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Is regulatory uncertainty still considered a barrier to private sector participation and investment in the NESI?

Is regulatory uncertainty still considered a barrier to private sector participation and investment in the NESI?

Is there a gap in the Nigerian Energy sector? Yes, there is. Are there existing challenges to bridging this gap? Yes, there are. Has the most ambitious privatisation exercise in the energy industry solved these issues? Some would argue that it has not. Is there more that can be done? Yes, there is. So, how should we look at the state of things in the Nigerian energy sector: insurmountable problems or a market still full of potential in need of innovative and bolder solutions? It is necessary to review some facts before making judgements.

The initial privatisation exercise in the power sector was reputed to be one of the most ambitious in the global power industry, with a transaction cost of over three billion dollars ($3.0bn) . However, despite the overall perception that the exercise was largely successful, the reality remains that Nigerians still experience power outages with an absence of power in some remote areas. Statistics-wise, this situation places annual electricity consumption per capita to an estimate of less than 150 kWh, ranking Nigeria amongst the lowest in Africa.

Most generated and distributed power across the Nigerian electricity supply value chain are grid-tied, primarily thermal (about 86%) and hydropower sources. Consequently, most conversations around potential alternative options focus on wind, biomass & solar energy sources. Solar-based sources are the most used alternative despite storage and logistic issues due to the seasonal availability of other sources, including wind and biomass.

Considering the area of policy and regulation, several pundits argue that these factors affect real and actual investments while also holding the key that unlocks the huge potential of our energy market.

Most players in the renewable energy space have opined that inadequate private sector participation is owed largely to issues surrounding the implementation of existing policies and regulations. In particular, issues such as failure to implement regular tariff reviews and occasional policy overlaps have increased the perception of a volatile environment.

The federal government has responded specifically to such issues through the following initiatives:

(A) The Nigeria Electrification Project (NEP) is a $550 million (USD) project designed with support from the World Bank and the African Development Bank (AfDB).

The project aims to accelerate electricity access in unserved and underserved communities through renewable energy projects, including solar hybrid mini-grids, stand-alone solar home systems (SHS) and captive solar hybrid power plants. With the financing from the World Bank, under the Performance-Based Grant (PBG) sub-component program, developers are at liberty to select their off-grid sites for electrification.

Read also: SMEs and the reality of competition in free trade

The primary objective of the NEP is to ensure that approximately 2.5 million people (approximately 405,000 households), 50,000 MSMEs, 100 isolation and treatment centres, 400 primary healthcare centres, 15 universities, and two associated teaching hospitals will receive new or improved access to electricity services. Thus far, under the NEP, over 200,000 SHS have been deployed, six mini-grids have been commissioned, with 15 more recently completed. Currently, there are 99 Mini-grids and 33 isolation and treatment centres in the pipeline.

(B) The Solar Power Naija programme
In September 2020, the Central Bank of Nigeria (CBN) issued guidelines introducing the 5 million Solar Connections Programme. This Programme aims to provide low-interest loans to eligible companies towards deploying 5 million new connections targeting 25 million Nigerians. This initiative will also catalyse the creation of 250,000 jobs in the energy sector.

(C) The Energizing Education Programme (EEP)
Phase I
The EEP seeks to provide 37 Federal Universities and 7 University Teaching Hospitals with clean, reliable, and sustainable power supply by constructing captive power plants and rehabilitating existing distribution infrastructure. In addition, the EEP will install streetlights to promote safety and security within campuses and construct renewable Workshop/ Training Centres where students will be taught renewable energy courses. Under Phase 1 of the EEP, installation for all the solar-hybrid plants has been completed, with three of the projects already handed back to the concerned beneficiaries after a one-year Operations and Maintenance (O & M). Two are currently at the O & M phase, while the other two though completed, are yet to commence O & M.

(D) The Energizing Economies Initiative (EEI)
Also being implemented by the REA, EEI aims to provide affordable, reliable, and sustainable power to strategic economic clusters across Nigeria. For instance, one of Nigeria’s largest markets in Kano (Sabon Gari Market) is powered by a decentralised solar solution. The ultimate goal is to replicate this model across hundreds of economic clusters across the country.

It is paramount to mention, however, that the initiatives mentioned above could not have been embarked upon without an established framework of supporting laws and regulations. The Nigerian Electricity Regulatory Commission (NERC) was established in 2007. To date, over 20 Regulations have been issued by NERC to provide a level of certainty and comfort necessary to promote private sector participation and investment into new projects to bridge the energy access gap. Examples include;

The NERC Mini-Grid Regulation 2016 allows for a cost-reflective tariff, clear definition of isolated and interconnected mini-grids, generation and distribution thresholds for permits and registration, and clarity concerning the relationship with the DISCOs.
NERC Permits for Captive Power Generation Regulations (2008) allow for electricity generation exceeding 1 megawatt for consumption solely by the generator and not sold to a third party without express approval by NERC.

NERC Regulations for Independent Electricity Distribution Networks (2012) provide rules for issuing distribution licences to qualified operators to engage in electricity distribution independent of the distribution systems operated by the successor distribution companies.
NERC Investment in Electricity Networks Regulation 2015 provides for the procedures for investing in electricity networks to create incentives to encourage the Transmission Company of Nigeria (TCN) and Distribution Companies to make sustainable investments in capacity expansion.

Perceptions around regulatory frameworks in the Nigeria Electricity Sector: No wrong or right answers.
Where do things stand; insurmountable problems or a market still full of potential in need of innovative and bolder solutions?
Certainly, more can be done to enable ease of doing business in Nigeria and ultimately attract private sector participation. For instance, some may request improvement in the licensing processes, reduction in bureaucratic processes, clarity on existing policies and regulations (for example, tariff regimes) and ensuring the implementation of these regulations and policies, as being ways in which this can be achieved.

The government is driving some strategic solutions to bolster the sector and attract improved private sector participation:
Through the REA, the Federal Government of Nigeria has prioritised inter-agency stakeholder engagement and collaboration to mitigate the uncertainties and bottlenecks voiced by some developers, which would further encourage participation and investment in the off-grid space. Also, in implementing the NEP, the REA has taken steps to enable a seamless flow of implementation for developers. Such steps include;

1. developing dedicated application portals for easy submission of applications,
2. engaging desk officers dedicated to facilitating the prompt review and approvals of applications for mini-grid permits and registrations and Environmental Impact Assessment (EIA) approvals from NERC and the Federal Ministry of Environment (FMoE), respectively.

The FMoE has provided further concessions for a more simplified EIA process for mini-grids in Nigeria through various engagements. The REA also constantly engages with NEMSA to ensure that technical specifications of electrical power systems are deployed to meet the operational standards.

So with the facts laid out, the initial question poses itself again: How then should we look at the state of things in the Nigerian energy sector, insurmountable problems, or a market still full of potential in need of innovative and bolder solutions? Any objective reader must most certainly conclude that what is before us is a huge opportunity to go beyond what currently exists and reach the destination of our desires. This destination is closer now than when we started, thanks to targeted efforts that continue to pour into the sector. The government is working, and the private sector should support this.