Government electricity participants
Who are the principal government participants in the electricity sector? What roles do they perform in relation to renewable energy?
Prior to the enactment of the Electric Power Sector Reforms Act in 2005 (EPSR Act), the electricity sector was state owned and operated through a monopoly known as the National Electric Power Authority (NEPA). In May 2005, it was restructured along the lines of generation, transmission and distribution under a holding company called Power Holding Company of Nigeria (PHCN) and subsequently unbundled into successor companies of six generation, one transmission and 11 distribution companies (DisCos). The EPSR Act also provided for the establishment of the various government participants in the electricity sector. The Nigerian Electricity Regulatory Commission (NERC) was set up as a transparent and independent regulator of the sector. NERC undertakes the role of technical and economic regulation of the electricity sector. Its functions include promoting competition and private sector participation, when and where feasible; licensing and regulating persons engaged in the generation, transmission, system operation, distribution and trading of electricity: approving amendment of the market rules and monitoring the operation of the electricity market. In specific relation to renewable energy, NERC issues generation licences to applicants in renewable energy, and administers and implements preferential tariffs (eg, the MYTO feed-in tariffs) and issues orders or regulations to govern the market.
The Nigerian Bulk Electricity Trading Plc (NBET), also known as the ‘bulk trader’, is a government-owned public liability company. NBET was set up to engage in the purchase and resale of electric power and ancillary services from independent power producers and from the successor generation companies. It is the offtaker of electricity in the electricity market. NBET enters into and executes power purchase agreements (PPAs) with power generating companies and resale power to DisCos through vesting contracts. NBET was created primarily for payment guarantee assurance to generation companies for electric power sold to DisCos.
The Transmission Company of Nigeria (TCN) houses three transmission functions, which include the market operator, system operator and the transmission service provider. The system operator is responsible for system planning, dispatch, grid discipline and operation of the transmission system. The market operator is the operator of the wholesale electricity market and is responsible for market settlement and administration of metering systems. The transmission service provider oversees the development and maintenance of the transmission infrastructure. It is responsible for the national interconnected transmission system of substations and power lines and for providing open access transmission services.
In specific relation to renewable energy, the TCN is responsible for determining grid availability and locations for renewable energy evacuation for megawatts (MW) targets and subsequently entering grid-connection agreements with generation companies.
Other agencies of government that perform roles in relation to renewable energy include:
- the Federal Ministry of Power, Works and Housing (FMPWH) plays a role in initiating, formulating, coordinating and implementing broad policies and programmes promoting the development of electricity generation from all sources of energy;
- the Federal Ministry of Environment plays a secondary role as it has no direct mandate in the power sector. However, it prepares policies for environmental impact assessment for developing projects and approves the environmental and social impact assessment report;
- the Federal Ministry of Water Resources (FMWR) formulates national water resources policies towards ensuring adequate water supply for agricultural, industrial, recreational, domestic and other uses. It develops programmes and policies towards surface water storage schemes and guiding principles for dam construction nationwide. In relation to renewable energy, the FMWR plays a role in hydro development (eg, dam construction, hydrological activities, etc). Currently, the FMWR undertakes civil works on hydropower stations in cooperation with the FMPWH;
- the Energy Commission of Nigeria (ECN): the role of the ECN is mainly research, data gathering and coordination. The commission promotes the use of renewables and alternative energies via research, pilot project and strategy development;
- the Rural Electrification Agency (REA), whose core function is to coordinate rural electrification activities in Nigeria and to manage the rural electrification fund. Until recently, the REA has been implementing electrification projects on its own with a focus on grid extension. However, in recent times, the agency has broadened its scope to include the deployment of off-grid renewable energy systems to accelerate the pace of development; and
- the Nigerian Electricity Management Services Agency (NEMSA) was set up to carry out the functions of enforcement of technical standards and regulations, technical inspections, testing and certification of all categories of electrical installations, electricity meters and instruments for the efficient production and delivery of safe, reliable and sustainable power supply in Nigeria.
Private electricity participants
Who are the principal private participants in the electricity sector? What roles do they serve in relation to renewable energy?
The privatisation of the power sector led to increased private sector participation and competition. The federal government through its agencies utilised various privatisation strategies to divest its interest to core investors – for the two hydro companies, a long-term concession contract; for the four thermal companies, 100 per cent share sale; for the 11 DisCos, 60 per cent share sale; and up until July 2016, a management contract for the transmission company. The principal private participants are the generation companies and DisCos.
The six successor generation companies created following the unbundling of PHCN are Afam Power plc; Egbin Power plc; Kainji/Jebba Hydro Electric plc; Sapele Power plc, Shiroro Hydro Electric plc; and Ughelli Power plc. The companies generate electricity in accordance with the provisions of their licences and the EPSR Act.
Prior to the privatisation process, some independent power producers (IPPs) owned electric power plants. They include Afam VI managed by Shell, Okpai operated by Nigerian Agip Oil Company, Ibom Power Plant, NESCO and AES Barges.
The 11 DisCos are Abuja Distribution plc; Benin Distribution plc; Eko Distribution plc; Enugu Electricity Distribution plc; Ibadan Distribution plc; Ikeja Distribution plc; Jos Distribution plc; Kaduna Distribution plc; Kano Distribution plc; Port Harcourt Distribution plc; and Yola Electricity Distribution plc. They distribute electricity in line with the provision of their licences and the EPSR Act.
It is worth noting that there has been a lot of investment by the private sector in power generation. Pertaining to renewable energy, most of these investments have been off-grid (with quite a number of mini grids), with the limited capacity of the national grid making them viable means of providing energy in Nigeria. Authorisations and permits are continually being issued to more IPPs.
Definition of ‘renewable energy’
Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?
The National Renewable Energy and Energy Efficiency Policy (NREEEP) defines renewable energy as energy obtained from energy sources whose utilisation does not result in the depletion of the earth’s resources. Renewable energy also includes energy sources and technologies that have minimal environmental impact, such as less intrusive hydros and certain biomass combustion. These sources of energy normally will include solar energy, wind, biomass, small and medium-sized hydro, geothermal, tide and wave energy.
What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?
The National Electric Power Policy 2001 outlines the framework for power sector reforms in Nigeria. The EPSR Act provides the legal and regulatory framework for the sector. It is the principal law for the regulation of the sector. The fundamental change it birthed was the privatisation of the government-owned electricity company and the process towards a completely liberalised market. The Act encouraged promotion of electricity generation from all sources of energy, including renewable energy by mandating NERC to create a level playing field in the Nigerian electricity market. The Act provides for licensing by NERC for any electricity generation of 1MW and above.
The Environmental Impact Assessment Act makes it mandatory for an EIA to be conducted on projects that are likely to have significant effect on the environment. A power developer who wishes to generate power through the use of renewable energy must submit an EIA report to National Environmental Standards and Regulations Enforcement Agency (NESREA). In obtaining a generation licence from NERC, the EIA approval certificate must be submitted to NERC
NREEEP outlines the global thrust of the policies and measures for the promotion of renewable energy and energy efficiency. It seeks to bring to the attention of policymakers the economic, political and social potential of renewable energy. It also recognises the multidimensional nature of energy and addresses diverse issues such as renewable energy supply and utilisation; renewable energy pricing and financing; legislation, regulation and standards; energy efficiency and conservation; renewable energy project implementation issues; research and development; capacity building and training; gender and environmental issues; planning and policy implementation. This policy on renewable energy and energy efficiency sets out a framework for action to address Nigeria’s challenge of inclusive access to modern and clean energy resources.
The Regulations on Feed-In Tariff for Renewable Energy Sourced Electricity in Nigeria (REFIT) provide the tariff framework for renewables. The Regulations apply to renewable energy sourced from wind, hydro, biomass and solar PV with a capacity of between 1MW and 30MW that is connected to the grid or the distribution networks. The REFIT set a target generation output cap from renewable sources at 2,000MW by 2020. The DisCos and NBET are obligated to purchase the power on a ‘must buy’ basis, thereby providing priority grid access to renewable generators. The projects that exceed the threshold provided by REFIT are to be procured by the bulk trader (NBET) through competitive tendering.
NERC Mini Grid Regulations (2017) aims to accelerate electrification in served and unserved areas but this is not limited to rural areas. The regulation is limited to distributed power of less than 100kW up to 1MW.
Can environmental attributes be stripped and sold separately?
Environmental attributes are currently not stripped and sold separately in Nigeria.
Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?
In recognising the need and value of electric power generation to grow the economy, the government has made certain incentives available in the form of tax reliefs for electricity generation, which also cover renewable projects. These include the Industrial Development (Income Tax Relief) Act geared at attracting foreign investment to Nigeria, where eligible companies can be issued with pioneer status certificates. Therefore, companies involved in independent power generation using gas, coal and renewable energy sources can be conferred with pioneer status, which exempts them from payment of income tax for between three and five years.
The incentives under NREEEP include:
- tax incentives to manufacturers of renewable energy and energy efficient equipment and their accessories to promote widespread use including a five-year tax holiday for manufacturers from the date of commencement of manufacturing; and a five-year tax holiday on dividend income from investments on domestic renewable energy sources; and
- incentives for importers to offer energy-efficient appliances and lighting through exemption from excise duty and sales tax; custom duty rebate for two years on the importation of equipment and materials used in renewable energy and energy efficiency projects; and provision of soft loans and special low-interest loans from the power sector development fund for renewable energy supply and energy-efficiency projects.
In order to promote renewables the government has over the years drawn up a number of policies.
Renewable Electricity Action Programme 2006
The main focus of this document is utilising all forms of renewable energy sources for electricity generation. It highlights potential gaps, technical assessments and the financial implications of utilising renewable energy and looks at the general overview of the potential for renewable energy technologies, and potential markets, elaborating on the development targets per technology, application and strategies for achievement. It sets out a roadmap for the implementation of the Renewable Electricity Policy Guidelines 2006.
National Biofuel Policy and Incentive 2007
This is meant to support a biofuel programme, with the aim of integrating the agricultural sector of the Nigerian economy, as a means of improving the quality of automotive fossil-based fuels in Nigeria.
NREEEP consolidates the objectives of the Renewable Energy Master Plan (REMP) 2005 and Renewable Energy Policy Guidelines 2006. It is a document developed by the Federal Ministry of Power in 2013 and 2014 and was approved by the Federal Executive Council in 2015 with the objective of developing power generation through renewables and energy efficiency capacity by 2020.
Rural Electrification Strategy and Implementation Plan (RESIP)
This is a follow-up to the Nigerian Rural Electrification Policy. The primary objective is to expand access to electricity as rapidly as possible in a cost-effective manner through the use of both grid and off-grid approaches from renewable and thermal sources in rural areas.
Building Energy Efficiency Code 2017
The national Building Energy Efficiency Code is a set of minimum standards for energy-efficient building in Nigeria. The objective is to reduce energy costs and wastage, and conserve available energy for utilisation where and when necessary in various homes, companies and public buildings.
Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?
The 1999 Constitution of the Federal Republic of Nigeria places electricity generation, transmission and distribution on the Concurrent Legislative list. This allows both the federal and state legislature to make policies to promote the electricity sector. Though electric power falls under the concurrent list shared between the federal and state governments, the delineation of powers is not clear-cut. The existing policies and incentives have been established at national level.
However, state governments play a major role in land acquisition to private investors looking to establish power projects in the state. The key aspects to their role are for acquisition of land, consent for land usage and right-of-way surveys and assessments.
What mechanisms are available to facilitate the purchase of renewable power by private companies?
There are no specific mechanisms to facilitate the purchase of power by private companies. Prior to the Eligible Customer Declaration, the end user could not enter into a direct PPA to purchase on-grid power directly from generation companies. On 19 May 2017, the Minister of Power invoked the Eligible Customer Declaration in accordance with section 27 of the EPSR Act. The eligible customer is defined in the Act as a user customer who is eligible to purchase power directly from a licensee of NERC, other than a DisCo. In other words, once declared an eligible customer, that end user can directly enter into a direct PPA with a generation company.
Further to the minister’s declaration, the four categories of end users who are eligible customers are:
- those registered with NERC with a monthly consumption above 2MW and connected to a metered 11KV or 33KV delivery point on the distribution network of an electricity DisCo;
- those with a monthly consumption above 2MW and connected at 132KV or 330KV on the transmission network;
- those with consumption above 2MW and connected at 33KV on the transmission network; and
- those whose minimum consumption is more than 2MW and who are directly connected to the metering facility of a generation company.
Private companies that meet the conditions specified in the declaration may apply for eligible status to enable them to purchase power directly.
Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.
There has been no notable pending or anticipated legislative proposal regarding renewable energy in the past one year.
Drivers of change
What are the biggest drivers of change in the renewable energy markets in your jurisdiction?
Nigeria, with an estimated population of about 180 million people and its growing industrial clusters and small cottage industries, urgently requires more energy. These businesses require an uninterrupted power supply to function optimally. The power supplied could be generated through fully off-grid power plants. Steps have been taken in this direction for off-grid power generation for industrial clusters in Nigeria.
Access for rural electrification
Another driver of change is the need to spread electrification to rural and underserved areas that do not have access to power. Unserved households in (usually rural) areas that do not fall within a DisCo network can be served by investors who may wish to create off-grid supply over their own local grid. In line with the NERC Regulation for Independent Electricity Distribution Networks (IEDN Regulations 2012), off-grid generation plants require an IEDN (often a mini grid) to supply electricity to end users. Topographical and geographical challenges in rural areas make it uneconomical to extend the grid to such areas. Recently, investors have been developing business models to reach people in these areas. An example is the launch of the pay-as-you-go scheme by Lumos in partnership with MTN, a telecom company in Nigeria, to provide power through solar systems. Numerous developers have taken the initiative to develop off-grid solutions to unserved and underserved areas, with the regulator keen to ensure an even playing field between developers and users.
Increased investment in renewable energy will lead to the development of indigenous expertise in the manufacture, installation and repair of various devices across the country, particularly in rural communities. This will hopefully stem the migration from those communities to urban areas as the needed employment opportunities will be readily available.
Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.
Currently, the electricity market is at the transitional stage. For on-grid power, transactions among participants are expected to be contract driven. Disputes arising ideally are to be resolved in line with the terms of the contract. Each contract provides the mechanism for settling disputes that may arise between the parties. However, current liquidity challenges in the sector have stalled this as payment obligations along the value chain are not being met. The government, being aware of the challenges arising from a number of issues including legacy debts predating the privatisation, huge technical commercial and collection losses on distribution network, non-cost-reflective tariffs and so on, has introduced measures aimed at resolving the issues.
Further to the above, the Market Rules establish a governance mechanism and provide a framework for dispute resolution between market participants. These rules have been framed by the market operator in order to establish the electricity trading system for the transitional and medium-term stages in the Nigerian electricity supply industry. The rules provide for a dispute resolution panel, which will be responsible for arbitrating and resolving disputes between market participants. NERC has appointed a Dispute Resolution Counsellor to administer the dispute resolution provisions of the Market Rules and 12 members to the Dispute Resolution Panel to hear and resolve disputes.
Utility-scale renewable projects
Project types and sizes
Describe the primary types and sizes of existing and planned utility-scale renewable energy projects in your jurisdiction.
The primary types of renewables in Nigeria are as follows:
- Hydro: currently there is 1.9GW hydropower capacity installed in three large power plants (Kainji: 760MW; Jebba: 570MW; Shiroro: 600MW). The existing plants are hydroelectric dams. In addition to the existing projects, nine upcoming projects have been identified that are still under development with a total capacity of 4,455MW.
- Solar: solar photovoltaic, off-grid or mini grid, is a good alternative in rural communities to which the national grid does not extend and the petrol or diesel necessary to power generators is often difficult to obtain. PV-diesel hybrid systems are already competitive economically, compared with gasoline and diesel-generated power. There are currently some upcoming utility-scale solar PV projects. In 2016, NBET signed PPAs with 14 IPPs for projects with a total capacity of 1125MW.
- Wind: there are no existing wind projects in Nigeria. Based on data gathered from the Centre for Renewable Energy Technology, there are four upcoming wind end energy projects with a total capacity of 128.5MW.
- Biomass: renewable energy can be derived from biomass such as firewood, food waste and agricultural waste. Currently efforts are being made to exploit biofuels on a large scale in rural Nigeria. Based on data gathered from the Centre for Renewable Energy Technology, there are four upcoming waste-to-fuel energy projects and nine biofuel energy projects.
What types of issues restrain the development of utility-scale renewable energy projects?
There are various issues that restrain the development of renewable energy projects in Nigeria.
Policy and regulation
Although there is a clear-cut framework, more work needs to be done in terms of policy implementation and process flow among the various stakeholders, thereby attracting both local and international investments to grow the market. There is a need to align the policy framework of legal, fiscal and regulatory instruments that would attract domestic and international investments. Clear rules, legislation, roles and responsibilities of various stakeholders along every stage of the energy flow from supply to end use are key elements of the overall policy framework needed to promote renewable energy technologies. A good number of policies have been presented showing the government’s plan for the development of renewable energy, but they have not been adequately aligned and actively implemented.
Inadequate transmission infrastructure
The existing transmission system is only able to deliver a portion of the power generated to the DisCo trading points. This is as a result of Nigeria’s weak transmission infrastructure, which is on the whole radial, such as a single path of transmission with a power source at one end. This implies that any fault in the path could potentially lead to a collapse of the transmission network. The transmission infrastructure in its current state without an upgrade and improved technology will be unable to accommodate an increase in generation.
Financing and investment barriers
Establishing medium- or large-scale renewable energy installation is capital intensive with a long payback period. Sourcing for finance for these projects, especially early-stage finance for project developments, appears to be limited (unless with some form of government support) with a number of bottlenecks. More work also needs to be done in fine-tuning innovative solutions to reduce these initial set-up costs. Regarding on-grid, feasibility study reports can be carried out by the government, thereby reducing associated development costs and introducing waivers on certain taxes (including customs duty) for necessary equipment. For off-grid, the state government plays a more proactive intermediary role between developers and communities through community engagement, thereby reducing possible altercations that may ramp up development costs.
Liquidity challenges in the electricity sector
The electricity sector since the handover of the successor companies in November 2013 has been faced with liquidity challenges resulting from (among a number of issues) the lack of a cost-reflective tariff. This is clearly a disincentive to investment in additional generation.
Need for incentives
Currently, there is a need to boost the available incentives as a deliberate mechanism to ramp up the deployment of renewable energy. Waivers on taxes (including customs duty) and streamlining of applicable taxes are realistic means that can assist in encouraging the deployment of renewable energy and reduce the end user’s tariff.
Primary types of project
Describe the primary types of hydropower projects that are prevalent.
The prevalent type of hydropower plant in Nigeria is the conventional (dam). Classification for hydropower plants as categorised by the Ministry of Power shows plants with generating capacity of more than 30MW and 100MW as medium and large respectively, less than 30MW as small; and less than 1MW as mini hydro. Currently, there are 1.9GW of hydropower capacity installed in three large power plants (Kainji: 760MW, Jebba: 570MW and Shiroro: 600MW). The hydro plants were constructed by the government, which divested its interest through a long-term concession to private investors during the privatisation of the electric power sector. They are currently being managed by private participants for a term of 30 years.
The existing hydropower plants are on-grid. NBET as the offtaker in the electricity market purchases electricity from these generating companies via PPAs and resale to DisCos via vesting contracts.
What legal considerations are relevant for hydroelectric generation in your jurisdiction?
The following must be taken into consideration for hydroelectric generation:
- Evacuation infrastructure: a private entity desirous of this investment must ensure that there is adequate electric power evacuation infrastructure for on-grid transmission. Therefore power evacuation studies in liaison with the TCN must be carried out.
- Contractual obligations: a PPA negotiation must be commenced with an identified offtaker, or with NBET where a total package on the PPA will be negotiated and signed. Where the project is grid-connected generation, the PPA is with NBET, and for embedded generation where the power generated is within the network of a particular DisCo, a PPA is to be signed with the DisCo, the eligible customer or with the captive customer, as the specifics of the project dictates.
- Regulatory compliance requirements – water licence: every hydroelectric generation project must get a water licence to permit the use of water from the river course for hydro-electric purposes, generation licence regularisation with NERC and necessary permits (environmental and state government).
Describe the prevalence of on-site, distributed generation projects.
There is a prevalence of on-site generation for the end user. Photovoltaics (PV) are mostly used for distributed generation of solar power. This is domestic-type generation using rooftop solar PV systems. These are usually not for sale, and just for the consumption of the end user.
Stand-alone solutions (SAS) such as solar home systems are used in suburban and rural areas that do not have access to the national grid. SAS provide electricity to households and small commercial enterprises through lease-to-own solar systems with affordable solar kit or a pay-as-you-go payment structure through affordable instalments via mobile phones.
There are also diesel generators. About 86 per cent of companies in Nigeria own or share a generator, and about 48 per cent of their total electricity demand is covered by these private generators.
However, owing to the acute shortage of power and the need to increase generation capacity, there is an increasing need to promote the use of on-site distributed generation. A wind farm with a capacity of 10MW is under construction in one of the northern states. Small wind turbines for water pumping have been installed in some parts of the country for testing.
Describe the primary types of distributed generation projects that are common in your jurisdiction.
The primary types of distributed generation projects are as follows:
- Captive generation is the generation of electricity exceeding 1MW for the purpose of consumption by the generator and which is consumed by the generator itself and not sold to a third party.
- Off-grid (including mini grid projects) may be stand-alone power generation systems. They provide small-scale electricity generation to a single or limited number of customers. This type of project typically provides smaller communities such as rural areas or industrial clusters with electricity through independent electricity distribution network systems or mini grids without connection to the national grid. They could be generated through solar, small wind turbine or a hybrid system. Off-grid electricity is not evacuated on the electricity grid of TCN or a DisCo. The total off-grid electricity generation capacity is still marginal. Considering Nigeria’s plans to increase generation capacity in the coming years and the low level of access to electricity in rural areas, there is a need for significant investment in off-grid generation.
- Embedded generation is the generation of electricity that is directly connected to and evacuated through a distribution network. Embedded power currently is almost non-existent in the Nigerian electricity system. However, there are major prospects for embedded power based on various upcoming projects.
- On-grid is generation of electricity that is directly evacuated to the national grid. This is usually used for large-scale power projects and is subject to capacity needs and system constraints.
In terms of the ownership structure, distributed generation is usually owned by private investors or in most cases they are owned by the end user.
In terms of the offtake structure, the end user is the offtaker for power generated through captive generation. For off-grid and embedded generation, the offtakers are commercial consumers or residential customers within a cluster.
Have any legislative or regulatory efforts been undertaken to promote the development of microgrids? What are the most significant legal obstacles to the development of microgrids?
There are ongoing efforts by the government to promote the development of microgrids, also referred to as minigrids or isolated grids. On 24 May 2017, the NERC released a new Minigrid Regulation to govern the development of integrated electricity generation and distribution supply systems of under 1MW either in isolation from the DisCos or interconnected to the DisCos’ existing network infrastructure.
The object of this regulation is to accelerate electrification in areas without an existing distribution network and areas with an existing but poorly electrified or non-functional distribution grid. The Regulation seeks to incentivise and simplify the process for private sector participation in mini grid projects, thereby increasing access to unserved and underserved parts of Nigeria. The Regulation aims to minimise major risks associated with mini grid investments in the country, and ease the administrative process and complexities for minigrid operators.
Further to the above, the government of Nigeria, through the Rural Electrification Agency (REA) in implementing the Nigeria Electrification Project (NEP) seeks to support the development of private sector mini grids to electrify unserved areas that have high economic growth potential. The Mini Grid Component is expected to electrify 300,000 households and 30,000 local enterprises through solar hybrid mini grids, as well as kickstart the mini grid market in Nigeria. Under this project the REA has launched a competitive tender for mini grid development in rural areas. The REA, with support from the World Bank, will also provide a subsidy to cover part of the capital expenditure to selected bidders to build the mini grids.
REA with support from the European Union and German government through the Nigerian Energy Support Programme (NESP) and Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) have also launched two projects on isolated and interconnected solar mini grid called Mini Grid Acceleration Scheme (MAS) and Interconnected Mini Grid Acceleration Scheme (IMAS). These schemes are to support the development of solar mini grids in rural under-served communities in Nigeria. MAS seeks to deploy 20 to 40 mini grids to 21,000 customers while IMAS deploys interconnected mini grids to 10 DisCOs regions for 15,000 customers. Both schemes are to be funded by the Rural Electrification Fund (REF) with support from the EU and German government
A significant obstacle to the deployment of microgrids is the access to long-term finance. Companies behind microgrid projects are mostly SMEs, which are not considered credit worthy. Local financiers do have experience with such projects, which are perceived as high risk, yet there are limited risk mitigation mechanisms that address this concern. As a result, mini grids rely mainly on public sector support.
An obstacle to the development of microgrids is the requirement for licensing. Captive power plants only have permits, not licences, to operate. They require licences where they intend to sell stranded power that exceeds 1MW. Captive power plants cannot sell power to willing buyers with their permits, but must obtain generation licences to sell such power. NERC should also consider streamlining the licensing regime process for captive permit holders with excess power (more than 1MW) looking to sell the same to DisCos or eligible customers.
What additional legal considerations are relevant for distributed generation?
There is still some level of uncertainty with respect to regulation as it relates to off-grid projects. Hence discretion remains with NERC, the regulator of the sector. There should be certainty in the regulations for such projects and clarity with respect to the criteria for generally licensing such projects.
Requirement for licensing
This is an issue for captive power generators that only have permits to operate, and not licences, when they have stranded power. The captive power plant cannot sell power to willing buyers with their permits, but they must obtain a generation licence to sell power.
What storage technologies are used and what legal framework is generally applicable to them?
There are no significant energy storage projects in Nigeria. The only form of energy storage is battery storage for solar power applications used on the off-grid or hybrid solar electricity system. The batteries are used to store the power generated during the day by the solar panels. Currently, there is no legal framework for energy storage in Nigeria. We believe that as the electricity market advances, the legal framework for energy storage will be created.
Are there any significant hurdles to the development of energy storage projects?
Major hurdles to the development of energy storage projects are the lack of technical expertise and the lack of funds to undertake such projects.
May foreign investors invest in renewable energy projects? Are there restrictions on foreign ownership relevant to renewable energy projects?
Foreign investors are allowed to invest in renewable energy projects in Nigeria. There are no restrictions to foreign ownership; however, a foreigner who seeks to invest must obtain certain approvals prior to commencing business. They include the following:
- Business registration: any company with foreign participation must register with the Nigerian Investment Promotion Council after incorporation of the company before commencing business and obtain a certificate of registration.
- Business permit: companies with foreign participation in Nigeria are required to obtain a business permit from the Federal Ministry of Interior before they can carry on business in Nigeria. This business permit is a further prerequisite for the processing of work and residential permits that entitle expatriates that may be employed by the company to work and live in Nigeria.
What restrictions are in place with respect to the import of foreign manufactured equipment?
There are no restrictions on the import of foreign manufactured equipment used for the purpose of developing power projects. As an incentive to promote foreign direct investment in the power sector, NREEEP provides incentives for importers to offer energy efficient appliances and lighting through exemption from excise duty and sales tax; and free custom duty for two years on the importation of equipment and materials used in renewable energy and energy efficiency projects.
General government authorisation
What government authorisations must investors or owners obtain prior to constructing or directly or indirectly transferring or acquiring a renewable energy project?
- A generation licence, required to operate a renewable energy project and sell electricity;
- an environmental impact assessment performed by the Nigeria Environmental Standards Regulation Enforcement Agency and the relevant state agency where the plant is located;
- an environmental and social impact assessment especially for projects seeking funding from international lenders and development finance institutions (DFIs);
- a building or development permit for the construction of the power project. This is issued by the relevant state building control agency in the state where the power plant is being constructed;
- an evacuation certificate from the TCN for on-grid projects; and
- a water licence for hydroelectric projects.
What type of offtake arrangements are available and typically used for utility-scale renewables projects?
The offtaker for on-grid generated power in Nigeria is NBET, also known as the bulk trader, which through a vesting contract carries out the resale of power to the DisCos. By a recent ministerial declaration the eligible customer (end user) can now buy directly from generation companies. NBET enters into and executes PPAs with generation companies and the resale of power to distribution companies through vesting contracts.
Procurement of offtaker agreements
How are long-term power purchase agreements procured by the offtakers in your jurisdiction? Are they the subject of feed-in tariffs, the subject of multi-project competitive tenders, or are they typically developed through the submission of unsolicited tenders?
NERC regulations require long-term PPAs to be procured via a competitive tender. A few years ago, realising the need to jump-start greenfield generation, NERC issued a notice allowing for unsolicited tender. This culminated in the signing of a PPA with 14 front-runner IPPs for solar projects with an expected total capacity of 1,125MW. A later notice released by NERC reactivated the provision for competitive procurementwith limited exceptions. Not all renewable projects are subject to feed-in tariffs. The Regulation for feed-in tariffs for renewable energy issued by NERC applies to projects with specific technologies and capacities. Lower capacities below 1MW shall be procured by net metering, while large capacities shall be by competitive procurement. The feed–in tariff is applicable to projects with the following capacity cap: a wind projectis 10MW, small hydro is 30MW, biomass is 10MW and solar PV is 5MW. Competitive tenders will be used for capacities above these thresholds and they are to be procured through NBET.
What government authorisations are required to operate a renewable energy project and sell electricity from renewable energy projects?
To operate a renewable project and sell electricity from a renewable project, the government authorisations required are:
- a generation licence, required to operate a renewable energy project and sell electricity;
- an environmental impact assessment certificate;
- work permits and expatriate quota from the Nigerian Immigration Service where expatriates will be employed;
- a certificate from the National Office for Technology Acquisition and Promotion, certifying registration in respect of the transfer of technology contracts;
- compliance with the Market Rules, Grid Code, Metering Code, Health and Safety Regulations and other regulatory instruments issued by NERC; and
- annual compliance audits on the activities of the generation company and reports to be filed with NERC.
Are there legal requirements for the decommissioning of renewable energy projects? Must these requirements be funded by a sinking fund or through other credit enhancements during the operational phase of a renewable energy project?
The use of renewable energy to generate power is still in its early stages in Nigeria, and until recently the most prevalent source of renewable was hydropower. Biomass, wind and solar are not being fully utilised. Currently, there are no laid down laws or legal requirement for the decommissioning of renewable energy projects in Nigeria.
What are the primary structures for financing the construction of renewable energy projects in your jurisdiction?
The construction of projects are usually financed through a debt and equity mix. The various types of financing are:
- equity capital, which is typically provided through the sponsor or developer, private equity funds, venture capital and impact investors;
- debt finance provided by a range of financial institutions such as development finance institutions, multilaterals, export credit agencies and commercial banks; and
- domestic and international capital markets are sources of funds for financing renewable power projects. They can be obtained through project bonds, sovereign bonds, refinancing and public offering.
What are the primary structures for financing operating renewable energy projects in your jurisdiction?
The operation of projects is usually financed through the same structures as construction financing.
Describe any market trends with respect to development, financing or operation in the renewables sector or other pertinent matters.Describe any notable pending or anticipated legislative proposals.
Market trends31 Describe any market trends with respect to development, financing or operation in the renewables sector or other pertinent matters.Nigeria Electrification Project (NEP): development of solar hybrid mini grids for rural economic development
The aim of the NEP project is to the make reliable electricity services available to 75 per cent of the population by 2020, and to 90 per cent of the population by 2030, with at least 10 per cent of electricity coming from renewable energy by 2025. Under the project, the REA intends to increase electricity access to rural areas through mini grids and stand-alone off-grid solutions. The NEP has four components, including one on Solar Hybrid Mini Grids for Rural Eligible Technologies (the Mini Grid Component). As part of this Mini Grid Component, the REA will support the development of private sector mini grids to electrify unserved areas that have high economic growth potential. The Mini Grid Component aims to electrify 300,000 households and 30,000 local enterprises through solar hybrid mini grids, as well as kickstart the mini grid market in Nigeria. The first component of the project, which is the development of Solar Hybrid Mini Grids for Rural Economic Development, will be implemented under a market-based, private sector-led approach to construct, operate, and maintain economically viable mini grids, supported by subsidies. This component consists of a minimum subsidy tender for mini grids and a performance-based grant programme. The REA, with support from the World Bank, will provide a subsidy to cover part of the capital expenditure for the preferred bidder.
On 17 June 2019, the REA opened the initial selection document submissions for solar hybrid mini grids. The purpose of the initial selection document is to assess the eligibility, qualifications and technical capabilities of private sector developers to deliver the project.
Mini grid Acceleration Scheme (MAS)
On 11 February 2019, the REA called for proposal for the Mini Grid Acceleration Scheme, which consist of designing, construction, commissioning, operation and maintenance of isolated mini grids up to 1MW across the six geopolitical zones of Nigeria. Each geopolitical zone represents a lot under the scheme. On completion, the project is to be operated on a commercial public-private partnership arrangement. The scheme is set to disburse €6 million for the six lots and to deploy between 20 and 40 mini grids to 21,000 customers with 3,500 to 4,000 connections in each lot.
Interconnected Mini grid Scheme (IMAS)
In tandem with the MAS, IMAS, its twin project, called for proposals on 6 May 2019 for interested solar mini grid developers to submit proposals for interconnected mini grid projects. The project is to develop interconnected mini grids up to 1MW across DisCos franchise regions. Each DisCo region represents a lot under the scheme. It is also to be operated as a PPP arrangement in collaboration with interested electricity distribution companies.
Transmission Company of Nigeria (TCN)
The TCN recently increased its transmission capacity. From 7,000MW, a further 1,000MW were added, rounding upward to a transmission capacity of 8,100MW. It was reported that, by the increase, the TCN has moved past being the weakest link in the electricity power value chain.
Legislative proposals32 Describe any notable pending or anticipated legislative proposals.Regulation on distribution franchising
To satisfactorily meet stakeholders’ expectations in the provision of reliable electricity services to all customers within their coverage areas, the NERC has considered a new regulation to allow third parties to take up and maintain parts of the vast electricity distribution networks currently owned by the DisCos. The NERC has drawn up a consultation paper titled: ‘Distribution Franchising in Nigeria’, which explained that by sub-franchising, the DisCos would authorise third-parties to provide electricity distribution (and other utility services) on behalf of the DisCos, within the DisCo’s coverage areas. This franchising arrangement can either be initiated by the DisCos or customer groups within the DisCos’ coverage areas.
The proposed models are:
- metering, billing and collection – the outsourcing of the distribution function of metering, billing and collection to the franchisee;
- total management of electricity distribution function – where the franchisee is responsible for maintaining the electricity distribution system; and
- distributed generation-based electricity distribution franchisee – where the franchisee undertakes to procure more energy either through bilateral arrangements over the transmission network or through embedded generation at local distribution networks.
The public consultation for the proposed regulation was held from 23 May 2019 to 4 July 2019 in various locations in Nigeria.
Electric Power Reform Act(amendment) Bill 2018
In January 2019, the House of Representatives initiated the process to pass the Electric Power Reform Act (Amendment) Bill 2018 that prohibits and criminalises estimated billing. The proposed law, which was to be transmitted to the senate for concurrence and subsequently to the President for his assent, compels all electricity distribution companies to give prepaid meters to applicants within 30 days. The law also provides a punishment of a one-year jail term and a fine of 1 million Nigerian naira for defaulters. Currently, a new tenure for the 9th House of Representatives has begun and it is expected that the Bill will be re-introduced to the House as the previous Bill did not scale through the process before the end of tenure of the 8th House.
Regulation to cap estimated billing
In Nigeria, unmetered customers are billed based on an estimated billing, which is still prevalent among DisCos. The proposed regulation seeks to cap monthly estimated bills issued to consumers by the DisCos. Under the proposed regulation, NERC is considering the option of putting a cap on estimated billing based on the projected average monthly consumption of each tariff class in the MYTO model; applying the average consumption of each tariff within a franchise are as the cap for estimated billing of unmetered customers and capping the estimated bill of consumers within a business unit to the average vending of the same tariff class within the area. The public consultations for the proposed regulation were held from 23 May 2019 to 4 July 2019 in various locations in Nigeria.
Bill to criminalise electricity theft
On average, 30 per cent to 35 per cent of energy loss in the country is as a result of electricity theft. NERC had presented a Bill to the senate titled ‘A Bill for an Act to prohibit and prevent electricity theft, power infrastructure vandalisation and power company protection 2017’. The Bill intends to amend section 94(3) of the Electric Power Reform Act, 2005 by deterring the illegal and unauthorised use of regulated electricity supply as well as to protect electricity infrastructure. It further intends to impose imprisonment for a period of not less than six months and not more than two years or a fine of 100,000 Nigerian naira or both if found guilty of wilfully tapping, making or causing to be made any connection with overhead, underground or under water lines or cables or service wires, or service facilities of a licensee.