• Saturday, October 12, 2024
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NERC bars NBET from purchase, sale of electricity, to boost competitive electricity market 

Niger, Benin, Togo paid Nigeria  $50.36m for electricity – Report

…says inadequate revenues plaguing NESI since privatisation in 2013

The Nigerian Electricity Regulatory Commission (NERC) has stopped the electricity purchase and resale function of the Nigerian Bulk Electricity Trading Company Plc (NBET), which the commission said will foster a more competitive market structure as envisioned by the Electricity Act.

NERC in Order on the ‘Transition to Bilateral Trading in the Nigerian Electricity Supply Industry’ stated that any contract executed by NBET will be treated as an infraction that is subject to regulatory sanction.

NBET was incorporated in July 2010 by the Federal Government of Nigeria to act as a credible and creditworthy off-taker and to guarantee payments to Generation companies (GenCos) while facilitating bankable project-financed independent power projects.

The NBET 2011 was issued a 10-year licence as a bulk trader of electricity by the Commission, with a key mandate of procuring and sale of bulk electricity and ancillary services to electricity Distribution Companies (DisCos) under sections 25(a) and 68(2) of Electric Power Sector Reform Act (EPSRA).

However, the NERC in the order sighted by BusinessDay said that the continued role of the NBET in the market has been a disincentive for the transition to bilateral contracting between DisCos and GenCos thus exposing the Federal Government to the risk of revenue shortfalls beyond tariff support (i.e. subsidies).

It stated, “The Electricity Act 2023 mandates the Commission to steer the development of NESI from its current transitional electricity market stage to such stages of the market provided in the Market Rules or amendment to such rules as the Commission may approve.

“Section 7(2) of the EA provides that: for subsection (1) and preparatory to the initiation of medium-term and long-term Electricity Market stages as recognised under this Act, the Commission shall by its directive and within such period as it may specify, direct NBET Plc, the trading licensee holding the licence for the bulk procurement and bulk sale of electricity and ancillary services, to, by its licence, cease to enter into contracts for the purchase and resale of electricity and ancillary services and novate its existing contractual rights and obligations to other licensees.”

The order showed that the Commission has, since 2022, issued trading licences to 10 (10) private companies that have indicated interest in trading electricity bilaterally with DisCos and eligible customers adding that the interest in electricity trading so far indicates that there is significant potential in the wholesale trade of electricity outside the NBET single buyer pool.

It stated that the Commission has further received requests for regulatory approval from some of the aspirational DisCos for the purchase of electricity from parties other than NBET, i.e. directly from the GenCos or through other trading licensees.

“On the supply side, the Commission has further received notifications from GenCos signalling their intention to exercise the partial or full exit rights contained in their PPAs with NBET to contract for the supply of electricity directly to DisCos, other bulk traders and eligible customers, in furtherance of the provisions of the Act.

“The key incentive of GenCos contracting bilaterally for energy and capacity with DisCos is to secure satisfactory off-take commitments backed by some form of payment guarantees, thus enabling more predictability in generation and gas availability.”

The Commission noted that the challenge of inadequate revenues to cover the funding requirement of the value chain has continued to plague NESI since privatisation in 2013.

The key factors contributing to the liquidity challenge include non-cost reflective end-user customer tariffs, untimely disbursement of subsidy and poor billing and collection by DisCos thus incurring market shortfalls.

It stated that “Without capitalisation by the FGN, NBET has so far relied on the ad-hoc payments from budgetary appropriation, PSRP funding (including the World Bank) and the balance sheet of the Federal Government hence its inability to attract new IPPs under ‘project finance’ model.

“The industry best practice for bulk energy trading involves the execution of fully effective PPAs backed by effective fuel supply agreements (“FSAs”) and bank guarantees to cover payment obligations. With fully effective “back to back.

“A review of the status of the PPAs executed between GenCos and NBET indicates that, as of June 2024, only 8 (29%) of the 28 GenCos trading with NBET have fully effective contracts backed by some form of payment guarantees. The other 20 grid-connected GenCos trade with NBET on a “Take and Pay” basis but without payment guarantees thus creating significant operational challenges due to continued growth in debt for energy supplied to the grid.

“The high incidence of plant unavailability has exacerbated the mismatch between the demand and supply on the national grid thereby increasing the technical fragility of the grid making it susceptible to incidences of system collapse.

“The curtailed generation availability has also led to increased customer dissatisfaction with the service provision and payment apathy to their respective public utilities, ” it stated.

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