Brief State of the Sector
Today (about four years after the privatisation exercise), two-thirds of the operational aspects of Nigeria’s power sector are being run by the private sector. As with every emerging sector of an emerging market, several issues have arisen in the sector which are stumbling blocks to its full commercialisation. Most prominently is the lack of liquidity in the sector. It is reported that revenue shortfall in the sector as at December 2016 was about $3billion.
In a bid to create a regulatory environment for power producers to earn more for power generated, Nigeria’s Minister of Power, Works, and Housing (“the Minister”) has declared the activation of the Eligible Customer regime. This declaration made on the 15th May 2017 was by virtue of section 27 of the Electric Power Sector Reform Act 2005 (the Act), which empowers the Minister to designate the class or classes of end-use customers that constitute eligible customers. An eligible customer is defined under the Act as a customer who is eligible to purchase power from a licensee, other than the Discos.
Classes of Eligible Customers
Four classes of customers were declared to be eligible, which are:
- End-users registered with the Nigerian Electricity Regulatory Commission (“NERC”) whose consumption is not less than 2MWhr/h and connected to a metered 11kV or 33kV delivery point on the distribution network and subject to a distribution use of system (DUoS) agreement.
- Customers connected to a metered 132kV or 330kV delivery point on the transmission network under a transmission use of system (TUoS) agreement.
- Customers with consumption in excess of 2MWhr/h on monthly basis and connected directly to a metered 33kV delivery point on the transmission network under a TUoS agreement. Eligible customers in this category must have entered into a bilateral agreement with the disco licensed to operate in the location, for the construction, installation and operation of a distribution system for connection to the 33kV delivery point.
- Customers whose minimum consumption is more than 2MWhr/h over a period of one month and directly connected to the metering facility of a generation company, and has entered into a bilateral agreement for the construction and operation of a distribution line with the distribution licensee licensed to operate in the location.
Issues to Note
- Do we have a competitive market yet? Is the market fully contract-based? The market is still at best transitional. As such it remains to be seen how eligible customers will perform in a strictly contract-based market.
- Gencos tied to PPAs with the Nigerian Bulk Electricity Trading Plc. (“NBET”), can only sell additional capacity to eligible customers.
- Gencos may still be reluctant to invest in such additional capacity under similar tariff structure as those with NBET. As there are inherent payment and collection risks for the Gencos to collect tariff payments directly from the eligible customers. Except eligible off-takers are creditworthy and can commit to long-term PPAs.
- The loss of maximum demand customers of Discos as eligible customers may lead to “triggers” for tariff reviews as the retail tariff is structured in such a way that large (industrial) customers cross-subsidize smaller customers.
- The DUoS Agreement will only make sense for the Discos if NERC approves charges that are cost-reflective and reasonably higher than what they are currently being charged for use of TCN’s transmission systems.
- This policy could trigger the call for collection of competition transition charges from eligible and other customers by Discos.
- There is need to by regulation address issues such as access to transmission and distribution network. As it is today, the Discos claim to have “exclusive rights” over distribution of electricity in their ring-fenced areas. The implication of this is that a Disco may decide to refuse eligible customers the use of its distribution network.
- Months after the declaration, there have not been many activities in the sector in this regard. Perhaps industry stakeholders are waiting for more clarification on the policy from the Ministry and NERC, before breaking ground.
On the whole, the eligible customer policy is a good one, especially from a Genco’s and embedded generator’s point of view. But, as they say, the devil is in the detail. NERC will need to be proactive during implementation of the policy to clear out teething problems as they arise.