? These are fundamental questions that need answers.

BRINCS = Brazil, Russia, India, Nigeria, China and South Africa. BRINCS countries are those countries that are considered as emerging economies in the global communities.

Introduction

Being a hub of sort in Nigeria, as well as in the West-African sub-region, it is obvious that the economic activities in Lagos State would definitely keep driving energy (electricity) consumption upwards in the coming years. This is particularly with the desire for the State to propel Nigeria into becoming one of the BRINCS countries by 2020.

To achieve this, how much of electricity is required to meet the demand of the Mega city ? How will the gap be filled? What is the cost implication of the electricity? These are fundamental questions that need answers.

BRINCS = Brazil, Russia, India, Nigeria, China and South Africa. BRINCS countries are those countries that are considered as emerging economies in the global communities.

Introduction

Objectives of the State Energy Policy…Objectives of the State Energy Policy…

The objective of this study is to examine the future electricity demand for Lagos State (capacity needed) and what is the cost implication.

Interface in the Energy Planning and Interface in the Energy Planning and ManagementManagement

Framework for Energy Planning and Management

INPUT SYSTEM EXPECTED OUTCOME

Energy Planning andManagement

ENDOGENOUSFACTORS

EXOGENOUSFACTORS

Environment

Capacity building

Bilateral Relations

Supply Side

EnergyUtilization

Oil & GasBiomass

Hydro

Solar

Wind

Policies

ObjectivesStrategies

Residential

Electricity

Transport

Agriculture

Commercial/Service

FINANCING

PPP

Other Renewables

Short-Medium-Longterm ProgramsInstitutional and

Regulatory Issues

Lagos State accounts for about 37% of the country’s urban population, tending towards becoming the 3rd largest Mega-City in the world by 2015 with an estimated population of 18 million growth at an annual rate of 5.2%

The State’s GDP is put at about US$34 billion, with per capita income of US$2,225 as against the national GDP of US$273.042 billion and a per capita income of US$1,657. Lagos State is the economic capital as well as the financial and commercial centre of Nigeria contributing about 32% of Nigeria’s Gross Domestic Product (GDP).Also, Lagos State is the nation’s lead contributor in the non – oil sector with 19% attainment, which is equal to the contribution of 31 Nigerian States.

Naturally, it follows that the State will dominate energy utilization to meet up this high profile status it holds in the country.

The economy of the state is divided into four key categories to record energy utilization patternThese sectors are: Industry, Transport, Commercial/Service, Residential and Agriculture.

Conceptual Issues

Electricity is the most important energy type for socio-economic growth. There are documented evidences of crisis situation in the industrial sector where electricity is in short supply.

Lagos State socio-economic growth and industrial development will be seriously constrained in the absence of adequate electricity supply.

The state currently consumes roughly 50% of all electricity produced within Nigeria, yet with inadequate per capita consumption, in absolute and relative terms to other similar cities.

About 116 years ago (1896), Lagos was consuming an average of 60 MW of electricity.

Today, Lagos needs a minimum of 10,000 MW of electricity to power both domestic and industrial power needs. (Adenikinju,2012)

Current national supply is about 4,500 MW, meaning Lagos gets about 2250 MW only

Lagos State is presently the only state in Nigeria whose electricity supply need is met through two distribution companies, namely Ikeja and Eko DISCOS respectively, underscoring her consumption level.

Conceptual Issues….

Lagos State Energy Demand Profile…Lagos State Energy Demand Profile…

Year Electricity Petroleum Products Total

Petrol (PMS)

Diesel (AGO)

Kerosene (HHK)

Liquefied Petroleum Gas (LPG)

2009 10.64 149.80 59.78 48.07 2.10 270.392010 14.55 218.15 66.42 51.68 3.60 354.42011 14.12 239.97 70.94 77.52 5.10 407.65

Year Sector Energy Consumption PJ Total Annual % Growth

Agriculture Industry Transportation Commercial Residential

2009 1.35 132.49 79.77 1.89 54.89 270.392010 1.77 173.66 104.55 2.48 71.94 354.40 31%2011 2.04 199.75 120.26 2.85 82.75 407.65 15%

 Distribution Company

2009 2010 2011

Eko 877,543,943.1 1,200,128,992 1,165,177,109Ikeja 2,077,149,468 2,840,709,364 2,757,978,140Total 2,954,693,411 4,040,838,356 3,923,155,249

Total Energy Demand (PJ) by Energy Source in Lagos State Economy 2009 - 2011

Electricity consumption pattern for Lagos State Electricity consumption pattern for Lagos State (kWh)(kWh)

Energy Demand (PJ) by Sector in Lagos State Economy: 2009 – 2011(without fuelwood)

25 Years Quantitative Targets…25 Years Quantitative Targets…

Source of Electricity Generation (% Contribution) 2011 2020 2037

Hydro 14% 15% 15%

Gas 55% 65% 70%

Renewables 1% 5% 10%Auto generation 30% 15% 5%

Percentage Contribution of Energy Mix

MethodologyThe bottom up approach is employed in the projection of the demand and supply for electricity in Lagos.

The approach was based on some assumptions. The assumptions revolve around the population, economics growth and government goals which are identified as the driver of electricity in Lagos.

Table 1:Features of the assumptions made

Type of Scenarios

GDP Growth Rate 2011-2037

Targeted Electricity Access

by 2037

Commencement of Electric

powered Trains

Energy Intensity Share of Renewables in electricity

Generation by 2037

Low growth scenario

5% 80% 2022 Stable 10%

Reference Case(BAU)

6% 90% 2019 Varied 10%

High growth scenario

10% 95% 2017 Varied 10%

Green economy scenario

6% 90% 2019 Varied 20%

The projected electricity consumption for the State over the next 27 years for the Reference scenarios is depicted in Figure 6.2 Figure 6.2: Projected Electricity Demand for Lagos State

As at 2007, New York city was already consuming about 170,000GWh which is far more than what is expected of Lagos State by 2037.The values obtained are far less to what was obtained in most industrialized mega cities. - New York Energy Master Plan, 2009.

Methodology : Demand ProjectionMethodology : Demand Projection

The projected electricity consumption for the State over the next 27 years based on sectors using the Reference scenarios is depicted in Figure 7.2.

Methodology : Demand Projection …Methodology : Demand Projection …

  Low Growth Rate Case (Pessimistic) Business as Usual Case( Reference)

High Growth Rate Case(Optimistic)

Year Per capita Electricity (Kwh)

Per capita Income (US$)

Per capita Electricity (Kwh)

Per capita Income (US$)

Per capita Electricity (Kwh)

Per capita Income (US$)

2011 299.62 1543.42 299.62 1543.42 299.62 1543.422014 394.14 1588.37 403.92 1603.35 424.83 1826.262016 504.81 1619.06 521.1 1697.64 574.78 2043.06

2020 841.26 1698.53 987.91 1849.79 1188.62 2581.692025 1257.05 1828.77 1424.29 2088.29 1941.89 3501.562032 1805.58 2036.29 1987.92 2484.78 3346.79 5408.92

2037 2163.68 2198.79 2379.27 2813.29 4525.65 7370.6

Trends of per capita energy consumption and Per capita GDP

Source: Author’s computation

Projected Trend in Electricity Supply up to year 2037 using two approaches (MW)

Source: Author’s computationSource: Author’s computation

Figure 7.3 portrays the optimal fuel supply mix to meet the projected electricity supply. It is obvious that natural gas will dominate the optimal supply mix. Natural gas is expected to account for about 70%, hydro (15%), renewable (10%) and auto-generation (5%). This will result in efficient and more friendly environmentally energy mix. This is in line with the resource endowments of the State and supports the goals of the State administration in relation to the energy sector.

Figure 7.3 : Optimal Fuel Mix for meeting projected electricity supply

MethodologyMethodology

The variables considered in the investment profile are capital expenditure(CAPEX), operating expenditure(OPEX), fuel expenditure(FUELEX), transmission & distribution and Gas transportation costs. These costs vary with respect to the set objectives and GDP growth rate. Therefore, the reference scenario is considered.

Investment RequirementInvestment Requirement

Figure 9.3: Investment Structure for Lagos State

Investment Requirement…Investment Requirement…

Investment RequirementsInvestment Requirements

2011 2015 2020 2025 2030 2035

Electricity Demand

(GWh)

6156.35 10698.99 28614.06 48901.44 76606.74 108692.26

Total Capacity

Needed(MW)

1730 3006 8040 13741 21526 30542

Investment Cost ($m):

CAPEX

GAS Trans.

Elect T/D

FUELEX

OPEX

1,360

805

8

267

151

130

2,347

1319

9

190

444

385

3,254

1448

11

354

746

695

4,191

1525

22

342

1160

1143

6,090

2300

32

464

1610

1687

Electricity Demand, Capacity Needed and Required Investment Cost for Lagos State

Aiming at making Lagos State competitive amongst the world’s mega city, it is recommended that it pursues these five goals:

1. Promote a diverse portfolio of new, clean, in-State generation 2. Expand In-State Electricity Resources 3. Capitalize on emerging technologies for transportation and power production4. Maintain support for the renewable energy portfolio standard of 20% of total energy requirement from renewable sources by 20375. Promote Cost-Effective Conservation and Energy Efficiency Programmes

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