Independent power projects in Nigeria are entities non-public utility companies operating and investing in power generation facilities for the purpose of power generation and sale in Nigeria. The private sector financed infrastructural developments have become the best alternative in developing economies and the reason being that although Nigeria is endowed with oil, gas and solar resources, it faces deep infrastructural challenges that need large financing that can only be sourced from the private sector. This challenge is faced squarely in the transmission, distribution, and storage of the power generated in the sector.
The Nigerian government in the bid to increase foreign participation in the electric power sector commissioned the independent power projects (IPP) to generate electricity and sell the same.
The IPP in Nigeria is primarily regulated by the provisions of the Electric Power Sector Reform Act and other ancillary regulations and guidelines.
ELECTRIC POWER SECTOR REFORM ACT 2005
The electricity industry in Nigeria has structures in place to encourage power projects in the country. The electricity industry is regulated by industry legislations such as the Electric Power Sector Reform Act as will be summarily discussed.
The Electric Power Sector Reform (EPSR) that was enacted in March 2005 is the main statutory legislation focused on electric power sector regulation in the country. The Act enables private companies to participate in electricity generation, transmission, and distribution. It defines the structure of the electricity market and grants authority to the independent regulator created by the Act. The act established the regulatory body of the Nigerian Electrical Regulatory Commission (NERC) which has the power to make regulations relating to activities of the Nigerian electricity supply industry.
The EPSR Act permits the NERC to issue a license for a period of 15 years and also allows for renewal. It provides the legal framework of the power sector, including the privatization of the sector that was concluded in 2013.
Under Part II, Section 25(2) of the Act it provides that independent power producers shall sell electrical powers to trading licensees pursuant to contracts that allow for novation of rights and obligations of the trading licensees. The Independent power producers in doing power projects also sell powers and ancillary services to power distribution companies and eligible customers.
NIGERIAN ELECTRICAL REGULATORY COMMISSION
The Nigerian Electrical Regulatory Commission is the regulatory body in charge of granting a license to private independent power producers. The Commission has, in addition, developed a Regulation on embedded generation, which allows for power generation plants (including renewable energy) to be directly connected to and evacuated through a distribution network. It provides a window for investors, communities, state, and local governments to generate and sell or utilize power without going through the transmission grid.
- The NERC is mandated to carry out monitoring and regulation of the electricity industry, to carry out the issuance of the license to market participants.
- The commission creates, promotes, and preserves efficient industry to ensure maximum utilization of resources for the provision of electricity sources for power projects.
- The commission ensures that all independent power projects for the purchase and sale of electrical power and ancillary services are awarded according to an open, transparent, and competitive manner in accordance with the procedures of the commission.
- Also, the commission ensures that prices fixed by the independent producers are fair to consumers and sufficient to allow licensees to finance their activities and allow reasonable earnings for efficient operation.
Other Regulatory Authorities:
- Federal Ministry of Power: the Federal Ministry of Power is charged with the responsibility of making policy for the provision of power in the country. In discharging this mandate, the ministry is guided by the EPSR Act. Their key functions as it relates to independent power projects are:
- To initiate and formulate policies & programs for independent power producers in the development of the power sector.
- The ministry grants license of electricity generating set of 1MW and below to electrical contractors. It also coordinates the activities of the power sector.
- The ministry in regulating the power sector conducts statutory tests and certification of electric poles and other major electrical materials before they are used.
- It handles polices matters relating to research and development carried out by independent power producers in the power sector.
- The Nigerian Bulk Electricity Company plc (NBET): this authority is charged with the responsibility of managing and administering the electricity pool in the Nigerian electricity industry sector. The NBET purchases electricity from generating companies such as independent power producers through power purchase agreements and sell to distribution companies through vesting contracts. The key functions are:
- To manage and administer financial flows of the physical supplies of the network.
- They have the priority to operate the competitive market to encourage efficient value discovery for commodity and capacity.
- This authority formulates and advises on policies for an efficient system of settlement and the least possible cost incentives for maintaining the transport network within acceptable energy, frequency response, and voltage tolerances.
- The Nigerian Electricity Liability Management Company (NELMC): this authority manages legacy liabilities and stranded assets of power industry companies in Nigeria. They also have the function of receiving liabilities from disco and genco companies in line with the transfer order and liabilities agreement. The NELMC also schedules liability verification of power generation companies.
Independent power projects are managed by independent power producers who own power plants. The NERC issues licenses to independent producers for the purpose of an increased power generation in the country.
Independent power projects are solutions of the Federal Government to combat the power shortage in the country. Projects being developed are backed by investors that have international power project experience and proven track records of developing power projects in Nigeria.
Written by Energy & Power Law Team at Resolution Law Firm, Lagos, Nigeria