Home Global Gist News Empowering the Grid: NERC Greenlights Direct Electricity Purchase in Nigeria

Empowering the Grid: NERC Greenlights Direct Electricity Purchase in Nigeria

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Empowering the Grid: NERC Greenlights Direct Electricity Purchase in Nigeria
Empowering the Grid: NERC Greenlights Direct Electricity Purchase in Nigeria

Empowering the Grid: NERC Greenlights Direct Electricity Purchase in Nigeria

Key Takeaway

The Nigerian Electricity Regulatory Commission (NERC) has granted power distribution firms (DisCos) permission to purchase electricity directly from producers, eliminating the need for an intermediary. This change aims to reduce exposure to volumetric energy risks and encourage DisCos to secure bilateral contracts.

In a groundbreaking move, the Nigerian Electricity Regulatory Commission (NERC) has recently given the green light for power distribution firms (DisCos) to cut ties with intermediaries and purchase electricity directly from producers. This pivotal shift not only signifies a departure from the traditional procurement model but also holds the promise of reshaping the landscape of Nigeria’s energy sector.

The Dawn of a New Energy Era

In response to the plans of eleven electricity distribution companies to withdraw from the Nigerian Bulk Electricity Trading Plc’s (NBET) vesting contract regime, NERC has ushered in a new era by permitting DisCos to engage in direct power purchase agreements with generation companies (GenCos).

1. Bypassing the NBET Intermediary

The traditional model involved the NBET acting as an intermediary, purchasing electricity in bulk from production companies and selling it to DisCos. With the recent development, DisCos can now establish bilateral contracts directly with GenCos, streamlining the procurement process and eliminating unnecessary intermediaries.

2. Multi-Year Tariff Order 2024

The regulatory framework for this change is outlined in the Multi-Year Tariff Order 2024, effective from January 1, 2024. DisCos are now mandated to meet a minimum energy offtake requirement of 4,063MWh/h by the end of the year, signaling a commitment to increased energy efficiency.

Navigating the Transition

The transition to direct electricity purchase comes with its own set of challenges and requirements. NERC emphasizes the need for DisCos to secure adequate bilateral contracts to minimize exposure to volumetric energy risks. Additionally, starting January 2024, DisCos will no longer be able to claim revenue shortfalls resulting from generation deficiencies, underlining the urgency of securing larger energy volumes.

3. Service-Based Tariff Structure

The move towards a service-based tariff structure, implemented in 2020, categorizes customers into maximum and non-maximum demand, assigning them to different bands (A to E) based on supply levels. This strategic approach aims to ensure consistent service to customers and facilitate migration to higher service bands as supply levels increase.

Contributing to National Energy Development

The blog post wouldn’t be complete without acknowledging the ongoing power projects funded by the Central Bank of Nigeria (CBN). Expected tobe completed by May 2024, these projects, as announced by the Transmission Company of Nigeria (TCN), are set to improve electricity transport capacity by over 1,000 megawatts, further enhancing the nation’s energy infrastructure.

Conclusion

NERC’s decision to allow DisCos to purchase electricity directly from producers marks a significant milestone in the evolution of Nigeria’s energy sector. As the country strives for a more resilient and efficient power distribution system, this move sets the stage for increased reliability, reduced risks, and a sustainable energy future.

In conclusion, the transition to direct electricity purchase is not merely a regulatory shift; it’s a step towards a more robust and sustainable energy landscape for Nigeria.

Summary

  • NERC has authorized power distribution companies in Nigeria to buy electricity directly from producers, bypassing the previous intermediary, the Nigerian Bulk Electricity Trading Plc (NBET).
  • The approval follows the plans of eleven electricity distribution companies to withdraw from NBET’s vesting contract regime, prompting NERC to facilitate a transition to bilateral contracts.
  • DisCos can now engage in power purchase agreements directly with generation companies (GenCos) through bilateral contracts, as outlined in the Multi-Year Tariff Order 2024.
  • The revised order, effective from January 1, 2024, requires DisCos to meet a minimum energy offtake requirement of 4,063MWh/h by the end of the year.
  • NERC emphasizes the need for DisCos to secure adequate bilateral contracts to minimize exposure to volumetric energy risks.
  • Starting January 2024, DisCos will be unable to claim revenue shortfalls resulting from generation deficiencies, emphasizing the importance of securing larger energy volumes.
  • The move is part of a broader strategy to enhance the electricity supply chain, ensuring consistent service to customers and facilitating migration to higher service bands based on increasing supply levels.
  • Customers are categorized into maximum and non-maximum demand customers under the service-based tariff structure implemented in 2020, assigned to different bands (A to E) based on supply levels.
  • The report also mentions ongoing power projects funded by the Central Bank of Nigeria (CBN) expected to be completed by May 2024, contributing to an improved electricity transport capacity of over 1,000 megawatts.
  • The changes aim to streamline the electricity procurement process, enhance reliability, and contribute to the overall improvement of the nation’s power sector.

HASHTAGS:

#NERC #ElectricityInNigeria #PowerDistribution #EnergySector #BilateralContracts #InfrastructureDevelopment #ElectricitySupplyChain #NigerianPower #EnergyTransition #SustainableEnergy

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