The Nigerian Power Sector Guide

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Thursday, December 31, 2020 / 1:29 PM / by Aelex / Header Image Credit: Aelex


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Brief History


Electricity was first generated in Nigeria in 1866 when two generating sets were installed to serve the Colony of Lagos. In 1951, the government of Nigeria, through an Act of Parliament, established the Electricity Commission of Nigeria (ECN) to regulate and operate the power supply systems in Nigeria. Subsequently, the Niger Dam Authority (NDA) was established for the development of the Kanji Hydroelectric Dam. In 1972, the ECN and the NDA were merged to form the Nigerian Electric Power Authority (NEPA).

 

Until the enactment of the Electric Power Sector Reform Act (EPSRA), the Nigerian power sector (with the exception of a few generation plants owned by the international oil companies) operated by NEPA, was a vertically integrated, wholly owned, government monopoly.  The EPSRA provided the legal framework that enabled the participation of privately owned enterprises in the Nigerian power sector. In 2005, after the enactment of the EPSRA, NEPA was unbundled into 18 companies consisting of six (6) generation companies, eleven (11) distribution companies and one (1) transmission company. Two other generation assets owned by NEPA, Olorunsogo and Omotosho power plants, were privatised separately.   In 2013, the majority shares (and in a few cases, all of the shares) in the six generation companies were sold to private entities.

 

Also, the majority shares in the distribution companies were successfully sold to private entities.  However, the government retained ownership of the Transmission Company of Nigeria.

While the NEPA unbundling and privatisation efforts were ongoing, the government of Nigeria in 2004 initiated the National Integrated Power Project (NIPP) to be implemented by the Niger Delta Power Holding Company Limited (NDPHC). The NIPP is described as a fast-track government funded initiative aimed at stabilising electricity supply in Nigeria. It has generation, transmission and distribution components. The NIPP projects were funded from the Excess Crude Oil Account, which, statutorily, belongs to the Federal, States and Local governments of Nigeria. It is the plan that, eventually, the assets under the NIPP would be privatised.

 

The generation component of the NIPP started with seven medium-sized power plants that are located in gas producing states.  The number of power generation assets under the NIPP scheme has now increased to ten. Other generating plants are also being considered under the NIPP project. These would be hydro power plants that would be located in other parts of Nigeria. The transmission component of the NIPP consists mainly of transmission substations and lines required for power evacuation, grid expansion and grid enhancement. In this regard, NDPHC has completed 1,336.9KM of 330KV transmission line and 405.5KM 130KV transmission line, together with a number of substations. The distribution component of the NIPP is focused on the evacuation of power from the transmission stations to the various load centres and the distribution of power to the doorsteps of various consumers.

 

Flowing from the above, assets and utilities in the Nigerian electricity sector are partly owned and operated by the government and by private companies.

 

Legal Framework


The electricity sector in Nigeria is governed by several laws and regulations. The key legislation are discussed below.

 

The Electric Power Sector Reforms Act (EPSRA)


This is the primary law that sets up the regulatory framework for the entire electricity sector. The Act establishes the Nigerian Electricity Regulatory Commission (NERC) which is the major regulator of the electricity sector. Other key provisions of the Act include the requirement that persons wishing to engage in the generation, transmission, distribution or trading of electricity must obtain licenses from the NERC. The Act also establishes the Rural Electrification Agency which is responsible for promoting rural electrification programmes in the country. 

 

The Nigerian Electricity Management Service Agency Act (NEMSA Act)


The Nigerian Electricity Management Service Agency Act establishes the Nigerian Electricity Management Services Agency which is responsible for ensuring compliance with the technical standards in the sector.



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Environmental Impact Assessment Act


Although it is not a sector-specific legislation, the Environmental Impact Assessment Act plays a crucial role in the development of power generation projects. Under the Act, projects involving the construction of a steam-generated power plant burning fossil fuels and with capacity exceeding 10 megawatts, dams or hydropower plants (with dams over 15 meters high and ancillary structures covering an  area in excess of 40 hectares and/or reservoirs with a surface are in excess of 400 hectares), combined cycle power stations or nuclear power stations must first carry out an Environmental Impact Assessment test to ascertain the likely effect of the project on the environment.

 

The conduct of an EIA is a requirement for obtaining a generation licence from the NERC.

 

Market Rules


The Market Rules were made pursuant to section 26(2) of the EPSRA. The purpose of the Market Rules is to establish an efficient, reliable and competitive electricity market. The Rules establish an electricity trading system with rights and responsibilities for all participants in the Nigerian electricity market at the different stages of the market. The Rules also provide for the office of the Market Operator which is responsible for administering the electricity market, implementing the Market Rules, admitting and registering market participants, collecting and managing information required to administer the market, etc.


Under the Rules, a Market Participant is a person who has signed a Market Participation Agreement with the Market Operator and has met the requirements contained in the Market Rules.

 

Grid Code


The Grid Code sets out the operating procedures for the development, maintenance and operation of the national grid. It applies to the Transmission Company of Nigeria (TCN) and all users of the national grid. This includes on-grid electricity generators and distribution licensees. Under the Grid Code, TCN acts as the Transmission Service Provider and System Operator and performs several functions including managing connections to the grid, ensuring that grid connection points are properly metered, ensuring compliance with the Grid Code.

 

Metering Code


The Metering Code sets out the guidelines and technical specifications for metering within the Nigerian electricity industry. The Code comprises three sections; the first sets out general conditions for the whole code and covers issues relating to dispute resolution and the establishment of the Metering Code Review Panel. The second part deals with grid metering and covers the requirements for metering connection points in the transmission network and the distribution network. The third part covers metering of connection points on distribution networks where the connecting party is not a Market Participant.

 

Distribution Code


The Distribution Code comprises five codes relating to the rules and procedures for planning and development, daily operating principles for the operation and maintenance of distribution networks, guidelines for the construction and maintenance of the Distribution System and templates for the exchange of data among distribution licensees. The Code applies to all distribution companies and users or distribution networks within the country. It serves as a guide for distribution licensees in addition to the terms and conditions of their various licenses.


It should be noted that the Market Rules, Grid Code, Metering Code and Distribution Code are to be read in conjunction with one another.



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NERC Regulations


As the primary regulator, NERC has issued several regulations for the efficient running of the Nigerian electricity sector. One of the most important regulations is the Regulation for Application for Licences, 2010. The Regulations cover the application process for generation, distribution, transmission, transmission system operator and trading licences. Under the Regulations, the application procedure and timelines for the different licences are essentially the same. However, mandatory requirements for each different type of licence are provided in the schedules. The Regulations also provide for appeal procedures where an applicant is dissatisfied with the Commission's decision in respect of its application.

 

The Commission also released the proposed Multi-Year Tariff Order (MYTO) Methodology in 2007. This document contained the building blocks for a regulated price at different stages of the electricity value chain. The three major building blocks under the Methodology are allowed return on capital, allowed return of capital and efficient operating costs and overheads. The Methodology envisaged a 15 year tariff path with yearly minor reviews and three major reviews every five years.

 

In addition to the laws and regulations mentioned above, the electricity sector is also governed by several other regulations, codes and guidelines which provide a comprehensive structure for the operation of the sector. These regulations include the Eligible Customers Regulations, the Mini-grid regulations, the Meter Asset Provider Regulations, the Independent Electricity Distribution Network Regulations, and several other regulations governing different aspects of the electricity sector.

 

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