The introduction of competition into the power sector has been the driver behind recent regulatory changes in the sector. Notable among such changes is the Minister's policy directive declaring categories of electricity consumers who may purchase bulk power outside of the Distribution Companies (eligible customers) in the electricity market. The Directive was made pursuant to Section 27 of the Electric Power Sector Reforms Act ("EPSRA") 2005.
Following the Minister's directive, the Nigerian Electricity Regulatory Commission ("NERC) exercised its legislative powers and issued the Eligible Customers Regulations in November 2017. The Regulations seek to implement the directive of the Minister and provide for the classes of eligible customers under the Regulations. It also provides for the procedure for applying for eligibility status, business opportunities for players in the electricity market and other issues arising from the Regulations.
The Regulations provide for the following classes of Eligible Customers:
- Customers Eligible to Purchase Bulk Power through a Distribution Network
- Customers Eligible to Purchase Bulk Power through the Transmission Network
- Customers Eligible to Purchase Bulk Power from the Grid through a Distribution System.
The customers specified above are required to apply to NERC prior to purchasing power outside of distribution companies. The application process takes about 30 working days. Part of the application includes execution of power purchase agreements, distribution use of system agreements (for customers connecting through distribution networks), transmission use of system agreements (for customers connecting through the grid), market participation agreements (also for customers connecting through the grid) and, in some cases, O&M agreements with distribution companies.
The Regulations will be implemented in phases; in the first phase of implementation, end users connected to 11kV delivery points are not permitted to apply for eligibility status. The second stage of implementation will commence following an order by NERC in that regard.
This development presents a lot of business opportunities for players along the electricity value chain. The contractual framework contemplated in the Regulations is such that the distribution companies, the transmission company of Nigeria as well as power producers all stand to generate some revenue depending on the particular class of customers involved.
The Eligible Customers, who are likely to be industries with heavy energy requirements, will no longer have to invest in costly captive power generation, and can direct their resources towards their core activities. In addition to the individual benefits to parties involved, the introduction of eligible customers into the market is expected to have a multiplier effect across the electricity sector and other sectors of the economy. First of all, electricity generators would have a market for stranded power (electricity which distribution companies are unable to take due to inadequate facilities). Revenue generated from the sale of stranded power would lead to a more robust generation sub-sector and enable the power generators to meet up with their debt obligations to gas suppliers. Guaranteed payments to gas suppliers, in turn, would encourage investment in the domestic gas market.
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