Powering Nigeria: A Recap of Developments in the Electric Power Sector

As 2024 unfolds, the Nigerian Electricity Regulatory Commission (NERC) and various market participants have taken noteworthy actions, reflecting the swift transformations within the sector. This overview highlights key developments that have occurred in January 2024 and their implications for the Nigerian electricity landscape.

A. NERC Poised to Support States in Creating Electricity Markets
The Electricity Act provides that once a state establishes its electricity market, NERC will cease to regulate the distribution of electricity within the state. On 23 January 2024, NERC inaugurated three working groups responsible for guiding the establishment of state electricity markets and general implementation of the Act. These working groups cover Legal and Regulatory, Engineering and Technical, and Commercial and Transaction aspects.

We view this as a noteworthy move by NERC, emphasising the importance of a collaborative approach between the Federal Government and the states to give practical, legal and commercial effect to the Constitutional amendment and the new changes to the law. This collaborative effort is crucial for achieving a smooth transition to a de-centralised electricity market in alignment with the stipulations of the Electricity Act.

B. NERC Issues Mini Grid Regulations, 2023
In the early part of January 2024, NERC issued the Mini Grid Regulations, officially signed on 29 December 2023. These Regulations which repealed the 2016 Mini Grid Regulations, specifically target mini grids with a generating capacity of up to 1 MW per site. Additionally, a mini-grid developer focusing on an isolated system with distributed power not exceeding 100kW may apply for a mini-grid permit pursuant to the Regulations.

For Interconnected mini-grids, the NERC mandates the signing of a tripartite contract involving authorised representatives of the connected community, the mini-grid developer, and the Distribution Company (DisCo). The mini-grid developer is obliged to pay a Distribution Use of System (DUoS) charge, determined through mutual agreement with the DisCo. In cases where an agreement cannot be reached, a methodology for determining the charge is outlined in schedule 8 of the Regulations.

A notable improvement in the Regulations is the capping of technical losses at 4% and non-technical losses at 3 percent. This contrasts significantly with the 2016 Regulations, which set both technical and non-technical losses at a maximum of 10 percent each.

The Regulations open doors for companies in the renewable energy infrastructure to invest in the establishment of mini grids powered by clean sources such as solar, wind, and other renewable forms. However, investors are advised to adopt a holistic approach, integrating technological innovation, community engagement, and sustainable business models to optimise the impact and returns on their investments.

C. NERC Removes Board of Kaduna Utility
One of the significant regulatory powers vested on NERC by the Electricity Act is the authority to dissolve the board of a licensee company. The Act empowers NERC to investigate the operations of any licensee company and, in cases where the licensee lacks sufficient assets to cover its liabilities to lenders, NERC can dissolve the board of directors of the company pursuant to section 75 (2) (a) of the Act. In such instances, administrators and special directors may be appointed by NERC to oversee the affairs of the licensee.

A notification of imminent regulatory intervention was issued to the management and shareholders of Kaduna Electricity Distribution Company (KAEDC), namely, Afrexim, Fidelity Bank and BPE. Afrexim and Fidelity Bank had facilitated the US$119.1 million acquisition of 60% of the utility during the privatization exercise in 2013. As a result of the original investors defaulting on the terms of the facility, Afrexim and Fidelity bank had taken over the management of KAEDC but are yet to find a buyer for the shares.

Pursuant to its powers under the Act, NERC, through a notice dated 1 January 2024, dissolved KAEDC’s board of directors due to the company’s failure to settle a substantial debt owed to the Nigerian Bulk Electricity Trading Plc (NBET) and Market Operator (MO).

NERC indicated that it would administer the sale of KAEDC on the basis of the highest and best price offered for the undertaking and in accordance with the provisions of the Act.

D. MOFI Takes Over 40Percent Stake in Discos from BPE
The Ministry of Finance Incorporated (MOFI) was registered pursuant to the MOFI Act of 1959 as an asset holding company of the Federal Government of Nigeria (FGN). It acts as the investment vehicle of all federal government investment interests, estates, easements, and rights across various asset classes ranging from corporate assets, financial assets, fixed assets, mineral and intangible assets, and other cash-flow generating assets.

During the privatisation exercise of the eleven distribution companies (DisCos) in 2013, MOFI granted a Power of Attorney (PoA) to the Bureau of Public Enterprises (BPE) to hold the 40 percent shares retained by the Federal Government in the DisCos. However, in two separate letters recently signed by the Minister of Finance and Coordinating Minister for the Economy along with the CEO of MOFI, the PoA was terminated.

The underlying reason for this development is the government’s desire to have MOFI take over ownership, management, and control of its equity holdings in all companies, as stipulated in its establishing legislation.

As part of this transition, DisCos are mandated to submit board minutes, reports, plans, and financial statements spanning the years 2021 to 2023 to MOFI and BPE-appointed directors on the board of the DisCos were immediately withdrawn. Furthermore, existing share certificates held by BPE will be nullified, and new ones will be issued in favour of MOFI.

E. Kano Utility Collaborate with BlackAion Capital to Raise USD 200 Million Investment for Green Infrastucture
The Kano Electricity Distribution Company (KEDC) has announced a strategic collaboration with BlackAion Capital, a Mauritius-based firm, with the goal of securing funding for interconnected mini-grids and embedded generation projects in Kano, Katsina, and Jigawa States.

The Managing Partner at BlackAion, emphasized the significance of investing in KEDC, underscoring its potential impact on environmental sustainability. The ambitious plan aims to create a minimum of 200 MW of incremental capacity through the establishment of 100 mini-grids and embedded generation projects.

Investors involved in KEDC express their intent to position it as the first Green DisCo in Africa, incorporating innovative elements such as embedded solar hybrid power plants, mini-grids, Energy Storage Systems (ESS), and power purchase agreements with clean energy generators.

F. Discos to Enter into Power Purchase Agreements with Gencos
In the recent Multi-Year Tariff Order (MYTO) released by NERC on 17 January 2024, DisCos have been granted approval to directly procure electricity from Generation Companies (GenCos). This marks a significant shift from the practice where the Nigerian Bulk Electricity Trader Plc (NBET) acts as an intermediary between GenCos and DisCos.

The effectiveness of the bilateral agreements between GenCos and Discos will depend on the creditworthiness of the DisCos. There is also the need for cost-reflective tariffs that ensure commercially viable returns.

Conclusion
These series of developments in the beginning of 2024 highlights the dynamic landscape of Nigeria’s electric power sector.

As the year progresses, the electric power sector holds the promise of being a key player in the nation’s economic growth, encouraging investment and fostering an environment conducive to the sector’s expansion and enhancement.

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Should you have any questions regarding this alert, do not hesitate to contact, Oludare Senbore or Cephas Caleb.

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Contributor
Sunday Agaji