Nigeria considers coal to ease power shortage

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An agreement to invest in coal-fired power generation could be a positive move for broadening Nigeria’s energy mix and strengthening formal grid supply, which lags well behind demand.

On August 19, Nigeria’s federal Ministry of Mines and Steel Development signed a $3.7bn memorandum of understanding (MoU) with a Nigerian-Chinese consortium, HTG-Pacific Energy, which is set to lead to the development of a coal-fired power plant in Enugu state, in south-eastern Nigeria. The plant is expected to be operational in the next four years, and will use coal from the nearby Ezinmo coal block, which straddles the border of Enugu and Benue state. Eventual generation capacity is projected to be 1000-1200 MW, a sizable increase when compared with the country’s current production of less than 3000 MW.

Pacific Energy chairman Adedeji Adeleke told the press the project would be almost entirely funded by foreign institutions. Adeleke added that, following the MoU, which covers the mining concessions needed for the plant’s inputs, the company would continue working to confirm estimated reserves, which may be able to power the new plant for up to 50 years. Exploration is expected to start imminently.

The investment will come in two stages: the first developing the coal mine and the second constructing the power plant.

Obtaining a suitable power-purchasing agreement (PPA) from the national grid, which will ensure that the project is profitable, may be a challenge, Adeleke said. Once the PPA is secured, the consortium can push ahead with construction of the power plant.

Although Nigeria has sizable oil and gas reserves, it has not yet leveraged them for electricity production and, given the urgent need to improve electrification, alternative sources such as coal have attracted increasing attention. President Goodluck Jonathan stated that Nigeria could generate up to 30% of its energy requirements from coal.

Jonathan noted that the country has substantial coal reserves of suitable quality for power generation, and that Nigeria could develop its coal-driven energy sector using environmentally friendly technology. He said the MoU was a sign of enhanced coordination between the Ministry of Mines and Steel Development and the Ministry of Power, which the government hopes will smooth the path for greater investments in coal mining and coal-fired power to help meet Nigeria’s large and growing electricity needs.

“We expect the cooperation to continue until we get the desired destination in terms of our power needs,” the president said.

Coal could provide an important contribution to power capacity at a time when demand is growing and generation remains woefully low – and even declining.

Average power generation in August 2013 fell to 2628 MW, well below the 3000 MW of the previous month and the 4518 MW peak in December 2012, and just over a quarter of the target of 10,000 MW for end-2013, the local press reported. Disruptions to gas supply are one issue behind the dip, but security threats and a lack of political will to execute plans to boost capacity have also been blamed.

With estimates suggesting that peak demand will hit 12,800 MW by the end of the year, much of the shortfall is being met by “self-generation” costing up to N2trn ($10bn) annually. Indeed, the peak demand figure likely underestimates the underlying demand, given the large share of consumers who rely on diesel generators.

The 10,000-MW target is unlikely to be met this year, given the investments in generation and distribution (as well as securing and enhancing existing supply) that need to be made to achieve it. There are also only a few months before the end of the year.

The ongoing privatisation of much of Nigeria’s generation and distribution capacity, formerly operated by the Power Holding Company of Nigeria, could help, although the preferred bidders only recently took full possession of these assets. It will take time for the shift in ownership to have an effect, and no major improvements to the electricity supply are expected to be felt this year.

Given rising demand, driven by population growth and the expansion of industry, Nigeria has been slow to ensure that its power supply keeps pace. The new coal development is promising in that it should both boost generation and broaden the energy mix, potentially freeing oil and gas for export and use in value-added industry. However, with a long lead time for the project, these positive developments will not happen quickly.

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