Introduction

On 29 December 2023, the Nigerian Electricity Regulatory Commission (the “Commission”) issued the Mini-Grid Regulations, 2023 (the “Mini-Grid Regulations”) replacing the Mini-Grid Regulations, 2016 (“2016 Regulations”) in accordance with section 226 of the Electricity Act, 2023. The Mini-Grid Regulations introduces key changes to the Nigerian Electricity Supply Industry (“NESI”) and seeks to address stakeholders’ concerns regarding the operational landscape between distribution companies (“DisCos”) and mini-grid operators as well as the generation of electricity from renewable energy sources within NESI.

Below, we examine the key highlights and amendments introduced by the Mini-Grid Regulations:

Key Highlights and Changes Introduced by the Regulations and their Impact on the NESI

Confirmation and Consent: To expedite the mini-grid permit application process, the Mini-Grid Regulations mandate that DisCos must, within a timeframe of 15 (fifteen) business days, either confirm that the proposed mini-grid investment in the designated unserved area will not impede their network expansion plans or provide written consent if the project area is already covered within their expansion plans. Therefore, upon receiving the request for confirmation or consent, failure to respond within the specified timeframe will be construed as deemed consent from DisCos.¹ This amendment is designed to mitigate delays associated with obtaining DisCos' confirmation or consent during the mini-grid permit application process.

Transfer of Mini-Grid Permit and Business: The Mini-Grid Regulations introduces a framework that outlines the procedure for the transfer, assignment, sale, or disposal of a Mini-grid permit holders’ ("Permit Holders") permitted business, carried out under a mini-grid permit.² This process is subject to the prior written consent of the Commission and requires that Permit Holders provide specific documentation and evidence demonstrating the technical capability of the transferee company. This introduction establishes a legal framework for the transfer of licenses, especially in the context of mergers and acquisitions within Nigeria's power sector.

Limitation on the Multi-Year Tariff Order Methodology: The Multi-Year Tariff Order (MYTO) methodology serves as a cost-reflective retail tariff framework, enabling mini-grid operators make informed decisions about their pricing strategies. The Mini-Grid Regulations now provides that registered mini-grid operators may decide to determine retail tariffs and other charges using the MYTO, subject to a limitation that allowable technical losses shall not exceed 4% (four percent) and allowable non-technical losses shall not exceed 3% (three percent).³ It is noteworthy that this represents a significant reduction compared to the 2016 Regulations, where mini-grid Permit Holders enjoyed a 10% buffer on technical and non-technical losses when determining retail tariffs and other charges.⁴

Flexibility in the determination of Mini-grid tariffs: Under the Mini-Grid Regulations, mini-grid operators are permitted to enter into agreements with the community (that is customers consuming not less than 60% of the electrical output of the mini-grid) to determine the applicable retail tariffs and charges billed on the customers.⁵ These agreements are however subject to the Commission’s right to intervene and review the agreed tariffs to ensure equity and fairness. This is in contrast to the 2016 Regulations where the Commission could step in and adjust the tariff, if the rate of return for the mini-grid operator exceeded 6%.⁶ In this context, the Mini-Grid Regulations seeks to prioritize equity and fairness rather than a strict financial threshold. This enhanced flexibility empowers mini-grid operators to adapt their pricing strategies more effectively to local market conditions, fostering an environment conducive to attracting investments in unserved and underserved areas.

Expansion of DisCos Area Coverage: Due to the increasing demand for the expansion of DisCos into unserved and underserved regions in Nigeria, the Mini-Grid Regulations permits DisCos to extend their network to isolated mini-grids operating under a permit or to integrate their networks with interconnected mini-grids. As outlined in the Mini-Grid Regulations, DisCos are required to issue a formal written notice within 12 months before such grid extension reaches the isolated mini-grid.⁷

Furthermore, the Mini-Grid Regulations mandate DisCos to provide adequate compensation to Permit Holders in the event of an extension to an isolated mini-grid operated under a permit. A Permit Holder affected by such extension of network by a DisCo, is expected to transfer all its distribution assets to a DisCo subject to such Permit Holder being fully compensated. In the event of failure by the DisCo to adequately compensate an isolated mini-grid operator, the operator has the right to continue operating the mini-grid without any disruption or obstruction to its activities by the DisCo.⁸ This marks a significant departure from the 2016 Regulations, where DisCos could request the decommissioning and removal of the operator’s assets and equipment within two months, without such operator being entitled to compensation.⁹ This amendment aims to foster better coordination between DisCos and mini-grid operators while promoting a more inclusive and collaborative approach to energy infrastructure development in unserved and underserved areas within NESI.

Conclusion

In conclusion, the newly issued Mini-Grid Regulations mark a significant step towards addressing key concerns and fostering positive changes within the NESI. These regulations represent a positive stride towards a more inclusive, collaborative, and adaptable energy landscape in Nigeria, signaling a commitment to attracting investments in the evolving NESI. However, as with any regulatory amendments, there may be challenges in implementation. Therefore, a careful and responsive approach is essential to ensure the success of these reforms.

1. Section 7(2) NERC Mini-Grid Regulations 2023
2. Section 14(1) NERC Mini-Grid Regulations 2023
3. Section 22(5)(a) NERC Mini-Grid Regulations 2023
4. Section 20(3) NERC Mini-Grid Regulations 2016
5. Section 22(5)(b) NERC Mini-Grid Regulations 2023
6. Section 20(4)(b) NERC Mini-Grid Regulations 2016
7. Section 20(2) NERC Mini-Grid Regulations 2023
8. Section 20(4) NERC Mini-Grid Regulations 2023
9. Section 19(6) NERC Mini-Grid Regulations 2016