Power Sector Reform and the Nigerian Electricity Market

By The Market Operator

Outline

• Preamble• The Nigerian Electricity Market : definition and

Characterization• Development of the Nigerian Electricity

Market• Roles of the Market Operator• Measurement of Market Performance

The Preamble• The EPSR Act 2005 provides for restructuring of the NESI, creation of

NERC, development of Electricity Market for Nigeria, and for private sector participation in the electricity business

• Market designed to move from one stage to the next, with increasing competition and diversification of trading arrangement, as investments and private participation grow

• To ensure efficient and transparent electricity market, two special entities were created: the MO for commercial stability and the SO for technical stability of the Market

• The MO and SO initiated the 1st stage of the electricity market – the Pre-Transitional market in Jan. 2005, with the Distribution zones and Power Stations of PHCN as the participants, buying and selling electricity at Transfer Prices

The Nigerian Electricity Market• Consists of two parts – the Retail and the Wholesale Market

– The Retail Market:• Arrangement for the sale of electricity to the final consumers at the distribution voltage

levels • Governed by the Distribution Code and Retail Contracts (Consumer Tariffs & conditions

of supply) • Players are the Discos and the end-consumers

– The Wholesale Market:• Arrangement for bulk sale and purchase of electricity at the transmission voltages• Governed by the characterization of the Market, stage of its development and the

Trading Arrangement

• Market Operation is the wholesale purchase and sale of electricity between the generators and distributors, including the Eligible Customers, at the transmission and sub-transmission voltages.

• Market Operation includes the sale of Ancillary Services for the maintenance of grid stability and power quality

Characterisation of the Nigerian Electricity Market – three elements

• The Market structure– Refers to the physical system of the market

(generation, transmission, distribution) and the concentration of ownership

– Poor market structure poses the greatest threat to the health of power markets – incentive for reform

– Market structure has a decisive impact on market power and investments

• The more the participants, the more competition and investment inflow

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The Wholesale Market Structure for the Nigerian Electricity Industry

Special/ Bulk Trader

Interconnections(Imports)

The New IPPs

Sellers

Interconnections(exports)

Large Consumers (EC)

Distributors

Buyers

SystemOperator

Market Operator

The TSP

Govt. Owned Generators

Retailers

ISO

Characterisation of the Nigerian Electricity Market (cont’d)

• Market Architecture– Comprises the list of component sub-markets together with

their types.– Market’s architecture is a map of it’s component sub-

markets, eg• Day ahead energy and capacity market• Spot (or Balancing )market• Ancillary services market

– The market types for the Nigeria Electricity Market are• Bilateral• Vesting

– Architecture is specified before the Rules are written.

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Characterisation of the Nigerian Electricity Market (cont’d)

–The Market Rules• Define the limits of the rights, the roles and obligations

of all the Market Participants and the service providers , and the related interactions, in the Wholesale Electricity Market. The Rules are necessary so as

– To ensure discipline in energy trading – To ensure transparency in Market Administration– To guarantee no arbitrary decisions in the MO’s roles as the

Central Coordinator of the electricity Market– To protect the MO from being held responsible for bad

commercial results of the Power Market

Trading Arrangement

• Trading Arrangement is about the operational integration of Generation with Transmission and Distribution, as well as the commercial arrangements for Market Participants to pay each other

• It sets out the relationships and the day-to-day responsibilities of the Participants and those of the service providers in the Electricity Market

• Trading Arrangement gets more and more sophisticated as the Market grows from stage to stage

• Market Operation is the operationalization of the Trading Arrangement

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Disco 1

Existing IPPs

MARKET OPERATOR

Disco 2 Disco 3 Disco 11

Transitional Market Trading Arrangement - CM

National Uniform Tariffs – with cross subsidies?

Vesting Contracts

New IPPs/EmbeddedGenerators

Bilateral Contractswith Discos

Genco 1 Genco 2 Genco 5 Genco 6

GenCos – Successor Generation CompaniesNewIPPs

PPA

Bilateral Contractwith SpecialTrader

Vesting / BilateralContracts

MARKETCLEARINGACCOUNT

Discos – Successor Distribution Companies

Tender

Special/Bulk Trader (SPE)

As the Gencos get privatised, they join the new IPPs

Development of the Nigerian Electricity Market

• The Nigerian Electricity Market has been designed to develop in four stages, depending on– how much competition is introduced,– how much monopoly is retained and– how much private sector participation is achieved

in the market

Stages of development for the NEM

Stage 1 Stage 2 Stage 3 Stage 4

Monopoly Full Restricted Restricted Highly restricted

Private Sector participation

Absent Substantial Very substantial

Dominant

competitionAbsent Minimal Significant Elaborate

Stage 1 = Pre-transitionalStage 2 = TransitionalStage 3 = Medium TermStage 4 = Long Term

Market development is driven by private Sector Participation (in terms of investments and operation) and CompetitionThe NEM is still in stage 1, but the CPs for stage 2 are almost achieved

Roles of the Market Operator

• In line with the EPSR Act and the Market Rules, the roles of the Market Operator include– Implementing and Administering the Market Rules, and Drafting

and Implementing the Market Procedures• Administration of the Commercial Metering System; ensuring that each

trading point has adequate metering systems• Administration of the Market Settlement System• Administration of the Payment System and commercial arrangement of the

energy market, including Ancillary Services• Periodic reporting on the implementation of the Market Rules• Training of Participants on the Market Rules and Procedures and Trading

Arrangements• Supervising Participants’ compliance with and enforcing the Market Rules

and the Grid Code

Administration of the Commercial Metering System

• The Metering System includes– Trading point meters

– The wiring and other accessories

– Hardware and software for meter programming

– Communication system for remote data acquisition and validation

04/19/2023 15Distribution Companies 33/11KV

Identification and metering of the trading points

» 11/330KV

330 KV

330KV

330KV Lines 330/132KV 330KV Lines132KV

132/33/11KV

33KV 11KV

33KV 11KV132KV Eligible Customers

33KV Eligible customers

LEGENDEnergy Meters

Transformers

Generator

330KV Eligible customers

11KV Eligible customers

Generator System

Status of Trading Point Metering

• About 659 trading points identified in the Market– 45 G/T interface points for the generator trading– 563 T/D interface points for the distributor trading– 46 inter-disco boundary points for distributor trading– 5 points for international connections for export trading

• All are metered except 34 inter-disco boundary points – action is on to meter up these points

• A number of the meters will be replaced to ensure compliance with the requirements of the Transitional Market – process has commenced

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Meter Data Management (MDM)• Manual readings• Distributors:

– Read by representatives of Disco and SO– Formalised in signed reading, sent to MO– Problems: delays, inconsistencies, mistakes, cross feeders and shared

meters arrangements• Generators :

– Read and sent by SO to the MO• Formalised in signed reading

– Problems: Sales of generation is at injection point to the grid• Manual input and data validation using IT• Project to put all the meters on AMR and interface with the

settlement system, is on-going

Administration of the Settlement System

• Settlement: - the calculation of charges or payments in respect of market participants for energy delivered or received

• Settlement is driven by two factors – metered quantities from the meters, and wholesale or contract prices from the MYTO or contracts

• Settlement is communicated to the participants through the instrument of Settlement Statements, which specify rights or obligations of participants– May act as debit notes (invoices) or credit notes

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The Settlement Statements

• Genco Settlement Statement consists of credit notes; each genco must be paid for energy and capacity sent out, to enable it meet all it’s costs, including fuel costs and Regulatory Charges

• TCN (TSP) Settlement Statement consists of credit notes; it must be paid by discos for energy wheeled. TCN must pay for regulatory services, must provide for Ancillary services payments

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The Settlement Statements (cont’d)

• Disco Settlement Statements consist of invoices to pay for– Energy (KWh) received from the gencos, including the IPPs, at

the T/D interface points– Generated Capacity (KW) received from the gencos, including

the IPPs, at the interface points– Wheeling and system operations– Market administration – Market Regulatory Services

• Basic market principle:– In Settlement Statement, each payment to a Participant (credit) must have a

corresponding payment by other Participants (debit) to ensure a monthly zero balance – Market Equilibrium

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21

Monthly Market Settlement; Sharing generation

• Monthly for each Disco– Each Buyer is proportionally buying from each

Genco & IPP ( load allocations – Vesting contract quantities)

• Future: Balancing Market in Medium Term Market

Buyer

sellerseller

sellerseller

Market Collection & Payments

• Source of revenue for the Wholesale Electricity Market - Collection by the Discos from the end-consumers

• Obligations to be met from Market Revenues– Payments for energy and capacity generations,

including gas– Payments for wheeling and system operations– Payment of regulatory charges– Payments for market administration charges– etc

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Market Payment System

• Monthly payment by Discos to enable Gencos and others fund their cost, including cost of fuel– Month “m” transactions are settled and paid in month

“m+1”• Payment System:

– Transfers between Bank accounts• Non payments, delayed payments or under payments:

– PRG– Use of security deposit

Measurement of Market Performance

• The ISO Model

• It is in the System (S) that all the ATC&C Losses occur• The efficiency of operation in the system (S) determines the

%age of the input that can be converted into output • PIM is the grand performance indicator = O/I• It is dependent on the size of revenue collection in relation to

the volume of energy received into the System

Management ofMetering, Billing and collection

Input (I)

KWh

Output (O)

=N=

System (S)

Performance on the Grand Indicator (Jan. – Sept. 2011)

DISCO

Jan Feb. March April May

June July Aug. Sept.

ED PIM ED PIM ED PIM ED PIM ED PIM ED PIM ED PIM ED PIM ED PIM

Abj 187 6.99 192 6.86 175 8.2 208 5.75 211 6.59 220 6.02 180 7.24 193 7.59 210 7.56

Ben 244 4.74 269 4.36 231 5.44 236 4.57 240 4.99 214 5.77 231 5.16 247 5.59 234 6.08

Eko 128 10.5 170 8.75 152 11.1 203 8.6 228 8.23 164 9.61 129 10.8 134 12.4 217 9.89

Enu 202 5.38 215 5.32 202 6.11 194 5.64 215 5.37 177 6.55 189 6.21 194 6.64 188 7.04

Iba 181 7.88 229 6.37 200 8.55 242 6.94 263 6.09 214 7.18 178 8.98 211 9.23 236 8.34

Ikj 211 9.36 267 8.00 237 9.82 308 7.28 307 7.8 264 8.87 217 9.68 243 10.7 291 10.3

Jos 74 5.73 99 4.55 85 5.99 107 4.02 104 4.05 84 5.47 65 7.98 79 5.71 104 5.25

Kad 121 5.14 134 4.77 132 5.87 153 2.95 153 4.91 128 4.85 117 5.26 123 5.46 144 5.05

Kan 79 6.87 94 5.97 82 7.48 101 5.38 114 6.10 91 6.30 65 9.15 81 8.09 116 6.54

P-H 112 5.04 123 4.95 115 5.71 118 4.60 121 4.92 136 4.26 121 4.93 126 5.55 107 5.89

Yola 36 5.01 37 4.58 34 6.51 43 4.39 48 4.88 34 5.94 25 6.77 28 7.1 53 4.36

ED = Energy Delivered in GWh, PIM in N/KWh

Market Report for Sept. 2011• Total energy sent out by all the Generators, including the IPPs was

2,369.06GWh• Total energy received by all the distributors was 2,073.40GWh (91.5%

by the Discos, while 7.14% was exported )• Settlement Invoice to the Discos was N18.36bn, invoices for export

trade was 1.23bn• Total revenue expected to clear the Market, including Disco Opex and

Capex was N24.5bn• Actual revenue collected was N15.69bn (N14.33bn from the Discos,

while N1.36bn came from export)• Revenue gap in the month was N8.81bn. • The sum of N8.81bn was therefore required for the Market to achieve

equilibrium in Sept. 2011 – the result of substantial ATC&C losses

The End Thank you for listening

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