PLANNED SOLARIZATION OF PUBLIC INSTITUTIONS BY THE REA: AN INDICATION OF “RENEWED HOPE” TO POTENTIAL MINIGRID INVESTORS?

Recently, news circulated that the Federal?Government of Nigeria allocated One Hundred Billion Naira in the 2025 Budget, to provide?solar mini-grids?in selected government institutions, federal universities and their teaching hospitals, with the Rural Electrification Agency (REA) awaiting the budget’s passage and signing, to begin work to “solarize government institutions”.

This development is indeed laudable and comes on the back of the REA’s Rural Electrification Strategy and Implementation Plan, which recognizes the critical importance of mini-grids in the provision of decentralized, reliable, affordable, and sustainable energy access in Nigeria. Hence, one can say that the federal government is ‘leading by example’ and the said allocation for mini-grids in the 2025 budget should sound off as encouragement to investors who have contemplated investing in the sector.?

However, over the years, one of the challenges that developers have pointed out is the bureaucratic bottlenecks faced regarding permits for mini-grid operations from the Nigerian Electricity Regulatory Commission (NERC) and the effect of such on the outcome of the commercial terms with distribution companies, especially with regards to the pricing mechanisms and the resulting tariff.

This development is what has prompted this article, which basically reviews the provisions of the NERC Minigrid Regulations, 2023 (the “2023 Regulations”), released a little over a year ago to replace the NERC Regulation for Mini-grids 2016, and to provide further regulatory clarity regarding the operations of mini-grid developers, as follows:

a.?????? Permit for Portfolios of Isolated Mini-Grids or Interconnected Mini-Grids: Regulation 3 of the 2023 Regulations allows for the issuance of permit for a Portfolio of Isolated Mini-grids or Portfolio of Interconnected Mini-grids, respectively. Therefore, mini-grid operators who may have executed multiple exclusive agreements with different communities that they seek to serve, may simultaneously apply to NERC for a permit covering such multiple sites for the development of a set of mini-grids within a DisCo’s franchise area. Considering the hitherto lengthy permit application and issuance period, this is expected to save cost and time for business operations by mini-grid developers.

b.?????? Submission of Single Tariff Application for Portfolio of?Interconnected or Isolated Mini-Grids: Regulation 22 (4) (d) of the 2023 Regulations, allows operators who have a portfolio of mini-grids to submit a single tariff application, with respect to their portfolio of interconnected or isolated mini-grids. This removes the previous lack of clarity that existed due to the silence of the 2016 Regulations with respect to the tariff application process for operators of portfolios of interconnected or isolated mini-grids.

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c.?????? Deemed Consent by DisCos: In order to protect existing investments in the ecosystem, it is required that in applying for a NERC permit, an Isolated Mini-grid Operator must request for consent from the applicable DisCo, confirming that the proposed mini-grid investment shall not interfere with the DisCo’s NERC approved network expansion plans. However, occasionally, the DisCos may fail to respond to such requests and leave the mini-grid developer stuck on waiting for the DisCo’s confirmation before it can proceed with its application to NERC. Thus, due to the need for business continuity, as recognized under the Business Facilitation (Miscellaneous Provisions) Act, 2023, Regulation 7(2) of the 2023 Regulations contains provision for deemed consent, which requires the DisCo to respond affirmatively or otherwise, within fifteen (15) days, in the absence of which it shall be deemed that the DisCo has consented to the mini-grid developer’s request to proceed with its development in the DisCo’s network.

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d.?????? Notification Period to Isolated Mini-Grid Permit Holders for DisCo Interconnection: Section 20(2) of the 2023 Regulations provides that DisCos are required to give twelve (12) months’ notice to an isolated mini-grid permit holder to decide whether to interconnect the mini-grid or transfer the assets to the DisCo, following the announcement by the DisCo of its intention to extend the distribution network to the isolated mini-grid operating area. This new requirement is to ensure effective negotiation and information sharing between the concerned permit holders and the DisCos, as it clearly provides for the minimum notice period or the time required from the DisCo to notify the mini-grid permit holder of its decision, thereby reducing the risk exposure to mini-grid permit holders that may be caused by delays.

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e.?????? Compensation to Interconnected Mini-Grid Operator for DisCo’s Reintegration of Interconnected Mini-Grid into DisCo Network: Where a DisCo reconnects a community into its DisCo’s network. Not only is such a DisCo required to provide written proof of endorsement of such reintegration by the community, and notify NERC, but Regulation 20(9) of the 2023 Regulations also requires the DisCo to ensure payment of compensation to the mini-grid operator, whose systems have hitherto served the community and are to be connected to the national grid by the DisCo. The compensation will compose of (i) the book value of the depreciated network assets (based on historical, construction and development costs); and (ii) a 24-months prior equivalent of pre-tax profit earned by the mini-grid operator. It is however important to note that unlike the 2016 Regulations which states that the mini-grid operator would “transfer all assets that the Isolated Mini-Grid Operator does not want to remove from the Mini-Grid system to the Distribution Licensee”, the requirement in Regulation 20 (3)b of the 2023 Regulations is for the mini-grid operator to transfer all the assets in such applicable area, to the DisCo. It is hoped that this provision will fairly compensate the mini-grid developer for any lost revenue following connection to the national grid and boost private sector confidence in the regulatory regime.

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Conclusion

With mini-grid development continuing to evolve in Nigeria, the Federal Government of Nigeria is showing what is possible in the sector, with mini-grid developers, investors, and financiers having a role to play in ensuring that there is more efficiency in the operation of mini-grid projects in the country. While it may not solve every practical problem existing in the sector, it is hoped that the introduction of the 2023 Regulations, which seeks to ensure that the permitting process is more efficient, practical, transparent and predictable, will incentivize private sector participation in the mini grid sector of the Nigerian electricity market and increase access to electricity in Nigeria’s un-served and underserved parts of Nigeria. Be that as it may, the 2025 Budget allocation is proof that the government is playing its part. Dear private sector participants, over to you. Let your light so shine before men!