The Association of Power Generation Companies (GenCos) has sounded a distress signal, warning that Nigeria’s power sector is on the verge of collapse due to unpaid capacity payments.

According to the GenCos, they are owed over N6.2 trillion for power generated and consumed, but only 35% of the amount has been paid since 2015, emphasising that the current practice of only recognising called-up capacity (power the discos and transmission can take) and ignoring the capacity component made available presents a wrong signal to international and local investors.

A statement signed by the Chief Executive Officer, GenCos, Dr Joy Ogaji, said the situation has led to a significant decrease in power supply, with average grid generation stuck at 4,000MW, despite an installed capacity of 15,500MW.

“This has severely impacted our ability to invest in capacity maintenance and expansion. We’re not getting paid for available capacity, and it is disincentivising us from investing in recovering mechanically unavailable capacity, estimated at 7,000MW.

“Electricity is not stored at the power plants. Once it is produced, electricity leaves the generating plant, is metered, then travels at the speed of light and is consumed within a millisecond. It is a scary scenario for any investor, as no guarantee of any sort is in place to ensure any form of return on investments.

“The lack of Power Purchase Agreements (PPAs) and inefficient transmission and distribution are major challenges. “We’re caught in a vicious cycle of poor performance, and it’s contagious. The current market design, as envisaged, is not reflected adequately in the incentives and enforcement measures for performance. Electricity requires huge investments, recouped over very long periods. How can it operate on a voluntary basis?”

The statement also highlighted that “GenCos have kept to the terms of all industry and privatisation agreements as well as the Power Purchase Agreement since the takeover on the 1st of November 2013. In exchange, they have been rewarded with liquidity challenges, default on contractual terms, regulatory risks, and increased market volatility.”

The GenCos called for urgent reforms to ensure a contract-based electricity market and sanctity of contracts.

“We need a level playing field, where we can operate efficiently and effectively. The sector’s sustainability is at stake, and we urge the government to take immediate action,” the statement concluded. (Nigerian Tribune)