DisCos Granted Access to Buy Electricity Directly from Producers

Power distribution companies (DisCos) in Nigeria have been given the green light by the regulator to buy electricity directly from producers of the commodity after over 10 years of relying on an intermediary called the bulk trader.

The Nigerian Electricity Regulatory Commission (NERC) said in the Multi-Year Tariff Order 2024 that DisCos can now procure electricity directly from Generation Companies (GenCos) through bilateral contracts.

This means that DisCos and GenCos can negotiate and agree on the terms and conditions of power supply, such as price, quantity, quality, duration, and payment, without the involvement of the Nigerian Bulk Electricity Trading Plc (NBET).

NBET is a government-owned entity that buys electricity in bulk from GenCos through power purchase agreements and sells it through vesting contracts to the DisCos, which then supplies it to the consumers.

NBET began trading with the commencement of the transactional electricity market in 2015 but has been facing liquidity challenges due to the huge gap between the cost-reflective tariff and the actual tariff paid by the consumers.

NERC said the new order recognizes a revision to the DisCos’ partially contracted capacity (PCC) to ensure a minimum energy offtake with effect from 1st January 2024.

The PCC is the target volume of energy that DisCos are required to off-take from NBET at any time, as defined by the partial activation of contract (PAC) regime, which took effect in July 2022.

The minimum energy offtake requirement for the 11 DisCos this year is 4,063MWh/h, according to NERC.

The regulator said that through bilateral contracts, the DisCos are required to mitigate their “exposure to volumetric energy risks”, adding that they would have no recourse to claim revenue shortfall arising from generation shortfalls effective January 2024.

It also said that the DisCos are required to continually procure additional energy volumes to serve their customers and ensure steady migration of customers to higher service bands on account of improved level of supply.

Under the service-based tariff arrangement introduced in 2020, customers are categorized into maximum-demand and non-maximum-demand customers, with different bands (A to E) depending on the level of supply.

NERC said that the exit from NBET’s vesting contract regime would enable the DisCos to diversify their sources of power supply and improve their operational efficiency and financial viability.

It also said that the move would foster competition and innovation in the electricity market, and ultimately benefit the consumers with better quality and affordable electricity services.

Some DisCos, such as Eko, Ikeja, and Abuja, have already expressed their interest and readiness to implement bilateral power purchase agreements with some GenCos of their choice before the end of this year.

January 19, 2024