Transmission Company of Nigeria (TCN) is the Electricity System Operator (ESO) for the electricity transmission network in Nigeria. As such, it is responsible for the day-to-day operation of the system and, in addition to its system operator role, TCN is also the owner of the transmission system. A transmission service provider principally builds and maintain the high voltage and extrahigh voltage wires that criss-cross the length and breadth of the country to which are connected power generation plants, distribution networks and large consumers of electricity.
The system operator however is saddled with the secure operation and control of the entire power system including the transmission network. Effectively, TCN combines System Operator (SO) and Transmission Service Provider (TSP) roles in one licence as we have it today. The landscape of the Nigerian Electricity Supply Industry (NESI) is changing rapidly with the planned introduction of Service Reflective Tariffs (SRTs) as a precursor to Cost-Reflective Tariffs (CRTs).
To make this plan effective, there is a consequential need to separate the role of system operator and transmission system owner. In addition, the increasing connection of renewable electricity systems to the transmission system highlights the need for a more holistic and coordinated approach to planning and operating the transmission and distribution systems in Nigeria. Furthermore, the widening gap between demand and supply means there is a need for the system operator function to include the procurement of ancillary services. These developments mean we need to carefully consider the governance framework for the operation of TCN as the ESO to ensure that there is sufficient focus on its important role and to address any actual or perceived conflicts of interest between its function as a Transmission Service Provider (TSP) and a System Operator (SO). It can be argued that the system operator role of TCN has never been well conducted largely because of been apart of TCN. As a matter of fact, its market operator (MO) function has been excised by the presence of the Nigerian Bulk Electricity Trader (NBET) in the NESI. NBET is an aberration and should, at best, never have existed, because there was bound to be no market in a power system like the NESI.
As part of the electricity market reform being proposed by the Nigerian Electricity Regulatory Commission (NERC), the SO role in the NESI will bear a different level of importance. The core function will not change but the structure has to change to deliver a more competitive electricity market. For example, the SO will have to take on enhanced roles to identify the need for investment in the transmission network, and coordinate and develop investment options. In July 2020, the Federal Government, through NERC, called for greater independence of the system operator to allow it to take on these enhanced roles. NERC sought the views of stakeholders in considering how the SO can be reformed to make it more flexible and independent.
The consultation document titled: “Towards Greater Independence for the Electricity System Operator” seeks to commence the process to unbundle the Transmission Company of Nigeria (TCN) into the Transmission Service Provider (TSP) and an Independent System Operator (ISO). To be frank, this move is in line with the electric power sector reform Act (EPSRA) 2005 which clearly identifies the roles of TSP and SO as distinct and separated regulated activities which may be performed by two independent successor companies. In the document released for consultation, NERC is seeking advice: (i) on the readiness of the electricity industry for the unbundling of the SO function to an independent system operator taking into consideration the stage of market development and the key technical prerequisites for an efficient ISO; (ii) to recommend the degree of independence that may currently be granted to the system operator without causing disruptions in market stability; (iii) where the unbundling of the ISO function is considered appropriate, to recommend a possible ownership model and governance structure; and (iv) where the unbundling of the ISO function is considered premature, propose possible conditions precedent and timelines for a transition.
Anticipating this stage of the developed electricity market, section 66 of the EPSRA enumerates the functions of the SO to include but not limited to generation scheduling, commitment and dispatch, transmission scheduling and generation outage coordination, transmission congestion management, international transmission coordination, procurementand scheduling of ancillary services, long-term planning of the system capacity, administration of the wholesale electricity market including settlement payments inaccordance with the market rules. The functions of the SO can already be performed without unbundling the TCN. However, the SO has not been able to carry out all these functions and it has to be stated clearly that unbundling will not suddenly make the SO to perform them without a new set of rules, regulatory interventions in the form of rewards, penalties and incentives, along with a radical change in governance structure, culture, and staff development.
There is also the need for the availability of Supervisory, Control, and Data Acquisition (SCADA) and Communication systems. What is required is simply to comply fully with the existing Grid Code and Market Rules. Rather than unbundling TCN, it is cheaper and far easier to allow the SO to be a part of TCN as aseparate legal entity with a distinct licence in a way that guarantees its independence and the non-discriminatory performance of its role in the NESI. Unbundling of TCN into TSP and ISO (where ISO = SO + MO) can be a good development if we know exactly why we are doing it. Recall that the privatization exercise was done in 2013 and we are still struggling with it. Some have even asked for a review of the process and a possible cancellation. It is whether or not the conditions precedent have been met to carry out the unbundling and whether the timing is right. It is not enough to copy other privatized electricity markets in what they have done or what they want to do, but to ask ourselves whether we are actually ready for it or not. Whether we unbundle TCN or not, we will not have “power” until the aggregate technical, commercial and collection (ATC&C) losses on the power networks are drastically reduced and consumers are metered.
The illiquidity in the power sector is mind boggling. If unbundling of TCN will make the ISO carry out its functions as enshrined in the EPSRA, this will be a welcome development. As of today, the SO and TSP licences are bundled in the licence given to TCN and there are concerns from other market participants that with the planned movement to Service Reflective Tariffs, there can be no guarantee of the neutrality and transparency of the SO if it is still part of TCN. Surely, there will be significant conflicts of interest on matters that affect the TSP. Some of the key areas of separation to be looked at will include but not limited to governance, ownership, licence, shared services, branding and culture, human resources, physical separation, possible separation costs to mention but a few. These are more will be considered in subsequent articles as we move into an unprecedented times in the history of the development of the NESI.
Contributor: Engr Idowu Oyebanjo, CEO of Idfon Power Engineering Consultants (iPEC) Limited