Distributed Generation in Nigeria’s Electricity Industry Deregulation
– Assessment and Integration
Abimbola Odubiyi
Powergen UK Plc
Coventry, CV4 8LG
United Kingdom
E-mail: Bola.Odubiyi@pgen.com
Abstract.
The unsatisfactory performance of the National
Electric Power Authority (NEPA) has lead to
proliferation of small-dispersed private
generating facilities embedded within its
distribution network. In some areas, these
facilities are the sole provider of electrical
energy.
This paper assesses Distributed Generation
operation in Nigeria, and presents a framework
for integrating this type of Generation in a post-
deregulation era. It offers solutions to specific
problems that may arise in a developing
country like Nigeria that is in the process of
deregulating its Electricity Supply Industry
(ESI).
Keywords: Distributed Generation,
Deregulation and Privatisation.
1. Introduction
Distributed (embedded) generation (DG) schemes
are small modular generating machines ranging
from kilowatts to few megawatts capacity.
According to [1,2], DG1 refers to small (typically
kilowatts up to 10 MW) power plants at or near the
loads, operating in a stand-alone mode or
connected to a grid at the Distribution or sub-
transmission level. In some cases, DGs harness
unconventional energy resources, such as wind,
biomass, tides and waves, solar, and geothermal.
Small power sources have been developed and
employed for industrial, commercial, space,
underwater, and biomedical applications. In
developing countries DG is ideally suited to power
small remote loads located far from the grid. Here,
integrated renewable energy systems (IRES), a
special subset of DG, are ideally suited for these
situations.
DG technologies and energy resources include:
 Wind-electric conversion systems
1
Distributed or Embedded Generator is more than small
portable generating sets used in private homes.
Innocent E Davidson
School of Electrical & Electronic Engineering
University of Natal
Durban, 4041, South Africa
E-mail: Davidsoni@nu/ac.za
 Mini and micro hydro plant
 Solar PV and Solar thermal-electric
conversion
 Geothermal
 Biomass
 Small co-generation plants powered by natural
gas and supplying electrical and thermal
energies.
 Electro-chemical energy system (e.g. fuel cells
and hydrogen production)
 Electrical storage system
 Thermionics and Thermoelectrics
 Tidal waves and ocean flows
Since DGs are located on-site or nearby the
location where the energy is used, they usually
operate at the low voltage (between 11kV and
132kV) supply chain of bulk electric power
distribution system. Their on-site location provides
the opportunity for greater local control and more
efficient utilisation to boost efficiency and
reliability [3].
2. Nigeria’s Deregulation Program
Nigeria’s low electricity consumption of 85kWh
per capita [4], served mainly by NEPA’s unreliable
system and infrastructure has posed a challenge to
the government over the years.
The under performance of NEPA has influenced
recent decision of government to deregulate the
industry by breaking up NEPA into generation,
transmission, Distributed/supply sectors and
privatise its constituent parts allowing these
companies to operate under competitive market
principles as far as practicable [5]. Figure 1 shows
the proposed structure.
Under the proposed unbundled structured, an
industry regulator will be setup to have oversight
over the activities of industry participants to ensure
fairness in all their operations and protect
consumers’ interests. To ensure, efficiency and
effectiveness, the transmission and Distributed
sectors will operate as monopoly businesses in
their franchise areas, with strong oversight from
the regulator.
CURRENT
INDUSTRY ONE VERTICALY INTEGRATED
STRUCTURE ORGANISATION - NEPA
GENERATION TRANSMISSION DISTRIBUTION
PROPOSED
Specialisation encouraged by
INDUSTRY competition & regulation emphasising
STRUCTURE different key success factors
GENERATION TRANSMISSION DISTRIBUTION
Competitive Regulated Regulated
Industry Regulator to ensure fair play
Figure 1: Proposed Structure of the Electricity Industry Post
Deregulation
This plan should assist in transforming the
electricity supply industry from its current state of
a low efficient, non-profitable entity with
extraneous bureaucratic structure to that of an
efficient, innovative and profitable industry
comprising of individual companies operating
under the discipline of a free market economy.
To attain this goal, the country’s national
Assembly recently passed the Electricity Reform
Bill that will provide legal backing to this radical
restructuring of the Electricity Supply Industry.
Subsequently, the Bureau for Public Enterprise
(BPE) the agency charged with deregulating the
Electricity Supply Industry has embarked on
preparatory work for the unbundling of the NEPA.
3. Benefits of Distributed Generation
One of the factors in favour of Distributed
generation especially in developing economies like
Nigeria is the unreliability of NEPA to meet the
electricity demand by large industrial customers
[6]. Hence Distributed or small industrial (i.e.
embedded) generation should be encouraged,
because of their benefits to industrial customers,
whilst complementing the activities of NEPA’s
electricity Distributed service.
In Nigeria and other developing economies, the
benefits brought about by Distributed Generation
especially to large industrial customers are:  Will DNOs created from NEPA have the
 Reliability of electricity supply, which is
critical for the conduct of economic activities.
 Provision of necessary power quality needed
in industrial applications that are dependent
upon sensitive electronic instruments and
controls
 Obtaining high efficiency power
transportation gains for on-site applications by
minimising line losses and voltage sag
common to Distributed networks in many
developing economies.
 Provision of a stand-alone power supply in
areas where transmission and Distributed
infrastructure does not exist or grossly
SPECIALISED inadequate.
ORGANISATIONS
 In some cases, provision of backup and other
ancillary services in times of stress on the
SUPPLY
Distributed networks.
 Alleviation of congestion on the Distributed
Competitive network through peak load shaving.
4. Distributed Generation Operation in
Nigeria
Distributed or embedded generation in Nigeria is
generally a point-to-point radial connection from
the generating machine straight on to the load
center. NEPA’s electricity distribution operation to
consumers cover a wider geographical area
involving both radial and mesh networks used to
supply electricity to several customers on the low
voltage end of a bulk electricity delivery industry
value chain.
Over the years small-scale on-site Distributed or
embedded generators have been established along
side NEPA’s 11 to 33 kV distribution networks.
These small generators (mostly using diesel or
furnace oil) supply power to industries and in some
cases communities/estates attached to them,
through their own self-built small private
Distribution networks.
It is unfortunate that NEPA has not utlised the
opportunities provided by DGs to alleviate the
problem of power shortage especially in rural
electrification program in the country. Over
emphasis on costly conventional large centralised
electricity supply facilities is depriving some
customers the benefits that DGs located in their
area can provide.
Early in the deregulation process, the following
issues regarding DGs and their impact on
operations of local Distributed Network Operators
(DNOs) need to be addressed.
monopoly status as the sole provider of electricity
in their franchise region, especially in rural areas?
Are they required to oversee the operations of DGs
connected to their networks, as they affect their
wider network system integrity? The main concern
here will be how to curtail DNOs from abusing
their monopoly power in operating and
maintaining electricity distribution service in their
franchise area.
 Concern of DG-owners about reliability of DNOs
networks post deregulation and privatisation,
judging from current performance of NEPA’s
Distribution sector [7]. High reliability is
extremely vital to the textile, chemical, petrol
chemical, paper, cement and other process
industries. Industrial consumers would not
compromise under any circumstance, and would
seek to ensure adequate supply of power to meet
their needs. Further more, there will be financial,
geographical and environmental constraints on
quick capacity expansion of generation,
transmission and distribution facilities which
NEPA’s successor companies will face post
deregulation and privatisation.
 It is unclear if the policy of deregulation of the
electricity industry addresses the impact DGs
connected to the local distribution network have on
network reliability. In addition remuneration for
services DGs may provide to support local DNOs
need to be addressed.
5. Distributed Generation Technology for
Nigeria
In the short to medium term demand for electrical
energy will continue to out strip supply, because of
constraints of time lag of building conventional
large generating, transmission and distributed
infrastructure.
The huge demand for electricity calls for
investments in more DGs across the country.
Private investors and DNOs should be encouraged
to set up DGs closer to the consumers. DGs should
be considered as an option to other co-operative
solutions as: network upgrades, uprating and
integration of protection, metering, control, and
voltage support. DGs should be used as an
additional measure to bring electricity to the
masses, and industrial concerns especially in rural
areas.
In the context of Nigeria with abundant fossil
resources (e.g. natural gas) and sunlight, DGs of
choice are:
Combine Heating and Power (CHP) – this type
of plant also known as co-generator, involves
capturing waste heat from power production and
putting it to some useful purpose at the customer
site. They are mostly gas-fired plants with
potential for over 70 percent fuel utilisation
efficiency in industrial and commercial
establishments like pulp and paper, chemical/petrol
chemical and refining industries.
Advanced Industrial Turbines and
Microturbines – these are a class of modular gas
fired generators that produce high-temperature,
high-pressure gas to induce shaft rotation by
impingement of the gas on a series of specially
designed blades. Typical efficiencies (without use
of external exhaust heat) range from 21 to 40%.
Their high quality exhaust heat can be used in a
combined mode cycle to fire a small steam turbine
thereby improving efficiency. Their maintenance
costs per unit of power output are among the
lowest of all generating technologies. They are
most suitable for light industrial and commercial
establishments, plus rural domestic use.
Solar Power – solar power systems use sun
tracking mirrors to reflect and concentrate sunlight
unto a receiver where it is converted to high
temperature thermal energy. The heat is then used
to drive an engine or electric generator. At a cost
of US$650 for a 55W solar power system [8], such
power source is unaffordable to most rural
households in Nigeria. However, this type of DG is
suitable for remote rural energy supply
applications for powering telecommunication base
stations and outpost rural emergency services
locations like police, health centres etc.
6. Economic and Technical Evaluation of
Distributed Generation
In assessing a customer’s energy needs, and to
determine the suitability of DG investment in
stand-alone or grid connected systems, specific
issues under – Regulatory, Economic and
Technical categories must be considered.
An approach for assessing Distributed Generation
investment is shown below in Figure 2. Given the
need for economic viability of DG investment, this
flow chart considers the customer’s need for
adequate electrical energy and the supply (i.e.
DNO and DG) options available. The result of
these inputs will determine whether the investment
in DG goes ahead.
Since DG development will not cease post
deregulation of the electricity industry, owners of
DGs will need the professional services of
engineers, economists and others to negotiate with
DNOs, design and implement solutions, answer
critical questions, provide adaptive
models/solutions about energy information, such
as:
 Measure and quantify the costs/values that
energy produced by DG contributes to the cost
of good/services or the quality of life in the

Regulatory
Legal / Operational
framework
Environmental
Planning permit
Investor Assessment
Non Viable
Connect to Purchase Power
DNO Network from DNO
Yes
Sell Power Any Excess
to DNO Power ?
Yes
Figure 2: Assessing viability of DG investment (adapted from
[3])
DNO area. Cost/values would include such
items as ecology, opportunity, risk and
depletion as well as the traditional direct
cost/value set.
 Identify a method for quantifying cost/value
that is more appropriate than the current
Distribution tariff methodology.
 Identify method(s) for system "resource
planning/ modelling" that is responsive to real 
time cost, new technology/methods and is
compatible with Distributed, disparate
resources. The method should be able to
evolve, adapt, and learn as part of its
architecture.
 Define an operational methodology that
supports and encourages participation (e.g.
easy entry and exist) in a deregulated energy
market.
 The method must be cost effective (i.e. the
cure should not cost more than the disease)
 Show the information necessary to enable the
method.
 Define the characteristics of the information
such as resolution, latency, size, speed and
volume.
7. Challenges for DG under Electricity
Deregulation in Nigeria
As countries all over the world deregulate and
restructure their electricity industry; they are
confronted with the challenges of setting up
appropriate regulatory and contractual arrangement
that accommodate and promote the interest of
Distributed Generation embedded within the wider
Economic
Start Up & Running geographical boundary of a franchised local
Costs
Avoidable cost
Technical
Manufacture Data
Distribution Network Operator (DNO) [9].
Payback period Security / Safety of Equipment
Reliability / Power Quality
Qualify Operator In the process of deregulation of the electricity
industry, the probable challenges confronting
government officials and their advisers fall into
these broad categories:
Viable
Invest in DG
 Legal and Regulatory Framework: The structure
of the legal and regulatory framework that offers
Operate DG to meet
incentives for current and future Distributed
Load Shape Generation wishing to participate in electricity
trading post deregulation, whilst accommodating
No
the wider responsibility and interest of local DNO
Yes DG meets
total Power entrusted to supply power in their respective
requirement geographical area. In this regard the issue and
No modality of Open Access regime and connection
Buy Short Fall agreement to DNOs network by Distributed
from DNO ? Generation should be well defined to ensure easy
assess to the Distribution/supply networks.

 Network Access Regulation: Mode of operation
for DGs wishing to connect to the network of local
DNO, plus the identification of the appropriate
engineering and commercial boundaries. This will
require the application of necessary supporting
infrastructure/equipment like protecting relays
(e.g. voltage/frequency relays), metering, and data
collection. Also, payment for services provided by
DGs to DNOs to support their system.

ESI Operation and Management: Having the
appropriate enabling environment with the proper
financial incentives where by Distributed
Generation and local DNOs can offer mutual
assistance to each other. In this regard
consideration should be given to establishment of
an appropriate commercial forum in which DG-
owners and DNOs can meet to discuss industry
matters affecting their operations.
8. Proposals for DG Integration
To overcome the above challenges and provide the
appropriate enabling environment that allows for
smooth technical and commercial operation of
Distributed generation post deregulation, the
following need to be considered.
a) Proper definition of what constitutes a Distributed
Generation. In this respect what constitutes a
Distributed Generation, with clear explanation of
their technical and commercial boundaries within
the geographical area of a DNO must be included
in the overall Electricity Reform Bill that will give
legal backing to the restructuring and unbundling
of electricity industry.
 For example a DG owner may be restricted to a
point-to-point radial connection to serve demand
requirement of a properly recognized load (e.g. an
industrial plant). In consented cases, allowing for
any excess energy produced and not required by
the demand to be split or passed on to the DNO
network at a mutually agreed quality and time.
Standardization may be considered in this regard.
b) Setting up of appropriate legal and regulatory
codes: These codes will be the basis for legal
contractual arrangements that governs the
operations and interactions between a DG and a
local DNO. Codes that govern activities dealing
with:
 Design codes (technical and commercial)–
connection standard, metering, payment etc.
 Ancillary services provisions (e.g. voltage support,
backup reserve, load management -DSM).
 Island operation.
 Dispute resolution between DGs and DNOs.
The regulatory body must be empowered to
monitor the implementation and operation of these
codes and serve as Arbitrator in times of dispute.
For smooth operation, complex or deliberate
loopholes in the codes should be avoided.
c) Connection and Charging Principles: When a DG
connects to DNO assets (e.g. network substation),
the charging principles and mechanism should be
clearly defined. This should be reviewed annually
to make it relevant to changes taking place in the
industry and wider society.
d) Provision of information, network designs and
expansion, etc. that facilitate true open competition
in the supply of power to industrial customers.
This will ensure a level playing field between DGs
and DNOs.
9. Conclusion
As the country proceed with the deregulation of
the electricity industry and privatisation of NEPA,
it is essential to learn from the experiences of other
developing and developed countries, and adapt
these to the local environment. Local experience
acquired in the process must be well managed and
proposed. There outcomes implemented with a
delicate balance of competing factors, for
maximum benefit. A careful evaluation of local
issues, concern of DG owners and peculiarities of
the development of Nigeria electricity industry
should not be ruled out. Moreover, development of
a viable legal framework to take on board the
benefits of DG needs foremost attention to make
the overall process of deregulation a success.
References
[1].Institute of Electrical and Electronic Engineers
Reference Book, IEEE Press, 1999.
[2].Strategic Plan for Distributed Energy Resources, US
Department of Energy -Office of Energy Efficiency
and Renewable Energy, U.S. Department of Energy,
September 2000.
[3].Integrated Assessment of Dispersed Energy
Resources Deployment, Consortium for Electric
Reliability Technology Solutions, Lawrence
Berkeley National Laboratory, CA, USA, June 2000.
[4].International Energy Agency (IEA), Energy Prices
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[5].Agagu, O. NEPA’s Privatisation to Give Rise to 28
Firms, The Guardian Online,
http://www.ngrguardiannews.com, March 29,
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[6].Innocent E. Davidson and Abimbola Odubiyi,
“Power System Operation in Developing
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`Energy supply and Management feature’, SA
Electricity + Control, pp. 6-9, July 2001.
[7].Makoju, J.O. “Challenges and Constraints of
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[8].World Bank Group, “Energy and Development
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[9].Abimbola Odubiyi and Innocent E. Davidson,
"Distributed Generation Under Deregulation - ESI
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Journal of the SA Institute of Electrical Engineers,
September/October 2001, pp 44- 47.
Authors
Abimbola Odubiyi holds a HND in Electrical
Engineering from Ogun State Polytechnic. He
received the B.Sc and M.Sc degrees in Electrical
Power System Engineering from the University of
Wisconsin-Milwaukee, USA; MBA from Aston
University, Birmingham, UK. He is presently a
Senior Commercial Analyst with PowerGen Plc,
the 3rd largest integrated electricity company in
the UK.
Innocent E. Davidson holds a B.Eng. (Hons) and
M.Eng degrees in Electrical Engineering from the
University of Ilorin, Nigeria, and Ph.D. in
Electrical Engineering from the University of Cape
Town. He is presently a Senior Lecturer with the
School of Electrical and Electronic Engineering,
University of Natal. His research interests are in
electric machinery design, power network planning
and operation, and the effects of power sector
deregulation on power systems.