The Off-grid and On-grid Utilities Tango

Decarbonization has become a global priority. As a result, utilities in the Nigerian electricity supply chain must find innovative ways to transition to low-carbon electricity to achieve improved energy access and net-zero carbon emissions by 2060.

Regulatory Overview

The Nigerian Electricity Regulatory Commission (NERC) is the primary regulator of the electricity sector. The utilities in the Nigerian electricity value chain are partly owned and operated by the government and private companies. Section 80 and 167 of the Electricity Act (‘the Act’) 2023 mandates NERC to promote renewable sourced electricity and consider technology, financial viability, and impact on tariffs to ensure sustainably, respectively. Alongside this, section 164 of the Act further directs the NERC to develop and publish policies that:

1. simplify the licensing requirements for renewable energy service frameworks;

2. specify the responsibilities of renewable energy service companies in generation, transmission, and distribution activities for energy-generated capacity into the national grid and distribution network; and

3. provide guidelines for issuance on net-metering for roof-top solar PV systems, small wind power per the Act and renewable energy standards on installation, decommissioning and disposal of renewable energy accessories.

The Challenge?

The regulator is yet to show commitment to the objectives mentioned above. For instance, the NERC is yet to update the 2015 Regulations on Feed-in Tariff for Renewable Energy Sourced Electricity in Nigeria and provide guidelines on the rates that public utilities may charge for electricity generated from renewable per s.168 of the Act. The current regulation only prescribes feed-in tariff rates for the 2016 base year, which is problematic because s.169 of the Act stipulates that public utilities shall not demand a feed-in-tariff for electricity generated from renewable sources unless the billable rate has been approved and published by the NERC in the Federal Government Gazette and the mass media. As such, distribution utilities cannot buy or negotiate Power Purchase Agreements (PPAs) with a renewable energy generator unless they are under the guidelines published by NERC.

On the other hand, critics may rebut this observation by highlighting the incentives for renewable energy participation as a signal of the sector’s commitment. Section 166 of the Act mandates the Federal Ministry of Finance to introduce incentives to facilitate the generation and consumption of energy from renewable energy sources. Some of the incentives include:

1. tax exemption: utility companies engaged in generating electricity from renewable energy sources are granted pioneer status (tax exemption) for the first three years, renewable for another two years;

2. duty allowance for imports and exports of renewable machinery and materials;

3. free custom duties for two years on the importation of equipment and materials used in renewable and energy efficiency projects;

4. guaranteed purchase of power generated – the Feed-in Tariff Regulation for Renewable Energy Sourced Electricity directs distribution companies and the Nigerian Bulk Electricity Trading Company to each procure 50% of the total output of a renewable energy plant; and

5. five-year tax exemption for prospective manufacturers of renewable energy machinery from the commencement date of manufacturing, amongst others.

Although these initiatives are commendable, the bureaucratic challenges for decentralized energy projects to participate in the electricity market outweigh the incentives. Bureaucratic challenges such as complex licensing and approval processes and sub-optimal political priorities have delayed the seamless integration of off-grid renewable energy. Nigeria generates its electricity through thermal and hydro, resulting in heavy dependence on the oil and gas industry. The oil and gas industry is a dominant sector in Nigeria with influential personalities. Thus, prioritizing the mix of renewable systems to the national grid would result in a dip in profits, and such an outcome may not be ideal. Moreover, the Federal Government of Nigeria, in July 2023, unveiled a policy to propel gas investment of about $18 billion to offset Nigeria’s $1 billion gas legacy debt.

Conclusion

The power sector is crucial in achieving Nigeria’s decarbonization targets. Therefore, the NERC must take active steps to ensure that the integration of off-grid systems envisaged in the Electricity Act is implemented.