GREEN MINIGRID REGULATORY REFORM: TRENDS AND APPROACHES * By Engr. Okon N. Ekpenyong Director (Linkages & Consultancy) Energy Commission of Nigeria 08032920873 ekpenyongokon@yahoo.com *Paper Presented at the WORKSHOP 4 OF THE AFRICA CARBON FORUM Held at the UNITED NATIONS CAMPUS, Nairobi, Kenya, on Wednesday. 11th April, 2018

Outline Introduction Overview of Nigerian Electricity Regulatory Reform Mini-Grid Regulation: The Trends Approaches Conclusion

Overview of the Nigerian Electricity Regulatory Reform 1896 1929 The Nigerian Electricity Industry (NSI) started - 1896 1st private Nigeria Electricity Supply Company created - 1929 1972 2001 National Electric Power Authority (NEPA) created - 1972 State-owned monopoly with serious inefficiencies National Electric Power Supply Policy (NEPSP) – 2001 – to establish efficient electricity market through full privatization Create all the necessary structures required to form and sustain an electricity market in Nigeria 2005, 2010, 2013/2014 Electric Power Sector Reform (EPSR) Act 2005 enacted NEPA unbundled: 6 Gencos, 11 Discos and 1 Transco and sold – sales completed 2013/2014 Nigerian Electricity Regulatory Commission (NERC) established Nigerian Bulk Electricity Trader (NBET) - 2010

Stakeholders Involved NERC proposed regulations Consultations with Energy-related Government Agencies Relevant persons or groups of persons, Licensees Consumer groups, industry practitioners Potential investors and other interested parties who maybe affected by the regulations. Town Hall Meetings were organized in strategic places public meetings and written representations. Regulations signed into law by NERC’s Chairman

Introducing the Mini-Grid’s Regulations On 24th May 2017, NERC enacted Mini Grid Regulations to regulate “any electricity supply system with its own power Generation Capacity (under 1 MW), supplying electricity to more than one customer” almost 50 per cent of the population have limited or no access to the grid Nigeria has the highest potential of off-grid business opportunities in Africa the main grid neither extended to isolated areas nor meet electricity demand reliably Nigerian economy is mainly powered by small-scale, inefficient, polluting and noisy generators (10–15 GW) operated by individuals

Key Elements of the Nigerian Mini-Grid Regulations Segmentation of Mini-Grid Regulations Registration Permit License Tariff setting Compensations when the main grid reaches the mini-grid

Mini-Grid Regulation Approach: Less than 100 kW Isolated: Developer identifies an Unserved Area Developer submits On-line registration application to NERC Interconnected Developer identifies a community that is: underserved willing to pay higher tariffs than for the main grid; Developer signs a tripartite contract with: Local DisCo and the Community containing Usage Right Construction and Ownership Right for additional infrastructure Tariffs for purchase and sales to DisCo and the community; Developer sends online registration application to NERC Developer submits proposal to DisCo NERC gives decision within 30 days upon receipt in both situations

Mini-Grid Regulation Approach: 100 kW – 1 MW Permit for 100 kW – 1 MW Isolated: restricted to unserved areas, except when local DisCo gives written consent for an underserved area not assigned to another IEDN Developer identifies an unserved area, signs an agreement with the community; submits online permit application, Submits confirmation of non-interference with DisCo's 5-year expansion plan or DisCo’s written consent, and agreement with the community to NERC Interconnected: restricted to underserved areas Same as registration, except that the developer sends online permit application to NERC NERC gives decision within 30 days upon receipt in both situations Developer that is awarded a grant by the REA must reach and sign a Grant Agreement with the REA within 6 weeks. The Grant Agreement does not affect the permit application

Approach to Tariff Setting The NERC designed a MYTO tariff calculation tool for mini grids The model is based on the original MYTO methodology that NERC uses to set DisCos’ tariffs The model for mini grids does not include transmission costs

Approach to Tariff Setting Less than 100 kW Isolated: Developer sets tariff through MYTO calculation tool or agreement with the community Interconnected: Developer agrees with the DisCo and the community NERC approves or rejects In Nigeria, there is no national uniform tariff, but rather a uniform tariff setting methodology based on MYTO that “allows a licensee that operates efficiently to recover the full costs of its business activities, including a reasonable return on the capital invested in the business”.

Approach to Tariff Setting 100 kW – 1 MW Isolated Developer must use MYTO calculation tool to determine tariff, and attach calculation spreadsheets to its application Interconnected Developer agrees with the DisCo and the community on Retail tariff usage right for the DisCo’s network infrastructure tariff for electricity generated by the mini grid and fed into the DisCo’s network MYTO must be used only to calculate retail tariff, and calculation spreadsheets must be attached to the application NERC approves or rejects

Compensation Regime When the national grid ultimately expand to Unserved and Underserved Communities with Mini-Grid developers, the Regulations provide a compensation regime to cover such scenarios This is in addition to the requirement that the expansion plans of the relevant Distribution Licensee be taken into account before the grant of a Mini-Grid Permit or approval of a Tripartite Contract.  

Challenges Challenges In determining their tariffs, mini grids applying for a license are allowed a maximum of 10% of technical and 10% of non-technical losses Ability to determine adequate compensation if main grid meets mini-grids High tariffs for rural poor and their ability to pay Logistic challenges due to poor basic infrastructure in communities Inadequate financial capacity for RE investment. Inadequate incentives for RE Investors Political risks/instability Insecurity/Vandalization

Conclusion Inefficient On-Grid systems present a big opportunity for Nigeria’s off-grid market to expand in the coming years. There are still many open issues regarding the practical workings of the Regulations. It is therefore important that potential developers and investors seek guidance from regulators, when embarking on Mini-Grid projects in the NSI.

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