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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.

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  • 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 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
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
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

The wholesale market structure for the nigerian electricity industry
The Wholesale three elements Market Structure for the Nigerian Electricity Industry





Govt. Owned





Special/ Bulk Trader

Large Consumers (EC)


The New IPPs







Characterisation of the nigerian electricity market cont d
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.

Characterisation of the nigerian electricity market cont d1
Characterisation (cont’d) 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 (cont’d)

  • 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

Power sector reform and the nigerian electricity market

Existing IPPs (cont’d)





Genco 2

Genco 6

Genco 1

Genco 5

Disco 1

Disco 2

Disco 3

Disco 11

Transitional Market Trading Arrangement - CM

GenCos – Successor Generation Companies




Trader (SPE)

New IPPs/



Bilateral Contract

with SpecialTrader

Vesting Contracts

Vesting / BilateralContracts

As the Gencos get privatised,

they join the new IPPs

Bilateral Contractswith Discos


Discos – Successor Distribution Companies

National Uniform Tariffs – with cross subsidies?

Development of the nigerian electricity market
Development of the Nigerian Electricity Market (cont’d)

  • 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
Stages of development for the NEM (cont’d)

Stage 1 = Pre-transitional

Stage 2 = Transitional

Stage 3 = Medium Term

Stage 4 = Long Term

Market development is driven by private Sector Participation (in terms of investments and

operation) and Competition

The NEM is still in stage 1, but the CPs for stage 2 are almost achieved

Roles of the market operator
Roles of the Market Operator (cont’d)

  • 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
Administration of the Commercial Metering System (cont’d)

  • 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

Identification and metering of the trading points
Identification and metering of the trading points (cont’d)


Energy Meters



  • 11/330KV

    330 KV


    330KV Lines 330/132KV 330KV Lines



    33KV 11KV

    33KV 11KV

Generator System


Eligible customers

132KV Eligible Customers

Distribution Companies 33/11KV


Eligible customers


Eligible customers

Status of trading point metering
Status of Trading Point Metering (cont’d)

  • 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

Meter data management mdm
Meter Data Management (MDM) (cont’d)

  • 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
Administration of the Settlement System (cont’d)

  • 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

The settlement statements
The Settlement Statements (cont’d)

  • 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

The settlement statements cont d
The Settlement Statements (cont’d) (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

Monthly market settlement sharing generation
Monthly Market Settlement; Sharing generation (cont’d)

  • 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

Market collection payments
Market Collection & Payments (cont’d)

  • 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

  • Market payment system
    Market Payment (cont’d)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


      • PRG

      • Use of security deposit

    Measurement of market performance
    Measurement of Market Performance (cont’d)

    • 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

    System (S)

    Input (I)

    Output (O)

    Management of

    Metering, Billing and collection



    Performance on the grand indicator jan sept 2011
    Performance on the Grand Indicator (Jan. – Sept. 2011) (cont’d)

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

    Market report for sept 2011
    Market (cont’d)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
    The End (cont’d)

    Thank you for listening

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