REVIEW OF NERC MINI-GRID REGULATION 2016

Written by Hussain Olatomiwa Tijani LL. B (Lasu); B.L (Nigerian Law School, Kano Campus); AICA; MBA (Lasu); Principal Partner H. O. T. Legal Practitioners, Lagos State. [email protected]

Abstract?

1.1 billion people worldwide, roughly one in every seven do not have access to electricity. A mini grid is a collection of electricity generators and possibly energy storage systems linked to a distribution network that supplies electricity to a localized group of customers. Mini-grids are distinct in that they can operate autonomously without being linked to a centralized grid. With over 100 companies actively involved in electricity-access products and services, off-grid electrification is a growing industry, and there is a growing demand for well-prepared engineers, technicians, managers, and entrepreneurs to support this effort. The NERC Mini-Grid Regulation, 2016 gives the Nigerian government an opportunity to address the country's massive power deficit by encouraging interested parties to invest in Off-Grid solutions that will provide needed power to Nigerians without relying on the National Grid. This paper examines the Nigerian Electricity Regulatory Commission (NERC) Mini Grid Regulation, 2016, focuses on the key provisions of the regulation, identifies its negative consequences, and makes recommendations to help the Regulation achieve its true goal.

Keywords:?Nigerian Electricity Regulatory Commission (NERC), NERC Mini Grid Regulation, Nigeria, Energy, Off-grid, Isolated Mini-grid, Power Sector.

Introduction

In 2016, NERC issued Mini-Grid regulations in accordance with the regulatory powers granted to it by Sections 96 (1)[i]and 70 (8)[ii]?of the Electric Power Sector Reform Act 2005. Under the provisions of this Regulation, individuals with an interest in the Power Sector may actively participate in the Sector.

A mini grid, also known as a "off-grid, micro grid, or isolated grid," is a collection of electricity generators and possibly energy storage systems linked to a distribution network that supplies electricity to a?localized group?of customers. "They entail small-scale electricity generation (10 kW to 10MW) that serves a limited number of consumers through a distribution grid that can operate independently of national electricity transmission networks."[iii]

Mini-grids are distinct in that they can operate autonomously without being linked to a centralized grid. However, the mini-grid may be designed to interconnect with the central grid, which means it operates as part of the central grid under normal conditions, with disconnection occurring only if power quality must be maintained. For example, in the event of a central grid failure. A mini-grid, may also be designed to operate autonomously in a remote location with the option of connecting to a central grid when grid extension occurs.[iv]

Off-grid electrification refers to the provision of electricity to a previously unserved population by means other than a connection to an existing centralized power grid.?(Louie, 2018)?Mini-grids can be powered by various technologies such as solar, hydro, biomass, or wind, and they can also be linked to energy storage systems such as batteries[v]. The most common kinds of mini-grid technologies are as follows:

·??????Solar mini-grids: Due to the global decline in the cost of PV modules, solar mini-grids are gaining popularity. Because they can only generate electricity during the day, battery storage is required to meet peak demand at night.[vi]

·??????Wind mini-grids: When wind blows through a turbine, the kinetic energy of the wind is converted into electrical energy. These mini-grids are site-specific and are affected by wind speed.[vii]

·??????Hydro mini-grids (MHP): MHP has the lowest levelized cost of generation and is priced competitively with grid electricity.[viii]?They do not require a dam/reservoir for water storage, unlike large hydropower. Because they are mostly run-of-the-river, they have very little environmental impact. A penstock transports water from a higher elevation to the turbines at a lower elevation. The turbines then spin in order to generate electricity. The generation of electricity is dependent on the flow of water and also requires a certain elevation. As a result, MHP is limited to a specific geographical area.[ix]

·??????Hybrid mini-grids: These are mini-grids with renewable sources that are coupled with non-renewable sources such as diesel systems or other renewable sources.?

These mini-grids are adaptable because they can generate electricity on demand.[x]’[xi]?Solar-diesel mini-grids and solar biomass mini-grids are examples of hybrid systems.[xii]

1.1 billion people worldwide—roughly one in every seven—do not have access to electricity.?(Sustainable Energy for All: Global tracking framework, 2017).?In 2015, people without electricity spent an estimated US$27 billion on candles, kerosene, and other improvised fuels that could be replaced by off-grid solutions.?(Sturm, et al., 2016).?The NERC Mini-Grid Regulation, 2016 gives the Nigerian government an opportunity to address the country's massive power deficit by encouraging interested parties to invest in Off-Grid solutions that will provide needed power to Nigerians without relying on the National Grid.

With over 100 companies actively involved in electricity-access products and services, off-grid electrification is a growing industry, and there is a growing demand for well-prepared engineers, technicians, managers, and entrepreneurs to support this effort.?(Sturm, et al., 2016).

NERC Mini-Grid Regulation, 2016

The NERC Regulation applies to all Mini-Grids in Nigeria with a generation capacity of up to 1MW, as well as their owners, operators, and users, as well as all other private or public stakeholders such as Distribution Licensees or any federal or state institution or agency that interacts with Mini-Grid owners, operators, and users.[xiii]

According to the Regulation, a mini-grid may be 'isolated,' with no connection to any other network, or 'interconnected,' with the main grid, allowing energy exchange between them.[xiv]?The Regulation defines a mini-grid as any isolated or interconnected mini-grid generating between 0KW and 1MW. Beyond 1MW generation is governed by the provisions of the Electricity Power Sector Reform Act (EPSRA), which requires an operator generating electricity beyond 1MW to obtain the licenses and mandatory registrations required under the EPSRA.

An isolated mini-grid is a mini-grid that is not connected to any distribution network and is to be utilized in an unserved area.?An unserved area refers to an area within a Distribution Licensee’s (DisCo) Network without an existing distribution system otherwise called off-grid.?The Regulation classifies an isolated mini-grid into a mini-grid with less than 100KW and a mini-grid with more than 100 KW but less than 1MW.?

The Regulation distinguishes between isolated mini-grids of less than 100KW and mini-grids of more than 100KW but less than 1MW. An operator of a mini-grid with less than 100KW can choose between registering and obtaining a permit, whereas an operator of a mini-grid with more than 100KW must obtain a permit before beginning operations.

The interconnected–mini-grid, is linked to a Distribution Licensee's network and is intended to be deployed in an underserved area, which is defined as an area with an existing but undersupplied or non-functional distribution system. According to the definition of an underserved area, any area in Nigeria with intermittent power supply could benefit from the installation of an interconnected mini-grid.

IMPACT

Kofoworola Olokun-Olawoyin argues in her book?(Olokun-Olawoyin, 2019), that privatization of the power sector has not fully achieved its goals of improving the electricity market structure, increasing power generation capacity, providing reliable and cost-effective electric power supply, and providing astute management of privatized government assets.

NERC’s policymakers can recognize the critical role mini-grids will play in assisting countries in meeting electrification targets. According to Cross Boundary Energy, the private sector deserves a chance to compete in bringing power to off-grid areas where progress has historically been slow?(Davies, 2018).?

According to?(Energy Sector Management Assistance Program (ESMAP), 2019)?Asia has the most mini-grids installed, but Africa has the highest proportion of planned mini-grids. According to the ESMAP database of mini-grid projects around the world, Asia—including South Asia, East Asia, and the Pacific—has more than 16,000 installed mini-grids, accounting for 85 percent of the global total. The majority (61%) of Asia's mini-grids are installed in just three countries: Afghanistan (4,980), Myanmar (3,988), and India (2,800). Mini-grid deployment, on the other hand, is expected to grow most rapidly in Africa, according to estimates. More than 4,000 mini-grids are currently planned for development in Africa, accounting for more than half (54 percent) of the total 7,507 planned mini-grids worldwide. Senegal (1,217) and Nigeria will develop more than half of Africa's planned mini-grids (879).

The Nigerian Rural Electrification Agency (REA) has set the following goals[xx]?for achieving its Off-Grid Electrification strategy objectives of producing clean and sustainable electricity to millions of Nigerians:

1.?????To develop a data driven off grid model for Nigeria that will become an exemplar for Sub Saharan Africa;

2.?????To promote the use of decentralized energy solutions to power households, communities & businesses;

3.?????To develop 10,000 mini grids by 2023 which will provide power to 14% of the population;

4.?????To provide reliable power supply for 250,000 SMEs;

5.?????To provide uninterrupted power supply in Federal Universities and University Teaching Hospitals;

6.?????To deploy 5 million solar standalone systems for residential and SMEs by 2023;

7.?????To supports the FGN’s climate change obligations under the Paris Agreement, with respect to promoting renewable and reducing carbon emissions.

NERC must treat mini grids as a complementary resource to the main grid in order for the REA to meet its off-grid electrification goals. It is necessary to consider the possibility that DisCos will view mini grids as a threat. As a result, it is critical to avoid putting DisCos in gatekeeper or critical roles that could stifle mini-grid operators' participation in the Nigerian power sector.

In Nigeria, approximately 26 Mini-Grids are currently operational.[xxi]?However, the NERC's Mini-Grid Regulation for 2016 may be a major impediment to the mini-grid industry benefiting from the more than $1.3 billion committed to mini grids over the next several years by development partners such as the Agence Fran?aise de Développement (AFD), the African Development Bank (AfDB), DfID, Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ), the Islamic Development Bank, and the World Bank.??(Energy Sector Management Assistance Program (ESMAP), 2019)

The NERC's Regulation for Mini-Grids, 2016, prevents Nigeria from benefiting from the vast sums of money allocated to mini-grids developers by development partners in the following ways:

1.?????The Developer bears the burden of identifying unserved or underserved areas. For permit purposes, the Developer must enter into agreements with the community or a tripartite agreement between the Developer, the DisCo, and the Connected Community.[xxii]?The Regulation does not account for the time spent negotiating with all necessary parties or conducting legal due diligence, which the Developer must do before or after securing an investor and ultimately requiring NERC approval.

2.?????The Developer must provide NERC with an accurate description of the proposed distribution and generation system, including a geographical depiction.[xxiii]?When NERC is actually the best party to conduct a thorough survey of all areas in Nigeria and recommend the best distribution and generation systems to deploy, given its interest in eventually connecting the mini-grid to the Main Grid.

3.?????The regulation requires the Developer to confirm that the intended area is not part of DisCo's five-year expansion plan and has not been assigned to an Independent Electricity Distribution Network Operator (IEDNO) or any other mini-grid operator.[xxiv]?Whereas, NERC should have been proactive by publishing accurate records showing the areas captured in a DisCo’s five-year expansion plan, as well as the current status of areas assigned to, or undergoing assignment to, an IEDNO or mini-grid operator.

4.?????Despite having a provision that the DisCo's interests supersede any agreement executed by the community with respect to integrating the community into its distribution network[xxv], the regulation requires an executed agreement between the Community and an Isolated Mini-grid Developer[xxvi]?for a grant of an exclusivity period of 12 months[xxvii], with the possibility of an extension of 12 months after proving its extension justification to NERC.[xxviii]?NERC fails to consider that the maximum period of 24 months provided would not be sufficient to generate an enticing Return on Investment that would persuade any serious investor to invest in the Nigerian Power Sector.

5.?????If the intended area falls within the DisCo's five-year expansion plan, a developer must obtain written consent from the DisCo before constructing and installing an isolated mini grid with a generation capacity of 100kW to 1MW.[xxix]Unfortunately, this requirement defeats the Regulation's purpose, as the Distribution Licensee may refuse to provide consent, preventing the unserved area from benefiting from the power generated by the Mini-Grid Developer, which would have helped bridge the power generation and distribution gap. This requirement also ignores the possibility that the DisCo may be underserving customers in those areas or the fact that it may be unable to meet its expansion obligations realistically. A block must be kept on the DisCo to prevent it from expanding into areas when its current service areas do not receive optimal power service. Having this in place fosters healthy competition among power providers, with Nigerians benefiting the most.

6.?????It is punitive that the Isolated Mini-grid is given two options: convert to an Interconnect Mini-Grid Operator or transfer all of its assets to the DisCo in exchange for compensation.[xxx]?This is a risk that can be avoided by not requiring the mini-grid operator to enter into a contract with the DisCos.

7.?????It is also punitive that a registered mini-grid operator is given two months to decommission without compensation or refund after the DisCO requests it to do so, when the DisCo extends its network into the operational area of the registered mini-grid operator.[xxxi]?Again, this is a risk that can be avoided by not requiring the mini-grid operator to enter into a contract with the DisCos.

8.?????It is also punitive that the DisCo can re-integrate an interconnected mini-grid into its network if it fails to renew the Tripartite agreement between it, the interconnected mini-grid operated, and the Connected Community, with the regulation requiring only that the DisCo provide written proof of endorsement by the Connected Community and notify NERC.[xxxii]?This puts the DisCos in the perilous position of being domineering, while also undermining any form of healthy competition within the power sector.

9.?????Before applying to NERC for approval, the regulation requires that all necessary permits for the construction and installation of the mini-assets grids be obtained.[xxxiii]?This does not account for the time it would take to obtain the permits, the time it would take to build and install the mini-grid, and whether the Developer would still be able to use the intended area.

RECOMMENDATION AND CONCLUSION

If Nigeria is to fully tap and unlock the potential of Mini-Grids and direct the proceeds towards solving the country's power deficit, NERC, as a regulatory body, must take the lead in geospatial portfolio planning, community engagement, easing access to finance, training and skill-building, establishing a workable institutional framework and regulations, and creating an enabling business environment.

I urge NERC to avoid the situation where a Developer is used as a pawn to bear the initial cost of determining whether or not the intended area is profitable, with the DisCo reaping unfair rewards. I also urge NERC to conduct a comprehensive study and develop appropriate Technical Codes and Standards to accommodate the various power generation and distribution systems.?

By doing so, Nigeria will be positioned to capitalize on the World Bank's identified key market drivers that will propel the power sector to scale, namely: (i) accelerating deployment through a portfolio approach to mini-grid development; (ii) providing superior service; (iii) leveraging development partner and government funds to crowd in private-sector finance; and (iv) creating enabling business environments in key access-deficient countries.

In the midst of NERC's obvious lapses, I am comforted by Benjamin Franklin's words, "An investment in knowledge pays the best interest." In this regard, investors can profit from NERC's shortcomings by investing in identifying unserved and underserved areas, conducting research on the best distribution and generation systems for geographical locations in Nigeria, and monetizing the data gathered. After all, information is the new gold.

As a final note, NERC’s policymakers must recognize that this Regulation forces one to consider whether the Regulation was created to bridge the power deficit gap or to protect the interests of DisCos, which have so far failed to meet expectations since privatization.

ACKNOWLEDGEMENTS

I am grateful to Mr. Daniel Kitwa, Ms. Wola Joseph, Mr. Uwakwe Ukuta Azikiwe, JD, Mr. Tam Kemabonta, Ms. Glory Uloma Ejike, and Mrs. Suliat Omolade Tijani for their time and invaluable insights shared with me towards preparing this paper.

Works Cited

Davies, G. M. (2018).?Private Mini-Grid Firms Deserve a Chance to Compete against Slow Utilities in Africa: A Faster Path to Rural Electrification.?GreenTechMedia.

Energy Sector Management Assistance Program (ESMAP). (2019).?Mini Grids for Half a Billion People: Market Outlook and Handbook for Decision Makers. Executive Summary.?Washington, DC: World Bank.

Louie, H. (2018).?Off-Grid Electrical Systems in Developing Countries.?Springer.

Olokun-Olawoyin, K. (2019).?The Nigerian Electricity Supply Industry.?Lagos: Doculand Business Solutions Limited.

Sturm, R., Njagi, A., Blyth, L., Bruck, N., Slaibi, A., Alstone, P., . . . Vickers, B. (2016).?Off-grid solar market trends. Retrieved from worldbank.org: https://documents. worldbank.org/curated/en/197271494913864880/Off-grid-solar-market-trends-report-2016

Sustainable Energy for All: Global tracking framework. (2017). Retrieved from https://www.seforall.org/ global-tracking-framework

END NOTES

[i]?The Commission may make regulations prescribing all matters which Regulation. by this Act are required or permitted to be prescribed or which, in the opinion of the Commission, are necessary or convenient to be prescribed for carrying out or giving effect to this Act.

[ii]?Notwithstanding subsections (1) to (7) of this section, the Commission may establish simplified procedures for undertakings and businesses that are limited in size and scope so as to expedite the application and licensing process.

[iii]?Mini-grid policy toolkit:?https://www.minigridpolicytoolkit.euei-pdf.org/policy-toolkit

[iv]?A review of mini-grid used for electrification in rural areas:?https://iasir.net/AIJRSTEMpapers/AIJRSTEM13-239.pdf

[v]?ESMAP. (2017). Mini-Grids and gender equality: Inclusive design, better development outcomes. Retrieved from?https://openknowledge.worldbank.org/handle/10986/29050

[vi]?IFC. (2017). Operational and financial performance of mini-grid discos: Findings and insights from pioneer benchmarking. Retrieved from?https://sun-connect-news.org/fileadmin/DATEIEN/Dateien/New/IFC_Minigrids_Benchmarking_Report_Single_Pages_January_2017.pdf

[vii]?American Wind Energy Association. (2020). The basics of wind energy. Retrieved January 11, 2020, from AWEA website:?https://www.awea.org/wind-101/basics-of-wind-energyfckLR

[viii]?IFC. (2017). Operational and financial performance of mini-grid discos: Findings and insights from pioneer benchmarking. Retrieved from?https://sun-connect-news.org/fileadmin/DATEIEN/Dateien/New/IFC_Minigrids_Benchmarking_Report_Single_Pages_January_2017.pdf

[ix]?Acharya, K., & Bajracharya, T. (2013). Current status of micro-hydro technology in Nepal. Retrieved from?https://www.researchgate.net/publication/296348325_Current_Status_of_Micro_Hydro_Technology_in_Nepal

[x]?IFC. (2017). Operational and financial performance of mini-grid discos: Findings and insights from pioneer benchmarking. Retrieved from?https://sun-connect-news.org/fileadmin/DATEIEN/Dateien/New/IFC_Minigrids_Benchmarking_Report_Single_Pages_January_2017.pdf?;

[xi]?GVEP International. (2011b). Policy briefing. Retrieved from?https://www.energy4impact.org/sites/default/files/policy_briefing_-_mini-grid_final.pdf

[xii]?EEP Africa. (2018). Lessons learned from the EEP Portfolio: Opportunities and challenges in the mini-grid sector in Africa. Retrieved from?https://eepafrica.org/wp-content/uploads/2019/11/EEP_MiniGrids_Study_DigitalVersion.pdf

[xiii]?Section 4 (1),?NERC Mini-Grid Regulation, 2016

[xiv]?Section 5 (1),?NERC Mini-Grid Regulation, 2016

[xv]?Section 21 (1) (a-b),?NERC Mini-Grid Regulation, 2016

[xvi]?Section 21 (1) (c),?NERC Mini-Grid Regulation, 2016

[xvii]?Section 8 (1) (b) NERC Mini Grid Regulation 2016

[xviii]?Section 7 (1) (a-h) NERC Mini Grid Regulation 2016

[xix]?Section 9 (1) (a-c) NERC Mini Grid Regulation 2016

[xx]?https://rea.gov.ng/theagency/off-grid-electrification-strategy/

[xxi]?https://nerc.gov.ng/index.php/home/operators/mini-grid?;?1.?100KW Off-grid Solar PV Plant in Ogbein-ama Community, Delta State; 2.?GVE Akpabom 100KW MG; 3.?Construction of 85KWP Solar mini-grid at Dakiti Community in Akko Local Government Area; 4.?Development of 80KWp Solar mini-grid at Upake Community, Ajaokuta LGA of Kogu State; 5.?Development of 30KWp Solar mini-gird at Bambami Village, in Batagarawa Local Government Area; 6.?Rokota Re; 7.?90Kw Solar Mini-Grid, Kare, Kebbi State; 8.?Kigbe Mini grid; 9.?50KWP minigrid at Idadu; 10.?Construction of 33KW of mini-grid in Obeagu isu in Ebonyi State; 11.?Construction of 66KW of mini grid in Umuntumuna Obeagu Isu in Ebonyi State; 12.?Bolorundugo community project; 13.?Ekan community project; 14.?Oriokuta community project; 15.?Omuaran community project; 16.?Olorioko community project; 17.?100KWP solar hybrid mini-grid at Eka-Awoke community in Ikwo LGA Ebonyi State; 18.?Ajana Ejidokun; 19.?Ilupeju Edetedo community project; 20.?Obadore solar mini grid electrification; 21.?Ajegunle solar mini-grid electrification; 22.?Budo Are Mini-Grid; 23.?Sule Community: Solar Mini-Grid Electrification of Sule Community Ovia South Wes; 24.?Makami Community: Solar Mini Grid Electrification of Makami Community; 25.?Igbabo; 26.?100KW Solar hybrid isolated mini-grid; 27.?Onipanu 1: Solar Hybrid Mini-Grid Electrification; 28.?Oloyan Community: Solar Hybrid Mini-Grid Electrification.

[xxii]?Section 6 (1-2), NERC Mini Grid Regulation, 2016

[xxiii]?Section 6 (3-5) NERC Mini Grid Regulation, 2016

[xxiv]?Section 7 (1) (b-d) NERC Mini Grid Regulation, 2016

[xxv]?Section 21 (5),?NERC Mini-Grid Regulation, 2016

[xxvi]?Section 7 (1) (e) NERC Mini Grid Regulation, 2016

[xxvii]?Section 21 (1) (a),?NERC Mini-Grid Regulation, 2016

[xxviii]?Section 21 (1) (b),?NERC Mini-Grid Regulation, 2016

[xxix]?Section 7 (1) (c),?NERC Mini-Grid Regulation, 2016

[xxx]?Section 19 (2) (a-b),?NERC Mini-Grid Regulation, 2016

[xxxi]?Section 19 (6),?NERC Mini-Grid Regulation, 2016

[xxxii]?Section 19 (7) (a-b),?NERC Mini-Grid Regulation, 2016

[xxxiii]?Section 7 (1) (f),?NERC Mini-Grid Regulation, 2016