Onome Amuge
In a recent move to shake up Nigeria’s electricity market, the Nigerian Electricity Regulatory Commission (NERC) said it has eliminated the role of the Nigerian Bulk Electricity Trading Plc (NBET) as a middleman between power generators (GenCos) and power distributors (DisCos).
The NERC, in the newly released order on “Transition of Bilateral Trading in the Nigerian Electricity Supply Industry”, stated that DisCos can now purchase electricity directly from GenCos, without having to go through the NBET as an intermediary.
“This Order shall take effect from 25 July 2024 and shall remain in force until amended or revoked by a subsequent Order issued by the Nigerian Electricity Regulatory Commission (“NERC” or the “Commission”),” the commission stated.
The NERC’s order for NBET to cease entering into new contracts was based on the provisions of Section 7(2) of the Electricity Act 2023, providing a legal framework for the commission’s actions.
The commission further stated that any contract executed by NBET in violation of this order will not be approved, and the entity will be subject to regulatory sanctions for any such infractions.
The NERC’s rationale behind the new order was explained in its statement, citing the goal of reducing the Federal Government’s fiscal exposure to market risks and fostering a more competitive market structure.The regulator seeks to transition the Nigerian Electricity Supply Industry (NESI) towards bilateral contracting for energy and capacity between GenCos and DISCOs, a move that eliminates the role of NBET as the sole bulk electricity trader in the industry.
NERC stated that the new order enables all hydro and thermal GenCos with existing “take-and-pay” contracts with NBET to renegotiate their capacity commitments through bilateral trading with DISCOs. This repositioning is expected to enable GenCos to offload excess generation capacity, reducing the strain on their resources, and providing a more sustainable and flexible business model.
The NERC’s order also seeks to transition the existing contractual framework for bulk energy trading in the NESI to a “take-or-pay” basis, which introduces a new level of accountability and predictability into the market.
The NERC also disclosed that since 2022, it has already issued trading licences to ten private companies who have expressed interest in engaging in bilateral electricity trading with DISCOs and eligible customers. This growing interest in wholesale electricity trade outside the single-buyer model of NBET highlights the increasing demand for a more flexible and competitive energy market in Nigeria.
On the supply side, the NERC noted that several power generation companies have submitted notifications to the commission indicating their intent to exercise their rights to partially or fully exit their Power Purchase Agreements (PPAs) with NBET. These GenCos intend to contract for electricity supply directly to DISCOs, other bulk traders, and eligible customers, in compliance with the provisions of the Electricity Act.
“The key incentive for 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 NERC stated.
The order for NBET to cease entering into new contracts for bulk energy trading comes at a significant moment for the company, as it recently appointed Johnson Akinnawo as new acting managing director/chief executive officer, having replaced Nnaemeka Ewelukwa, who completed his four-year tenure on July 24.
NBET has issued a statement in response to Akinnawo’s appointment, assuring stakeholders that the new acting MD is working closely with the regulator, other industry players, and the federal government to ensure that all obligations to GenCos are settled without any disruptions.
Prior to the recent changes, NBET was instrumental in administering the electricity pool in the Nigerian electricity supply industry. Incorporated by the federal government in July 29, 2010, NBET’s mandate was to act as a trustworthy off-taker of electricity and to receive credit support and capitalisation, allowing it to guarantee payments to power generation companies (GenCos) and enable the financing of independent power projects.
Following its establishment, NBET was licensed as a bulk trader by the Nigerian Electricity Regulatory Commission (NERC) on August 23, 2011. As a bulk trader, the company’s key mandate was to procure and sell bulk electricity and ancillary services to the distribution companies (DISCOs) in Nigeria, acting as a crucial intermediary in the electricity market.
The Electricity Act 2023 places the responsibility squarely on the shoulders of the NERC to direct the development of the electricity market from its current transitional phase to subsequent phases, as outlined in the market rules or any amendments approved by the commission. The act has set the stage for the recent order by NERC to transform the electricity trading sector, with the elimination of NBET’s role as an intermediary between GenCos and DISCOs.
