GenCos jittery as NERC restricts power export to six per cent 

• Stranded electricity may worsen amid weakening plants 

The restriction of electricity export to neighbouring African countries may defeat attempts being made by the Economic Community of West African States (ECOWAS) to implement the West African Power Pool (WAPP) and Nigeria’s drive to increase foreign exchange (FX) earnings. 

NERC blamed the reasons for the crisis on aging infrastructure and gas-related problems, noting that the plant availability factor remained sacrosanct to energy security. 

Niger, Togo, Burkina Faso and Benin Republic made zero remittances of the $14.19 million invoice issued to them by the market operator (MO) for the electricity supplied in the first quarter of 2024.
 
While GenCos did not specify the extent to which the restriction would affect their financial performance, Executive Secretary of APGC, Dr Joy Ogaji, said the move, while addressing domestic supply concerns, raises financial limitations for GenCos due to reduced foreign exchange earnings from WAPP power sales. 
Ogaji noted that the potential breach of the contracts with international customers due to the six per cent cap could lead to penalties and reputational damage for GenCos. 

According to her, GenCos are exploring renegotiation options and alternative strategies to minimize disruptions for WAPP countries, but specific contractual terms regarding power supply volume, as outlined in the agreements with Togo, Benin and Niger, make fulfilling the obligations challenging while adhering to the new restriction.

“The restriction directly limits the amount of power GenCos can sell to Togo, Benin and Niger. This translates to a decrease in revenue earned in foreign currency, thereby reducing overall Forex inflow into Nigeria,” she said.

Ogaji said if the decrease in foreign exchange earnings from power sales is significant, it could affect the supply and demand for foreign currency in Nigeria, adding that the development could lead to a depreciation of the Nigerian Naira compared to other currencies.
 
GenCos stressed that while the restriction aims to stabilise the grid and ensure equitable distribution, it may also lead to underutilisation of generation capacity if the domestic market cannot absorb the excess power, adding that it may affect future investments and expansion plans.

The companies asked NERC and the government to be more transparent in their decision-making processes and provide clear justifications for the six per cent restriction.

They noted that a stable and predictable regulatory environment is crucial for attracting investment as such NERC must avoid prevailing uncertainty as stakeholders require a long-term plan for addressing domestic electricity needs without jeopardizing existing contractual obligations.

They equally called on the regulator to take steps to strengthen the sanctity of contracts in the sector, especially ensuring effective enforcement mechanisms and demonstrating a commitment to upholding contractual agreements.