BACKGROUND TO THE CONSULTATION PAPER
About eighty (80) million Nigerians are not connected to the grid, and an estimated cost of $91 billion is required for grid extension to them. Given the associated cost, mini-grids present less capital intensive, and faster alternative to increasing access to electricity and promoting the use of renewable energy. In line with Nigeria's National Renewable Energy and Energy Efficiency Policy (NREEEP) and Sustainable Energy for All (SE4All) action plan, the country has set a renewable energy generation target of 30% for 2030.1
In 2017, an all-encompassing framework specific to mini-grids, the Regulation for Mini-Grids 2016 (Mini-Grid Regulation or the Regulation), was adopted by the Nigerian Electricity Regulatory Commission (NERC). In August 2022, NERC released a Consultation Paper on Proposed Review of Regulation for Mini-Grids 2016 (Consultation Paper) with the aim of obtaining comments, objections, and representations from all stakeholders in the Nigerian Electricity Supply Industry (NESI) and the public in general on the proposed amendment of the Mini-Grid Regulation.
NERC proposes to introduce certain innovative provisions to the Regulation after nation-wide consultations. The proposals gravitate toward the recognition of portfolio of isolated and interconnected mini-grids whilst introducing other novelties. In this newsletter, we provide a brief commentary on the changes proposed in the Consultation Paper to the mini-grid space.
CHANGES PROPOSED BY THE CONSULTATION PAPER
Amendment of the Definition Section
The Consultation Paper begins with a proposal to amend the definition section of the Mini-grid Regulation. For instance, "Portfolio of Interconnected Mini-Grids" and "Portfolio of Isolated Mini-Grids" are to be defined terms in the Regulation. Implied in both definitions is the fact that a portfolio of mini-grids is a collection of mini-grids submitted for application at the same time by a mini-grid developer to NERC. A portfolio of isolated mini-grids is required to have a maximum distance of 80km, from one mini-grid to the other. The definition of mini-grid permit is accordingly revised to include portfolio of mini-grids.
Tariffs and Charges
The Mini-Grid Regulation provides that tariffs and charges may be determined by agreement or the MYTO calculation tool contained in the Regulation and approved by NERC. However, it does not provide that a single tariff application may be submitted for a portfolio of mini-grid sites. In this connection, NERC proposes in the Consultation Paper to add that a single tariff application may be submitted for a portfolio of mini-grid sites.
Tripartite Contract
The Mini-Grid Regulation provides that NERC shall not grant a permit for a site for which an exclusivity agreement has been executed. However, the Regulation does not include similar provisions for a site for which a Tripartite Contract has been executed. NERC therefore clarifies by the Consultation Paper that a permit will not be granted for a site where an exclusivity agreement or a Tripartite Contract has been executed.
NERC has also stated that the template Tripartite Contract annexed to the Mini-Grid Regulation has been amended to clarify that the cost of any repairs, improvements or expansions of the distribution network undertaken by the mini-grid developer shall be considered in calculating the compensation payable to such mini-grid developer upon termination of the contract.
Other Changes
Other changes introduced by the Consultation Paper include:
- mandating distribution licensees to give consent within four (4) weeks of request by a mini-grid developer to construct a mini-grid within a distribution licensee's franchise area, otherwise such consent would be deemed given;
- clarifying that a mini-grid permit is required to operate an interconnected mini-grid;
- introducing reporting requirements for a portfolio of mini-grids twice a year; and
- amending the heading of Part IV of the Mini-grid Regulation to read "Mini-grid Under a Permit or Registration".
OUR THOUGHTS
The overarching concerns in the NESI are lack of access and inadequate supply of electricity to grid connected consumers. The proposed changes to the Mini-Grid Regulation, if properly implemented, hold high hopes for promoting off-grid access to electricity and meeting Nigeria's target of increasing its renewable energy share to 30% by 2030. Mini-grid operators will be at liberty to make a single application for a portfolio of mini-grids, saving time and cost, and speeding the procedure of application. Such developers may also file a single tariff application for a portfolio of mini-grids.
However, the Consultation Paper does not propose to revise the definition of mini-grid in the Mini-Grid Regulation. In practical terms, a definition of mini-grid should address the type, size, and technology of the mini-grid to be installed.2 Under the Mini-Grid Regulation, mini-grids are defined only by reference to the size (installed capacity of the generators i.e., between 0KW and up to 1MW) and types (isolated and interconnected).3 The definition is not technology specific. It is proposed that the definition of mini-grids in the Mini-Grid Regulation be revised to provide for the classes of technology to be covered with emphasis on solely renewable energy technology or a higher share of renewable energy in cases of energy mix, that is, generators with renewable energy and fossil fuel-based technologies. Beyond stating that mini-grid developers may file a single application for tariff, it is also important that mini-grid operators are guaranteed returns on investments through a clear process of tariff determination.
In connection with isolated mini-grids, it is unclear what criteria is applied in proposing 80km between mini-grids within a portfolio. It is also unclear if this distance applies where a portfolio of mini-grids straddle more than one distribution licensees' franchise area. It would be important going forward, that any proposed changes to the Mini-Grid Regulation in this area defines clearly what criteria is used and what happens where mini-grid developers must obtain the consent of more than one distribution licensee in a single application. It would also be useful to state clearly what would occur if consent is refused, and if such refusal is subject to NERC's overriding jurisdiction to review. This will significantly improve the legal and investment climate for mini-grids.
Footnotes
1. NERC, Consultation Paper on Proposed Review of Regulation for Mini-Grids 2016, p.1
2. USAID, Practical Guide to the Regulatory Treatment of Mini-Grids 2017 p. 5
3. Section 3(1) Mini-grid Regulation
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