Energy is the foundation of the modern industrial economy in Nigeria; it provides ingredients for almost all human activities. The need for electricity is paramount for the growth of a country. Electricity is a powerful engine for social and economic development and transformational process.
The power sector, a component of which is the electricity sector of the economy has a great importance to the lives of the citizens of Nigeria and it takes a central role in the economic transformation process.
To be able to generate, transmit, distribute power for sale in Nigeria, you must apply for a Licence. A company intending to engage in a power generation must obtain the requisite approval and licence from the Nigerian Electricity Regulatory Commission (NERC).
Nigerian Electrical Regulation Commission (NERC) regulates activities in the Nigerian Electricity Supply Industry (NESI) in Nigeria, as stipulated by the Electrical Power Sector Reform Act (EPSRA) 2005, which is the main statutory legislation focused on electrical power sector regulation in Nigeria.
Among the licence issued by the NERC is the Generation Licence which grants the holder of the licence the authority to construct, own, operate and maintain a generation station for the purpose of generation and supply of electricity. The holder of this licence can be an independent power producer or Power Holding Company of Nigeria (PHCN) successor generating company.
There are three types of Generation Licence granted by the Commission.
- The On-Grid Electricity Generation Licence: this type of licence allows the holder to generate electricity and connect to the national grid for dispatch. The holder of this licence enters into a connection agreement with Transmission Company of Nigeria (TCN) for connection, evacuation and wheeling of the power to the national grid.
- Embedded Generation: it is defined to mean the generation of electricity that is directly connected and evacuated through a distribution system or through an independent distribution licensee.
- Off-grid Electrical Generation: This licence allows the holder to generate power and sell power to a single buyer. The licensee deals directly with an off-taker with whom the licensee has a power purchase agreement.
Some of the Power Generation companies (GENCo) in Nigeria are Afam Power PLC, Ikorodu Industrial Power Limited, Island Power Limited, Geometric Power Limited, Geregu Power Plc etc.
The sources of electrical generation are divided into renewable and non-renewable energy. Renewable resources include Solar, Wind and Biomass while the non-renewable resources are: coal, oil and natural gas, fossil fuel among others.
Power generation licence
A new company seeking to undertake a power generation exceeding 1 megawatt must make a written application to the NERC for a Generation Licence by completing and submitting an application form with the company documents and a non- refundable application fee.
Requirements for this pre-application step are as follows:
- The company must be registered in Nigeria, with a Certificate of Incorporation from the Corporate Affairs Commission and Memorandum and Article of Association.
- The company must possess a tax clearance certificate evidencing payment of immediate 3 years before the application.
- The company is to produce an audited report on the financial statements and accounts for the immediate 3 years before the application.
- The company is expected to have conducted Environmental Impact Assessment (EIA) in respect of the proposed area of operation or where the proposed generation capacity is less than 10 megawatts and obtained its certificate.
- Also, the company needs maintenance of adequate insurance policy on the generation station, equipment and facilities.
- The company must obtain the work permit and expatriate quota from the Nigerian Immigration Service where expatriates will be employed.
- It is also required to produce an assessment report of how discharge of electricity will be managed.
- Where the company is an independent power producer, it is expected to have in place an off-take agreement with a power purchaser.
Where the company is an Independent Power Producer (IPP), and it proposes to supply power to the grid (a network of conductors for distribution of electric power), it would involve negotiating a Power Purchase Agreement (PPA) with a Nigerian Bulk Electricity Trading (NBET) PLC.
The following information would be required by the NERC from an IPP
- Documents indicating ownership of a project site or a long-term lease of the project site such as Certificate of Occupancy where the land is procured directly from Government, Deed of Assignment where the land is privately owned, Sale Agreement, and Gift etc.
- The Independent power producer would be required to provide requisite fuel supply and transportation agreement, after indicating the type of generation to be embarked on.
- Also, it is expected to have the approval of the Ministry of Water Resources where applicable.
- The company is also required to obtain the confirmation of the Transmission Company of Nigeria (TCN), that the proposed generation power will be evacuated from a connection point.
- There is also the requirement of evidence of initiated discussion with technical and financial partners for the generation project, to show commitment to the project. Such discussion can be evidenced in a Memorandum of Understanding (MOU) or Letter of Intent.
- The Nigerian Bulk Electricity Trading Plc would require the company to have initiated a tender process for its Engineering, Procurement and Construction Contract with a memorandum of understanding to this effect.
- It is also expected to have a long-term service agreement and Operation & Maintenance agreement with NBET
When all this has been fulfilled the Nigerian Bulk Electricity Trading Plc would provide a form of Power Purchase Agreement to the company for review prior to negotiations of terms had. Once the parties agree with the terms and tariff and the agreement has been finalized, then the Power Purchase Agreement can be executed.
Procedure to obtain the Power Generation Licence
- Once the intending generation company has put the Pre-NERC application steps in order, the next step is to approach NERC for its Licence to operate by obtaining and completing the application form for generation licence.
- NERC will require some documents in considering the application, where certain information is not provided for. In that instance, after NERC has reviewed the documents provided, it may request the applicant to furnish further documents to aid its decision.
Documents such as the Curriculum Vitae (CV) of the managerial and technical staff of the power plant location, ten (10) year business time plan line for plant commissioning etc.
- Once the application has been submitted with the prescribed application fee and acknowledged by NERC, within 30 days of the acknowledgement, NERC will require the notice to be published in 2 newspapers; one circulating in the proposed area of operation and a national circulation paper in Nigeria.
- Any petition raised from an interested public must be made within 21 days of the newspaper publication.
- In considering whether or not to approve the application, NERC will consider the suitability of the applicant, the documents provided and any objections raised by the interested public.
- The decision of whether or not to grant the license must be reached not later than 6 months from the date of acknowledgement of the application by the commission.
- The decision to grant the licence or refuse shall be communicated in writing by the commission to the applicant. If the application is refused, the commission shall communicate in writing the reason for the proposed refusal.
- Upon refusal, the applicant is given an opportunity within 21 days to make a representation to the commission and if necessary provide further documents that can aid its reconsideration by the commission.
- Where the final decision taken by the commission is to refuse the application, the applicant can make an appeal to NERC for the review of its application.
- Finally, where NERC approves the application, the applicant will be required to pay the requisite licensing fee, depending on the amount of megawatts to be generated, after which he shall be issued with a licence to operate for a specified term of 10 years, which shall contain specific terms and conditions required to be complied with.
Generation Licence/ Application Fees
The prescribed generation licence fees to be paid by an applicant to the NERC in accordance with the megawatts of electricity to be generated are stated as follows:
- Generation of power above 1 – 10 megawatts(MW) attracts the application fee of N50,000.00 and a licence fee of $2,500.00
- For generation above 10-100 megawatts attracts the application fee of N100,000.00 and Licence fee of $25,000.00
- For generation above 101-250 MW attracts the application fee of N200,000.00 and Licence fee of $50,000.00
- For generation above 251-500 MW attracts the application fee of N300,000.00 and Licence fee of $75,000.00
- For generation above 501-1000 MW attracts the application fee of N400,000.00 and Licence fee of $100,000.00
- Above 1000MW, the application fee is N1,000,000.00 and a Licence fee of $200,000.00
The fees payable are paid by means of bank draft or cheque drawn in favour of the NERC, and the fees received by the commission will be acknowledged by the issuance of the commissions’ official receipt.
Renewal of Generation Licence
Where the licence for generation of electricity has been issued by the commission, it is possible for the licence to be renewed. The application for renewal is made at least 9 months before the expiration of the licence. It is also accompanied by prescribed fees and shall be in line with the procedure for grant of the licence.
Finally, it is noteworthy that Generation licence granted by the NERC to the holder can be amended on an application by the licensee or where the commission receives a complaint from customers. The application is usually accompanied by prescribed fees and is in line with the grant of the licence.
The NERC is also empowered to suspend or cancel any license where the commission has good grounds that warrant such suspension or cancellation.
Written by the Energy, Power & Mining Team at Resolution Law Firm, Nigeria