Alternative Energy & Power 2021

October 9, 2021



1 . G E N E R A L S T R U C T U R E  A N D O W N E R S H I P O F T H E  POWER INDUSTRY 

1.1 Principal Laws Governing the  Structure and Ownership of the Power  Industry 

The Electric Power Sector Reform Act, 2005  (EPSRA or “the Act”) is the principal legislation  governing the structure and ownership of enti ties in the Nigerian Electricity Supply Industry  (NESI). The EPSRA was passed for the purpose  of unbundling the existing vertically integrated  and state-owned Nigerian Electricity Power  Authority (NEPA), creating an independent reg ulator for the industry – the Nigerian Electricity  Regulatory Commission (NERC) – and achieving  market liberalisation. The Act introduced several  reforms including:  

  • the formation of 18 successor companies  from the unbundled NEPA and the privatisa tion of the successor companies, except the  Transmission Company of Nigeria (TCN);  
  • the establishment of the Rural Electrification Agency (REA) and a rural electrification fund; and  
  • the establishment of the Power Consumer  Assistance Fund (PCAF).  

Structure of the NESI  

The NESI is structured as a progressively com petitive market with a three-phased approach  to liberalisation.  

  • The transitional electricity market (TEM) – this  is the first stage of the market which is char acterised by an unbundled service structure  

and contract-based transactions, thereby  introducing competition into the NESI. The  NESI is currently in this first stage, although the relevant industry contracts have not been  activated.  

  • The medium-term market – this second stage  is characterised by full competition in the  NESI. This stage will witness more compe tition in electricity generation, a centrally  administered balancing system for the market  and limited retail competition.  
  • The final market – this is the final stage envis aged by the EPSRA and it will be character ised by full wholesale and retail competition,  governed by bilateral contracts.  

Market Participants  

The NESI is comprised of several fully unbun dled entities across the value chain overseen by  an independent regulator empowered to regu late the generation, transmission, distribution,  and supply of electricity.  

The structure of ownership of NESI participants  depends on the nature of the entity. The NESI  comprises successor companies and other  independent companies, and the ownership  structure of the successor companies depends  on the modality of privatisation employed in  respect of the particular asset.  

The Federal Government of Nigeria (FGN)  employed several methods to privatise suc cessor companies, such as core investor sales,  asset sales, management contracts and con cessions. The hydro generation plants were  concessioned for a 15-year period to investors,  while the thermal generation plants were priva tised via asset sales. The distribution companies  were privatised under a core investor sale. The  transmission service remains within the control  of the FGN.  

In addition to the successor companies, there  are several private entities licensed by NERC  including independent power producers (IPPs),  such as the Azura power plant (the first project 

financed power generation plant in Nigeria). NERC has also licensed some independent elec

tricity distribution networks (IEDN) for specific closed uses.  

To prevent the emergence of vertically integrat ed entities, the EPSRA prohibits any licensee  from the acquisition, purchase or otherwise of  any other licence from a person in the business  of electricity generation, transmission, system  operation or trading, except as permitted under  the Act.  

Regulatory Bodies  

In addition to NERC, the following government  bodies also have an impact on the NESI:  

  • the Federal Ministry of Power – responsible  for policy direction for the NESI; and  • the Gas Aggregation Company of Nigeria –  responsible for co-ordinating the domestic  gas supply.  

1.2 Principal State-Owned or Investor Owned Entities 

The ownership of power utilities in Nigeria is  organised as follows.  

State-Owned Power Utilities  

Generation 

Following the privatisation of the successor gen eration companies, the FGN retained ownership  of the hydro-power generation plants. However,  these have been concessioned to private com panies for initial terms of 15 years each.  

Transmission 

TCN is wholly owned by the FGN and is respon sible for electricity transmission in Nigeria. TCN  was established and licensed to manage the  electricity transmission network and it houses  two business units which are licensed by NERC  to provide electricity transmission services and  system operations. TCN is comprised of three  operational departments: transmission service  

provider (TSP), system operator (SO) and mar ket operator (MO).  

TCN initially operated under a management  contract by Manitoba Hydro International for a  period of three years. Upon termination of the  management contract, the management and  operation of TCN reverted to the FGN.  

Investor-Owned Power Utilities 

There are several investor-owned companies  operating in the NESI under licences issued by  NERC. These include some of the privatised suc cessor distribution and generation companies.  

Generation  

Investor-owned successor generation compa nies in Nigeria include:  

  • Afam Power Plc Egbin Power Plc;  
  • Kainji Hydro Electric Plc; 
  • Sapele Power Plc;  
  • Shiroro Hydro Electric Plc; and  
  • Ughelli Power Plc.  

There are also several licensed IPPs operating  in different parts of the country. The generation licences issued by NERC are for on-grid, off-grid and embedded power generation.  

Transmission  

No investor-owned company transmits power in  Nigeria.  

Distribution 

No distribution network is wholly owned by  investors.  

Investor/State-Owned Power Utilities  Generation and transmission  

No generation or transmission assets are jointly owned by investors and the FGN.

NIGERIA Law and Practice 

Contributed by: Chiagozie Hilary-Nwokonko, Gloria Biem, Michelle Akpaka and Feyikemi Fatunmbi,  Streamsowers & Köhn 

Distribution 

Distribution of electricity in Nigeria is carried out  by 11 successor distribution companies (“Dis cos”) operating within their franchise areas. The  Discos are jointly owned by the FGN and private investors, with each investor holding 60% and  the FGN holding 40%. The Discos are:  

  • Abuja Electricity Distribution Company Plc; • Benin Electricity Distribution Company Plc;  • Eko Electricity Distribution Company Plc;  • Enugu Electricity Distribution Company Plc;  • Jos Electricity Distribution Company Plc;  • Ibadan Electricity Distribution Company Plc;  • Ikeja Electricity Distribution Company Plc; • Kaduna Electricity Distribution Company Plc;  • Kano Electricity Distribution Company Plc;  • Port Harcourt Electricity Distribution Com pany Plc; and  
  • Yola Electricity Distribution Company Plc.  

Of the 11 Discos, the Yola Disco was repos sessed by the FGN following the exercise of  the put-call option by the initial investor due to  insurgency within its franchise area. The FGN  recently approved the sale of the Yola Disco to  a new investor. As at the date of publication, the  sale is yet to be finalised. 

Sale of Electricity  

The sale of electricity is conducted by the Nige rian Bulk Electricity Trading Plc (“NBET” or the  “Bulk Trader”), which is licensed by NERC.  Generation companies (“Gencos”) sell power  generated in bulk directly to NBET, and NBET  sells this power to the Discos and other eligible  customers. This arrangement was designed to  guarantee the demand and supply of electricity  in the NESI.  

NBET enters into power purchase agreements  (PPAs) with the Gencos for the bulk purchase  of power and vesting contracts with the Discos  for the resale of electricity. Transmission from  

the Gencos to the Discos is executed by TCN  through grid connection agreements with the  Gencos and transmission agreements with the  Discos.  

Electricity sale to end-users is undertaken by the  Discos within their franchise areas. Payment for  electricity is made by consumers to the Discos  and then remitted to NBET for settlement of all  invoices along the value chain to the various  market participants.  

1.3 Foreign Investment Review Process Generally, there are no specific laws that pro mote or restrict foreign investment in the NESI.  During the privatisation era, bids for successor  companies were made by both foreign and local  companies, with the emphasis on the bidder  who could offer the most value. Most of the core investments in the successor companies were in  the form of foreign direct investment (FDI).  

Incentives for Investing in the NESI  Post-privatisation, the FGN has taken steps to  attract FDI into the sector by creating policies  to improve financial rewards for investors. The primary benefit to investors is the implementa tion of the Multi Year Tariff Order (MYTO), which is designed to create a cost-reflective tariff that accounts for operating costs and guarantees  capital recovery, incentivising efficient opera tions based on the best capabilities and tech nology.  

Foreign investments in the NESI are generally  subject to the usual foreign investment laws, guidelines and incentives. The desired invest ment may be brought in by way of an equity  investment, a loan to a local company or a mix of  equity and debt. This equity or loan may take the  form of cash or equipment. Investors are guar anteed repatriation of their investments brought  into Nigeria through the authorised channels. 

The licensing of NBET to guarantee offtake and resale of power generated until the Discos  become credit-worthy and capable of entering  bilateral contracts with the Gencos was also an  initiative to incentivise investment.  

In addition, the general incentives for investment,  in the form of tax breaks applicable to other sec tors of the economy, also apply to the NESI. For  example, companies manufacturing transform ers, meters, switch gears, control panels, etc,  are guaranteed a three to five-year tax holiday. 

Protection against Seizure and Forfeiture  Nigerian law protects FDIs against seizures  and forfeitures. The Constitution of the Feder al Republic of Nigeria 1999 (as amended) (the  “Constitution”) generally prohibits the seizure of  a citizen’s property but provides a procedure to  divest a person of their property.  

Furthermore, Section 25 of the Nigerian Invest ment Promotion Council Act encourages foreign  investment in Nigeria and assures foreigners that  such investments are preserved from expropria tion or compulsory acquisition by any govern ment of the federation.  

Compulsory acquisitions are only permitted  where such acquisition is in the national interest  or for a public purpose, and under a law that  makes provision for (a) payment of fair and ade 

quate compensation and (b) a right of access to  the courts for the determination of the investor’s  interest or right and the amount of compensa tion to which the investor is entitled. Nigeria is a  party to several bilateral investment promotion  and protection agreements and treaties which  signal its efforts to attract and protect foreign investment. Every investor in the power sector  is guaranteed access to the Nigerian courts, as  well as arbitration of the parties’ choice. Foreign  arbitral awards can be enforced in Nigeria, since  Nigeria is a signatory to the Convention on the  

Recognition and Enforcement of Foreign Arbitral  Awards.  

1.4 Principal Laws Governing the Sale  of Power Industry Assets 

There are no sector-specific laws dealing with the sale or transfer of power assets. Any such  sale or transfer will be subject to regular Nige rian laws governing such transactions, such  as the Companies and Allied Matters Act, the  Investment and Securities Act, the Securities  and Exchange Commission (SEC) Rules (where  the entity is a public company), and the Fed eral Competition and Consumer Protection Act  (FCCPA).  

Regulatory Consents for Sale of Assets  Section 69 of the EPSRA prohibits transfers  or assignments of power assets and licences  without the consent of NERC. The NERC order  on the procedure for obtaining the approval of  the Commission for the assignment/ceding of  a licence, transfer of undertaking or change  in shareholding of licensed entities, issued in  September 2013 pursuant to Section 69 of the  EPSRA, regulates the transfer of assets or inter est in assets in the NESI.  

NERC has also issued guidelines for the deter mination of fit and proper entities and persons engaged in electricity undertakings in the NESI.  This document sets out the minimum standards  to be met by any market participant and any per son in a directorship or executive management  position in a licensee, who holds more than 5%  equity in a relevant licence.  

Under said guidelines, the transferee must have  technical and financial capacity, must be able to establish a sustainable business, and must  also satisfy personal and corporate governance  requirements

The objective of these regulations is to prevent vertical arrangements in the NESI and to foster  competition. The EPSRA is attentive to cross holdings or cross-ownership between licensees  and requires that applicants for licences disclose  their interest in any other licensee where such  holding is at or above 10%.  

Competition Regulation  

The sale of power assets will be regulated under  the FCCPA. This act prohibits restrictive agree ments and abuses of dominant position result ing from a sale or merger of business entities or  assets. The FCCPA also provides for notification of any mergers or acquisitions, or arrangements  which meet certain thresholds.  

Section 93 (1) of the FCCPA provides that all  large mergers and some small mergers occurring  in Nigeria shall be notified for review and approv al to the Federal Competition and Consumer  Protection Commission (FCCPC). In consider ing a transaction for the purpose of approval,  the FCCPC will typically request proof of sector regulatory approval.  

A merger or acquisition or a relevant notifiable transaction may not be implemented without the  approval of the FCCPC, which may approve a  transaction unconditionally or impose conditions  or prohibit the implementation of a merger. It is  worth noting that the FCCPC has extraterrito rial jurisdiction. Thus, foreign transactions which have an impact in Nigeria may also be notifiable. 

The FCCPC has established several procedures  for the notification process, as follows: 

  • the expedited process – this is a 15-day noti fication process which may be adopted upon payment of the relevant fees;  
  • the simplified process – this process lasts 45 days and may be adopted for transactions  

which parties do not envisage will raise any  competition concerns; and  

  • the standard procedure – this is a standard  notification process that lasts 60 days. 

An applicant may combine the expedited and  simplified procedures by paying the relevant fees.  

The FCCPC has published regulations and  guidelines aimed at clarifying which entities  have been processed under the FCCPA and  has shown willingness to engage with parties to  avoid a breach of the FCCPA.  

1.5 Central Planning Authority 

The determination of electricity supply adequacy  and generation planning and development falls  within the purview of TCN, as does transmis sion system planning and the development and  enforcement of system reliability standards.  

TCN’s functions are primarily to build, operate,  expand and upgrade transmission facilities for  the efficient and effective transmission of gen erated electricity, to create adequate network  redundancies to ensure at least 99.9% reliabil ity, and to reduce transmission losses to less  than 5%.  

(the SO is also responsible for the design,  installation and maintenance of supervisory  control and data acquisition (SCADA) and  other communication facilities for effective grid operations); and  

  • the market operator (MO) – responsible for  the administration of the wholesale electricity  market, the implementation of market rules  and settlement arrangements.  

1.6 Recent Material Changes in Law or  Regulation 

There has been no recent change in the primary  legislation governing the NESI. However, NERC  has issued several regulations and guidelines  that are instrumental to the development of the  power sector.  

The most recent guidelines issued by NERC  include the 2020 Guidelines on Filing Applica tions for Competition Transition Charge by Elec tricity Distribution and Trading Licensees, which  are targeted at adequately compensating Discos  and electricity traders for losses suffered as a result of the exit of an eligible customer from  the network.  

NERC has also issued Guidelines on Distribu tion Franchising in the NESI, to regulate franchis ing arrangements entered by the Discos and to  ensure that customer care standards are com plied with.  

There is a bill pending before the National  Assembly that seeks to amend the EPSRA. This  bill proposes to provide for NERC’s effective supervisory role over the distribution companies  through the provision of a regulation for tariff increments, consumer education and alternative  energy sources for sufficient power supply, and other related matters.  

1.7 Announcements Regarding New  Policies 

There have been no significant policy changes regarding the NESI. However, there are several  programmes which have been announced by  the FGN or which are being implemented in the  NESI.  

The World Bank Power Sector Reform Pro gramme (PSRP) is driven and funded by the  World Bank and designed to achieve policy  actions and operational and financial interven tions to be implemented by the FGN to attain  financial viability in the NESI. The FGN also intro duced the National Mass Metering Programme  in collaboration with Discos and local meter  manufacturers to provide smart prepaid meters  to all unmetered customers.  

1.8 Unique Aspects of the Power  Industry 

The NESI has certain characteristics and faces  several challenges that are unique to it. One  major feature of the NESI is the existence of NBET, which is designed to function as an inter im body to reassure investors and guarantee  the demand and supply of electricity pending  the declaration of full competition in the market.  To ensure performance of its functions, NBET  is supported by the FGN and the World Bank  through the issuance of credit enhancement  guarantees.  

Another unique feature of the NESI is the lack  of active contracts. Several years after the dec laration of TEM, strategic contracts such as the  PPAs and vesting contracts are still not active.  This has resulted in liquidity challenges and the  emergence of FGN bail-outs.  

Following the Central Bank of Nigeria-Nigerian  Electricity Market Stabilisation Fund (CBN NEMSF) introduced in 2014 to plug the losses  incurred during the interim rules period estimat

ed at NGN213 billion, the FGN introduced the  payment assurance facility (PAF) in 2017 – worth  NGN701 billion – to guarantee payment of the  Gencos’ invoices.  

Like the CBN-NEMSF, the PAF is described as a  loan to NBET to meet its obligations and is to be  paid back over an agreed period. The success or  otherwise of both schemes is arguable.  

2 . M A R K E T S T R U C T U R E ,  SUPPLY AND PRICING 

2.1 Structure of the Wholesale  Electricity Market 

The NESI wholesale market is structured as pro gressively competitive, currently based on the  single-buyer model co-ordinated by NBET. The  NESI is currently in TEM which ought to be char acterised by active contracts and the introduc tion of competition. 

EPSRA Regulations 

Section 68 of the EPSRA provides for the grant ing of trading licences for purchasing, selling and  trading of electricity. The EPSRA also provides  for the granting of temporary licensing for bulk  purchasers who will have the right to purchase  power and ancillary services from successor  Gencos and IPPs, and to resell these to Discos  and other eligible customers. NBET was licensed  as a bulk purchaser pursuant to this provision. 

Role of the PPAs 

The wholesale electricity market has been  designed around NBET as the bulk purchaser.  NBET has entered several PPAs with succes sor Gencos and IPPs for energy generated and  capacity maintained, whether this was commen surate with the energy generated or not. NBET  has also entered energy-only PPAs. Although  this latter type of PPA includes a capacity com ponent, the payments made are equivalent to  

the energy generated. The result is that the NESI  consists of two types of PPAs. 

The price of wholesale electricity is largely deter mined by the PPAs on a Genco-by-Genco basis.  Although NERC issues tariffs to the Gencos, these form the baseline for the Gencos’ tariffs and do not indicate the actual cost of wholesale  electricity. These rates are reviewed periodically,  taking into consideration the prevailing exchange  rate, the rate of inflation and the current price of gas. Consequently, the price of power generated  varies from Genco to Genco. 

Sale of Electricity 

NBET then sells bulk electricity to the Discos  and, upon reconciliation with the MO, settles  the relevant market invoices. The MYTO for the  respective Discos sets out the tariff applicable 

to each Disco.  

2.2 Imports and Exports of Electricity Nigeria currently supplies power to Togo, the  Benin Republic and Niger under bilateral agree ments entered between the governments of  Nigeria and these countries. At the time of writ ing, none of these countries supplies power to  Nigeria.  

Nigeria is also a member of the West African  Power Pool (WAPP), an agency of the Economic  Community of West African States (ECOWAS),  under which arrangement it trades electricity  with some of its neighbouring ECOWAS coun 

tries. WAPP is an initiative conceived to achieve  a regional electricity market for the ECOWAS  region.  

2.3 Supply Mix for the Entire Market The supply mix for the NESI comprises thermal,  hydro and solar-generated power. NBET cur rently has three hydro PPAs and over 20 ther mal PPAs. There is also the famous Azura PPA  entered with Azura Power for the development

of the Azura-Edo IPP Project, the first project financed electricity IPP in Nigeria. 

Although NBET reportedly signed agreements  with about 14 solar PPAs to promote on-grid  solar projects, none of these PPAs has achieved financial success. However, there are several mini solar projects in Nigeria which supply power to homes and businesses on an isolated level.  

In this publication, the focus is on hydro and  thermal sources. 

2.4 Principal Laws Governing Market  Concentration Limits 

There are no specific laws governing market concentration limits in the NESI. However, NERC  is empowered by the EPSRA to enforce com petition in the electricity sector at the different stages of the NESI.  

NERC is also responsible for ensuring that the  abuse of market power is prevented or mitigat ed, and it may conduct investigations, undertake  inquiries or monitor licensees for this purpose.  

Furthermore, NERC can issue cease-and-desist  orders to discontinue certain behaviours, impose  penalties, levy fines, and make any other orders consistent with discharging its role as regulator. 

2.5 Agency Conducting Surveillance to  Detect Anti-competitive Behaviour The EPSRA contains provisions to determine  anti-competitive behaviour. Generally, anti competitive behaviour will be considered in the  context of market power, exclusivity or disparate  treatment. The major indicators are: 

  • the ability of a seller or group of sellers to  maintain prices above a competitive level;  and  
  • the ability to maintain stable prices while  reducing the quality of the product or service  provided over a significant period. 

The FCCPC is also empowered to monitor com petition across various segments of the Nigerian  economy and may sanction any anti-compet itive or monopolistic business operations. The  FCCPC is empowered to conduct investigations,  request documents, and compel witnesses to  provide information where necessary. Further to  an investigation, the FCCPC may prohibit cer tain conduct, require corrective measures to be  taken, sanction companies for gun-jumping or violation of other provisions of the FCCPA and  where necessary, prosecute offenders. 

The recently published FCCPC administrative  fines and penalties guidelines 2020, sets out the principles for determining applicable penalties  and the mode of calculating these penalties.  

3 . C L I M AT E C H A N G E  L A W S A N D A LT E R N AT I V E  ENERGY 

3.1 Principal Climate Change Laws and/ or Policies 

Given the developments in the global energy  market, the development of a climate change  policy and response strategy is critical to the  Nigerian economy. The government’s vision  20:2020 identified investment in low-carbon 

fuels and renewable energy as one of its key  pillars. Successive governments have also iden tified investments in alternative energy sources and reduction of emissions as important to the  economy.  

While there is no legislation targeted specifically at addressing climate change issues in Nigeria,  piecemeal provisions have been included in

some legislation and policy documents issued  by successive governments. These include:  

  • the National Environmental Standards and  Regulations Enforcement Agency Act (NES REAA), Section 7 of which mandates the  agency to enforce compliance with the provi sions of international agreements, protocols,  conventions, and treaties on the environment;  the NESREAA also issued the National Envi ronmental (Energy Sector) Regulations, 2014  for the power industry;  
  • the Environmental Impact Assessment Act;  • the Harmful Waste (Special Criminal Provi sions etc) Act;  
  • the Nuclear Safety and Radiation Protection  Act; and  
  • the National Policy on Climate Change Nige ria 2013.  

There is presently a climate change bill pend ing before the National Assembly that seeks to  establish a legal framework for climate change.  The relevant documents on climate change laws  in Nigeria include the following: 

  • National Policy on Climate Change;  • UN Framework Convention on Climate Change;  
  • National Environmental Standards and Regu lations Enforcement Agency (Establishment) Act, 2007;  
  • National Environmental Standards and Regu lations Enforcement Agency (NESREA);  • National Adaptation Strategy and Plan of Action on Climate Change for Nigeria;  • Climate Policy Database;  
  • NESREA National Policy on Environment;  • NESREA Draft Objectives and Strategies for Nigeria’s Agenda;  
  • WHO Country Planning Cycle Database; and  • Flare Gas (Prevention of Waste and Pollution) Regulations, 2018.  

International Conventions  

In 2011, the Federal Executive Council approved  a national adaptation strategy and plan of action  on climate change for Nigeria (NASPA-CCN) as  a national document for implementing climate  change activities in Nigeria. The NASPA-CCN is  in line with the United Nations framework con 

vention on climate change and the Kyoto Pro tocol.  

The National Assembly has ratified the United Nations Framework Convention on Climate  Change (the Paris Agreement) and the Kyoto  Protocol, making them binding under domestic  law.  

Under the Paris Agreement, Nigeria has commit ted to the unconditional reduction of greenhouse  gas emissions by 20% below business-as-usual  projections by 2030, and a conditional contribu tion of a 45% reduction, based on commitments  with international support.  

While Nigeria does not have a set emission  threshold, it has adopted the clean development  mechanism (CDM) under the Kyoto Protocol to  limit carbon emissions. The CDM is designed  to encourage investment in, and the transfer of,  environmentally safe technologies that reduce  emissions of greenhouse gases.  

3.2 Principal Laws and/or Policies  Relating to the Early Retirement of  Carbon-Based Generation 

Carbon-based power generation in Nigeria  emanates from two sources: coal and gas-fired plants. All the coal-fired power plants built in Nigeria have been retired, albeit not by any delib erate policy. Today, all thermal power generation  plants in Nigeria are gas-fired. There is no spe cific legislation encouraging the early retirement of such facilities.

3.3 Principal Laws and/or Policies  to Encourage the Development of  Alternative Energy Sources 

There are several policies geared at driving  investments in alternative energy sources, espe cially for remote, unserved and under-served  areas. NERC has issued several regulations to  promote the development of alternative energy  sources in Nigeria.  

Investment in renewable energy technology is  driven by the private sector, with support from  the government and some international organi sations. This support typically takes the form of  grants to private companies investing in renew able energy from funding secured by the gov ernment, from donor organisations such as the  African Development Bank Group (AfDB) and the  World Bank.  

Policies  

In 2015, the FGN issued the national renewable  energy and energy efficiency policy (NREEEP), 2015 to harmonise several existing policies on  renewable energy and energy efficiency. The NREEEP is to be implemented by the nation al renewable energy action plan for 2015–30  (NREAP). Other FGN policies include:  

  • the national energy policy, 2015;  
  • the national bio-fuel policy and incentives,  2007;  
  • the national economic empowerment and  development strategy (NEEDS), 2004; and  • the renewable energy master plan (REMP)  2006 (implemented by the Ministry of Envi ronment and the UNDP) which sought to  increase the supply of renewable electricity  from 13% of total electricity generation in  2015, to 23% in 2025 and 36% by 2030.  

Some of these policies are no longer implement ed for several reasons, not least of which has  been a change in administration and the intro 

duction of new policies. Several FGN agencies  are charged with co-ordinating renewable ener gy technology to make it accessible.  

Currently, the REA is charged with providing  decentralised energy solutions through renew able energy technology, aimed at reducing  unserved and under-served areas in Nigeria.  

REA, in collaboration with the World Bank and  AfDB, is the implementing agency for govern ment policies aimed at providing funding for  investments in alternative energy sources. The  Nigeria Electrification Project (NEP) signed by the AfDB in 2019 aims to provide electricity to  one million households and 250,000 micro, small  and medium-sized enterprises in off-grid com munities.  

The FGN, in April 2021, launched the Solar  Power Naija programme for deployment of solar home systems under the economic sustainabil ity plan. This plan is also to be implemented by  the REA.  

Regulations  

NERC has also issued some regulations to  incentivise investments in renewable energy  solutions. The Regulation on Renewable Energy  Generation was issued in 2015 with the aim of  providing a feed-in tariff that encourages new 

renewable energy development. This regulation  created long-term financial incentives to inves tors who generate renewable electricity, offering a standardised and streamlined process to do  so, thereby easing the entry of the new systems.  

To incentivise investment in renewables, NERC  has stated that the following incentives will be  available to such investments:  

  • guaranteed price and priority access to the  grid;

    • feed-in tariffs for solar, wind, biomass and small hydro plants;  
    • PPAs based on a plant life cycle of 20 years;  • obligation of the Discos to source at least  50% of their total commitments from renew able energy, among others; and  
    • NBET will procure a minimum of 1,000 MW of  the total projected renewable sourced elec tricity.  

    NERC has also issued the following:  

    • mini-grid regulations, which provide the  framework for the registration and operation  of mini-grids in Nigeria; and  
    • independent electricity distribution network  (IEDN) regulations, which regulate the licens ing and operation of IEDN systems.  
    1. GENERATION 

    4.1 Principal Laws Governing the  Construction and Operation of  Generation Facilities 

    The EPSRA regulates the construction and oper ation of electricity generation facilities in Nige ria and provides that no person may construct  or operate power generation facilities without a  licence granted by NERC. 

    NERC Generation Licence 

    A generation licence entitles the holder to con struct, own, operate and maintain a generation  station for the purposes of the generation and  supply of electricity. The licence is issued for a  duration of ten years and is renewable for a fur ther term of five years. 

    NERC Licensing Regulations 

    The NERC Application for Licences (Generation,  Transmission, System Operations, Distribution  and Trading) Regulations 2010 (the “Licens ing Regulations”), cover the procedures for the  

    application and obtaining of licences issued by  NERC, and their renewal, extension, suspension,  cancellation and withdrawal.  

    NESIS Regulations 

    In addition, the Nigerian Electricity Supply and  Installation Standards Regulations 2015 (NESIS  Regulations) provides standards for the design,  construction and commissioning of power sys 

    tems throughout the value chain of electricity  generation, transmission and distribution.  

    The NESIS Regulations cover site requirements,  plant design, construction of power plants, and  power evacuation. The NESIS Regulations also  set out the engineering, health and safety, and  environmental standards which must be com 

    plied with by a generator.  

    4.2 Regulatory Process for Obtaining  All Approvals to Construct and Operate  Generation Facilities 

    Approvals to Construct 

    The NESIS Regulations provide that a Genco  must obtain the following approvals to construct  a generation facility.  

    • Site approval: This approval is granted by  NERC and other relevant agencies. The  Genco must also obtain the consent of the  host community.  
    • Plant design approval: The Genco must  submit a detailed engineering design for the  power station, based on applicable national  and international engineering codes, to NERC  for approval.  
    • Construction permit: The Genco must then  obtain a construction permit from NERC for  the commencement of construction of the  plant.  

    In addition, the Genco may need to obtain per mits from other agencies, such as the Federal  Inland Waterways for use of inland water bodies 

    and the Federal Ministry of Environment for an  environmental impact assessment.  

    The NESIS Regulations provide for a detailed  consideration of environmental factors and  standards which must be complied with, and  make specific provisions for waste disposal, 

    stack emissions, fuel source, etc.  

    Approval to Operate 

    Operation of generation facilities is conducted  pursuant to a generation licence. The Licens ing Regulations provide the documentation and  procedure for licence applications.  

    An application for a generation licence will typi cally go through the following stages.  

    • Application stage: The application is made  in writing by completing and submitting an  application form in the required format. The  application must be accompanied by docu ments and a non-refundable processing fee.  
    • Evaluation stage: The application will be  evaluated by three divisions of NERC – legal,  engineering and market competition. The  applicant must arrange an environmental  impact assessment (EIA) of the site as well as  an evaluation of how effluents and discharges will be handled. The applicant must have  entered an off-take agreement or, where the applicant proposes to supply power to the  grid, a PPA will have to be entered with NBET.  
    • Publication stage: Upon satisfaction that all  the relevant information has been provided,  NERC will notify the applicant that the appli cation has been filed and request that the 

    statutory public notice be published. The  publication of the notice will be made at the  applicant’s cost within 30 days, and in at least  two daily newspapers, giving the public an  opportunity to raise any objections. 

    • Approval stage: NERC will thereafter grant or  refuse the application upon due considera tion.  

    4.3 Terms and Conditions Imposed in  Approvals to Construct and Operate  Generation Facilities 

    A licensee constructing a generation plant is  required to comply with the conditions in the  NESIS Regulations. These include compliance  with:  

    • design specifications; 
    • fuel specifications, including emission requirements as prescribed by the NESREAA;  • environmental considerations, such as noise  control and aesthetic treatment of the project; and 
    • engineering and construction standards, and  compliance with Nigeria’s National Build ing Code as well as federal, state and local  government building and health and safety  regulations and procedure.  

    The NESIS Regulations may only be derogated  from on the approval of NERC. The Guidelines  on Derogation from Technical Codes and Stand ards in Electricity Generation, Transmission, Dis tribution and Supply in Nigeria provide for the  application and review process for derogation  from technical codes and standards in relation  to electricity generation, transmission, and dis tribution licences.  

    Terms and Conditions for Operation of a  Licence  

    The EPSRA outlines certain terms and condi tions which may be imposed on a licensee.  These include requirements:  

    • to enter into agreements with other parties  for the provision or use of electric lines, etc,  operated by the licensee; 
      • that the licensee purchases power and  resources in an economical and transparent  manner;  
      • that the licensee refers disputes for arbitra tion, mediation or determination by NERC;  • prohibiting assignment or transferral of the  

Once this process is concluded, the licensee  will be entitled to access its rights over lands,  buildings or streets to discharge its licence obli gations.  

4.5 Requirements for Decommissioning The National Guidelines for the Decommission ing of Facilities in Nigeria, issued by the Federal  Ministry of Environment, provide that a decom missioning plan will be developed in accordance  with the Ministry’s stated guidelines in relation  to environmental sustainability. These guidelines  specify the decommissioning requirements and  acceptable standards required for eliminat ing environmental and health hazards during  decommissioning and site clean-up.  

In the absence of any sector-specific provisions on decommissioning of power facilities in the  EPSRA or any regulations to that effect, a licen see will be required to comply with these guide lines and any others prescribed by a relevant  body from time to time. The guidelines provide  for the following:  

  • the removal of structures on or beneath the  ground;  
  • the disposal or secure isolation and/or treat ment of contaminated equipment in situ or off site;  
  • the remediation of aesthetics;  
  • containment control of contaminants;  • a general site clean-up of access to physical  structures remaining on site that are unsafe or  hazardous to humans or animals;  
  • remediation of aesthetically unacceptable  portions of the site (filling in of pits, removal of stained soil and odorous material, levelling of  mounds, disposal of waste rock, etc); and  
  • a clean-up of the site to a level that will pro vide long-term environmental protection and  be safe for intended future use.  
  1. TRANSMISSION 

5.1 Regulation of Construction and  Operation of Transmission Lines and  Associated Facilities 

5.1.1 Principal Laws Governing the  Construction and Operation of Transmission  Facilities 

Construction and operation of the transmission  network are vested in TCN, which is licensed  under the EPSRA. TCN’s licence entitles it  to carry on grid construction, operation and  maintenance of the transmission system within  Nigeria, and transmission systems that connect  Nigeria with neighbouring jurisdictions. 

Construction of Transmission Facilities  The construction of transmission lines and asso ciated facilities is mainly regulated by the NESIS  Regulations, which provide for:  

  • the regulation of engineering design, instal lation, commissioning and maintenance of  electrical power systems, setting out the  standard technical requirements for civil  works and buildings for 330/132/33 kV trans mission substations in the national grid; and  
  • civil works including layouts, structures,  buildings and foundations, electromechanical  works, and bus-bar arrangements.  

The NESIS Regulations deal with major trans mission equipment, the SCADA system and  related health and safety matters.  

Operation of Transmission Facilities The operation of the transmission system is  governed by the EPSRA and the grid code. The  EPSRA provides for the licensing of the SO,  which is responsible for operating the transmis sion network to ensure system reliability and  stability.

The grid code regulates the operation, proce dures and principles for the transmission system,  and is geared towards achieving an effective, well co-ordinated and economic transmission  system for the NESI. The grid code applies to  TCN and all users of the transmission system.  “Users” are defined as persons using the trans mission network as permitted by the TSP and  NBET.  

See 1.5 Central Planning Authority for more  on TCN. 

The following documents contain the regulations  relating to transmission: 

  • Electric Power Sector Reform Act (EPSR), 2005;  
  • NERC Grid Code; and  
  • Nigerian Electricity Supply and Installation Standards Regulations 2015.  

5.1.2 Regulatory Process for Obtaining  Approvals to Construct and Operate  Transmission Facilities 

Approval to Construct  

The regulatory approval to construct transmis sion facilities is embedded within the transmis sion licence granted by NERC. Section 65 of the  EPSRA authorises the transmission licensee to  carry out grid construction and maintenance.  The transmission network in operation today  was constructed by the FGN.  

While the NESIS Regulations are clear that  licensees must comply with its provisions in  constructing or installing electrical facilities, the  approval procedure for construction of transmis 

sion facilities is not clearly provided. In practice,  TCN informs NERC of the construction of any  transmission substations, and further to Chapter  3 of the NESIS Regulations, TCN obtains written  approval from NERC prior to the construction of  transmission lines.  

Approvals to Operate  

See 4.2 Regulatory Process for Obtaining All  Approvals to Construct and Operate Genera tion Facilities for the procedure on obtaining  licences from the NESI.  

5.1.3 Terms and Conditions Imposed  in Approvals to Construct and Operate  Transmission Facilities 

A transmission licensee must comply with  NESIS Regulations in constructing and installing  transmission facilities. The NESIS Regulations  provide for the following, among other things:  

  • the minimum qualification of engineering personnel;  
  • documentation and reporting obligations;  • where required, the equipment or materials to  be used must meet the specified ISO stand ards for various transmission equipment;  • the design of civil works and specification of materials must consider the environmental  impact of all elements;  
  • where required, NIS (Nigerian Industrial  Standards and Codes) for safety machinery  and other materials must also be met; and  
  • the design of all buildings and structures  under the civil works must comply with the  Nigerian National Building Code.  

The NESIS Regulations provide that every licen see must ensure that it has an EIA Report and a  certificate from the Federal Ministry of Environ ment prominently displayed in its principal place  of business.  

The grid code provides that the development  of the transmission network must be planned in  advance, with adequate time to obtain all neces sary approvals, such as EIAs, forest clearance,  road or railway clearance, clearance from avia tion authorities and rights of way. A proposed  development plan must also allow for detailed

engineering and construction work to be car ried out.  

See also 4.3 Terms and Conditions Imposed in  Approvals to Construct and Operate Genera tion Facilities.  

5.1.4 Proponent’s Eminent Domain,  Condemnation or Expropriation Rights See 4.4 Proponent’s Eminent Domain, Con demnation or Expropriation Rights

5.1.5 Transmission Service Monopoly Rights Transmission is the exclusive preserve of TCN,  and its jurisdiction covers the whole country. TCN has exclusive rights to construct and oper ate transmission facilities within Nigeria. It deter mines what improvements or developments may  be made to the transmission network and deter mines the way these are carried out, including  timing. Invariably, there is no competition in this  segment of the industry, and any ongoing con struction of a transmission facility will be at the  behest of TCN, pursuant to some contractual  arrangement.  

Even though there are plans to unbundle the  TSP and SO from TCN, it is unlikely that this  will introduce competition as there is only one  transmission network in the NESI.  

5.2 Regulation of Transmission Service,  Charges and Terms of Service 

5.2.1 Principal Laws Governing the Provision  of Transmission Service, Regulation of  Transmission Charges and Terms of Service The EPSRA is the primary legislation regulating  the provision of transmission services in Nigeria.  

Transmission charges and terms of service are  regulated by NERC. NERC has established the  Transmission Use of System charge (TUoS) pur suant to the MYTO 2015 for TCN which is levied  

on Discos and retailers for the transmission of  electricity. The TCN MYTO sets cost-reflective tariffs, which enable proper funding of TCN. 

The Market Rules issued by the MO prescribe  the conditions for participation in the NESI and  require every participant to enter a market par ticipation agreement with the MO and be bound  by the market rules. In addition, Gencos enter  into grid connection agreements and ancillary  services agreements with TCN, while Discos  enter into use-of-transmission service agree ments with TCN. Together, these agreements  prescribe the terms of use of the transmission  network.  

5.2.2 Establishment of Transmission Charges  and Terms of Service 

Transmission tariffs are determined by NERC in accordance with the provisions of the TCN  MYTO, taking into consideration that:  

  • the licensees recover the full costs of busi ness activities and earn a reasonable return  on capital;  
  • incentives are provided for improving perfor mance, quality of service and encouraging  efficient use of the network; 
  • there is no undue discrimination between  consumers and consumer categories;  • certainty and stability of the pricing frame work are provided, which encourages invest ment;  
  • incentives are provided to improve technical  and economic efficiency; and 
  • incentives are provided to reduce costs,  improve the quality of service and encourage  the efficient use of the network. 

Section 50 of the EPSRA allows any person  aggrieved by any decision of NERC in relation to  tariffs and prices, or by any of its other decisions, to apply to NERC for a review of that decision.

Furthermore, NERC has the power to call for  objections or representations in connection with proposed tariffs prior to adoption. Any licensee with concerns regarding the transmission tariffs proposed by NERC may make representations  before these tariffs are adopted. 

5.2.3 Open-Access Transmission Service Open-access transmission is provided for under  the grid code. The grid code provides that trans mission services can be accessed by all Gencos  and Discos, as agreed and permitted by the TSP  and NBET.  

An applicant for access will be required to sub mit an application form to TCN that contains,  among other things:  

  • a description of the plant or apparatus to be  connected to the transmission system or a  modification relating to the user’s plant or apparatus that is already connected to the  transmission system;  
  • confirmation that the user’s plant and appa ratus at the connection point will meet the  required technical standards in the grid code,  as agreed with the TSP where appropriate;  
  • confirmation that the user’s plant, apparatus and procedures will meet the safety provi sions as contained in the grid code;  
  • the technical data anticipated for the user’s  modified or new plant or apparatus, specify ing the load characteristics and other data;  
  • the desired connection and operational date  of the proposed user’s development; and  • a proposed commissioning schedule, includ ing commissioning tests, for the final approval of the system operator and the TSP.  

The required agreements for obtaining transmis sion services include the following:  

  • the Grid Connection Agreement;  
  • the Ancillary Services Agreement; and  
  • the Transmission Line Agreement or Trans mission Project Agreement, and the Trans mission Use of System (TUoS) Agreement.  
  1. DISTRIBUTION 

6.1 Regulation of Construction and  Operation of Electricity Distribution  Facilities 

6.1.1 Principal Laws Governing the  Construction and Operation of Electricity  Distribution Facilities 

The EPSRA governs the construction and opera tion of distribution facilities in the NESI. A com pany intending to construct a distribution net work must first obtain the approval of NERC. 

The current distribution networks were con structed by the defunct NEPA and are now  owned by the successor Discos. Expansion and  maintenance of these networks is the respon sibility of the Discos pursuant to their licence  terms and conditions.  

NERC has also issued the IEDN Regulations for the licensing and operation of independ ent power distribution networks other than the  franchised Discos. These regulations contain  the requirements and processes for obtaining  an independent electricity distribution licence,  which is typically for closed or private use.  

Construction of distribution networks and facili ties is regulated by the NESIS Regulations.  

6.1.2 Regulatory Process for Obtaining  Approvals to Construct and Operate  Distribution Facilities 

A distribution licence entitles the holder to con struct and expand its distribution network. Con struction and maintenance of distribution net works is regulated by the Distribution Code for

the Nigeria Electricity Distribution System and  the NESIS Regulations. The Distribution Code contains the criteria and procedures to be fol lowed by the Discos in the planning and devel opment of the distribution system.  

Approval to Operate 

See 4.2 Regulatory Process for Obtaining All  Approvals to Construct and Operate Genera tion Facilities on the procedure for obtaining  licences in the NESI.  

6.1.3 Terms and Conditions Imposed in  Approvals to Construct and Operate The terms and conditions imposed in approvals  to construct and operate distribution networks  are stated in the licence itself.  

Construction 

The NESIS Regulations set out detailed terms  and conditions to be adhered to in the con struction of distribution networks. The NESIS  Regulations provide the standards which must  be observed in the construction of distribution  networks, which include:  

  • environmental standards;  
  • the standard of engineering designs and  materials to be used in electrical installations;  • safety standards and standards for protection  of properties;  
  • the standards for installation on consumer’s  premises; and  
  • the standards for supply to consumers.  

Operation  

See 4.3 Terms and Conditions Imposed in  Approvals to Construct and Operate Genera tion Facilities

6.1.4 Proponent’s Eminent Domain,  Condemnation or Expropriation Rights See 4.4 Proponent’s Eminent Domain, Con demnation or Expropriation Rights.  

6.1.5 Distribution Service Monopoly Rights See 4.4 Proponent’s Eminent Domain, Con demnation or Expropriation Rights.  

6.2 Regulation of Distribution Service,  Charges and Terms of Service 

6.2.1 Principal Laws Governing the Provision  of Distribution Service, Regulation of  Distribution Charges and Terms of Service The EPSRA contains the day-to-day operating  procedures and principles governing the devel opment, operation and maintenance of an effec tive distribution network.  

6.2.2 Establishment of Distribution Charges  and Terms of Service 

NERC is responsible for creating and determin ing the methodology of the relevant tariffs, fees and other distribution charges. NERC aims to  provide a viable and robust tariff policy for the NESI, with the aim of ensuring the following:  

  • full cost recovery, plus a reasonable return on  investment;  
  • the promotion of technology and market effi ciency through incentives;  
  • fairness and openness to consumers; and  • the reduction or elimination of cross-subsi dies.  

The MYTO is a tariff model used to set whole sale and retail electricity prices which are cost reflective and allow for adequate funding of the NESI. This MYTO provides a 15-year tariff path for the NESI, with minor bi-annual reviews  

and major reviews every five years. The MYTO is comprised of payments for the cost of the  energy (fixed charge and energy charge), trans mission costs, regulatory and administration  charges, Discos’ distribution charges and costs  associated with metering, billing, marketing and  revenue collection. The end-user tariff reflects the cost of the electricity supply throughout the

supply chain of the NESI, from generator to final consumer.  

The MYTO establishes the following compo nents for determining various tariffs in the NESI: 

  • the allowed return on capital, being the return  necessary to achieve a fair rate of return on  the assets invested in the business;  
  • the allowed return of capital associated with  recouping that capital over the useful life of  the assets (depreciation); and  
  • operating costs and overheads.  

The Discos that adopt the MYTO for their opera tions must then be approved by NERC.  

NERC holds consultations with the relevant  stakeholders in the industry before it issues  the MYTO, and every subsequent amendment  thereto. The Discos and the public are invited  to present their submissions on the tariff review, 

and these are considered in the issuance of the  MYTO.  

The current MYTO for Discos is the 2020 MYTO,  which introduced service-based tariffs and reclassified consumers and tariffs according to the quality and quantity of service to be provided  to them by the Disco.

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