“Energy Sector Governance and Cost Reflective Pricing in West Africa” by Gershon, O., Ph.D, Senior Lecturer Department of Economics & Development Studies Covenant University obindah.gershon@covenantuniversity.edu.ng and Ezurum, A. Emerald Energy Institute (EEI), University of Port Harcourt alexander.osuekwu@gmail.com

Presentation Outline Introduction Problem and Research Questions Background and Relevance Problem and Research Questions Sub-Research Issues and Concept Methodology Data Analysis Results & Discussions Conclusion and Recommendation Further Studies

Background and Research Context Governance of Energy Markets is Key to Transformation Energy is Key to Economic Growth Sustainable Development Energy Sector Governance has Implications Electricity Pricing: Investment Risks Achievement of Policy Objectives West Africa Power Pool NBET – SAKETE in Benin and NIGELEC: Niger Few studies have focused on energy sector governance Focus: Malfunction and low liquidity Nigeria Energy Market 75million Nigerians lack assess to Electricity

Key Question and Sub-Questions How Effective is Energy Sector Governance? How Responsive are Electricity Tariffs to changes in Cost? Sub-Questions: Is the Multi-Year Tariff Order (MYTO) Cost Reflective? Is MYTO Methodology Efficient or Poorly Governed in NESI? MYTO: is an accounting framework for determining the pricing structure applies building block approach: sums identifiable costs to ensure fair pricing, sufficient cashflow and reasonable earnings Cost Reflective Pricing: is when the price of a good/service reflects its cost of production results in allocative efficiency and maximization of society’s benefit

Data and Methodology Scope: From MYTO 1 (2008)  MYTO 2015 Methodology MYTO 2.1 (amended)  MYTO 2015 Methodology Aggregate Cost Data from NERC for ALL GenCos, TCN & DisCos Apply descriptive statistics to compare actual Costs & Revenues from 2015 - 17 No need to estimate parameters & test hypothesis Marginal (Incremental) Cost Concept (relative to) Electricity tariffs (price/marginal revenue) Timing and extent of tariff reviews MYTO assumptions – building block approach

Results and Findings Marginal Costs and Revenues vary across DisCos (regions) Competitive Market Structure is emerging MYTO is cost-reflective if all costs are transferable to customers The level of tariff sculpting is not with sustainable unless because Debts accrue along the value chain for every unit of energy consumed MYTO is becoming more complex to govern in the NESI emerging risk to existing and new investments - if nothing is done Lack of Metering leads unrecovered revenues Tariff sculpting is not compatible with MYTO methodology and the rate of change in parameters MYTO Assumptions are being violated in different areas: electricity demand, exchange rate, fuel cost, available generation capacity

Changing Assumptions/Parameters in MYTO Methodology

Summary Findings and Recommendations Better Governance of Electricity Sector will ensure: Cost-Reflective Pricing Cost-Reflective Pricing will emerge from regional-based differentiated generation and transmission costs We Recommend a reworking of the energy governance structure to: Provide meters and reduce the debt burden along the value chain stop collective bargaining/negotiations (leading to regulatory capture) introduction of policies towards unbundling of the transmission system to further reduce costs implementation of feed-in tariffs for off-grid renewable energy

Future Research Areas Related to this work are the following issues for future consideration: Assessment of West African Energy Market Integration Feasibility of regional-based cost-reflective pricing Is MYTO responsive to declining generation and transmission costs?

Summary Data and Methodology Research Background and Questions What is left? Research Background and Questions Data and Methodology Research Outcomes and Results Findings, Recommendation and Future Research

Your Comments and Suggestions will be Appreciated Questions Your Comments and Suggestions will be Appreciated

RENEWABLE ENERGY & SUSTAINABLE DEVELOPMENT (ICRESD 2018) INTERNATIONAL CONFERENCE ON RENEWABLE ENERGY & SUSTAINABLE DEVELOPMENT (ICRESD 2018) Towards Inclusive Growth 26th to 28th June, 2018 Contact: obindah.gershon@covenantuniversity.edu.ng for more information

The Conference is aimed at “…attracting key stakeholders, researchers, policy makers, energy professionals, development agencies, (renewable) energy, engineering and investment firms to collaborate towards delivering energy solutions and innovations for inclusive growth and sustainable development in Africa”

Expected Participants Government Electricity Market Regulators & Stakeholders NBET, ECN, NERC, MDAs Industrial and Commercial Banks, Oil and Gas Companies Development Agencies: JICA, UNDP, DIZ, USAID, AfDB, ECA Industry Local Energy Companies: GenCos, TCN, DisCos Int’l Energy Companies, Consultancies and Research Centres Advocacy Groups, Environmental Companies and NGOs Academia University Faculty, Researchers and PG Students

Your Suggestions will be Appreciated Questions Your Suggestions will be Appreciated