… Johnson Akinnawo takes over as Acting MD/CEO of NBET, as Dr. Ewelukwa retires
… NERC novates NBET’s contractual rights to 10 private companies for bilateral electricity trading
… only 8 out of 28 GenCos have secure contracts with NBET as of June 2024
Oredola Adeola
The Nigerian Electricity Regulatory Commission (NERC) has issued a directive under the Electricity Act 2023, ending the Nigerian Bulk Electricity Trading Company Plc. (NBET)’s role in contracting for the purchase and resale of electricity and ancillary services.
The Commission has therefore novated the NBET’s existing contractual rights and obligations to other licensees, including 10 (ten) private companies that have indicated an interest in trading electricity bilaterally with DisCos and eligible customers that have been issued trading licenses since 2022.
It has also granted aspirational DisCos the approval for the purchase of electricity from parties other than NBET, i.e. directly from the GenCos or through other trading licensees.
This directive, contained in Order No: NERC.2024/054, signed by NERC Chairman Sanusi Garba and Commissioner Dafe Akpeneye, becomes effective from July 25, 2024.
In a related development, Mr. Johnson Akinnawo, formerly the General Manager of Origination, Contract Management, and Administration, has been appointed as Acting Managing Director and Chief Executive Officer of NBET following the retirement of Dr. Nnaemeka Ewelukwa on July 24, 2024.
Advisors Report gathered that the directive for transitioning to bilateral contracts is a significant shift towards a more competitive and efficient electricity market in Nigeria, as NERC aims to improve market discipline, ensure predictability in generation and gas supply, and enhance customer satisfaction with electricity services.
The Commission in the Order emphasised that NBET would no longer enter into new contracts for the purchase and resale of electricity and ancillary services in NESI.
It added that any contracts executed by NBET in violation of this order will not be approved by the Commission and will be subject to regulatory sanctions.
REVIEW OF NBET IN LAST 14 YEARS
In the last thirteen years of NBET, NERC confirmed that the continued role of the NBET in the market has been a disincentive for the transition to bilateral contracting between DisCos and GenCos thus exposing the FGN to the risk of revenue shortfalls beyond tariff support.
A review of the status of the PPAs executed between GenCos and NBET indicates that, as of June 2024, only 8 (29%) of the 28 GenCos trading with NBET have fully effective contracts backed by some form of payment guarantees.
The other 20 grid-connected GenCos trade with NBET on a “Take and Pay” basis but without payment guarantees thus creating significant operational challenges due to continued growth in debt for energy supplied to the grid.
In 2024/Q1, only 23.25% of the gross installed capacity of GenCos on best endeavour contracts was available for the purpose of generating electricity during the quarter.
The Commission explained that high incidence of plant unavailability has exacerbated the mismatch between the demand and supply on the national grid thereby increasing the technical fragility of the grid making it susceptible to incidences of system collapse.
It further revealed that the curtailed generation availability has also led to increased customer dissatisfaction with the service provision and payment apathy to their respective public utilities.
MOVING FORWARD
NBET has therefore been directed to continue administering fully effective contracts with Azura Power West Africa Ltd. (APWAL), Omotosho Power Plc, Olorunsogo Power Plc, Nigerian Agip Oil Company Ltd, and Shell Petroleum Development Company of Nigeria Ltd.
Advisors Reports gathered that that contracts cover a total capacity of 2,188 MW and a vested capacity of 1,357 MW.
NERC further instructed the System Operator (SO) to dispatch Azura Power West Africa Ltd. (APWAL)in Edo, at a baseload equivalent to its minimum “take-or-pay” capacity of 360 MW.
Should the other on-grid GenCos fail to meet their contractual obligations, the Commission directed the SO to issue dispatch instructions to APWAL to increase generation as a supplier of last resort, invoicing the affected GenCos for the energy delivered on their behalf.
NERC said that all other power plants with “take and pay” PPAs or interim energy sales agreements with NBET have 60 days from the commencement date of this Order to negotiate and contract with DisCos on a bilateral basis for the capacity currently held by NBET.
Advisors Reports confirmed that several GenCos have notified the Commission of their intent to exercise their exit rights under their PPAs with NBET to supply electricity directly to DisCos, other bulk traders, and eligible customers.
This move aims to secure satisfactory off-take commitments backed by payment guarantees, enhancing predictability in generation and gas availability.
For energy invoicing and settlement, the Commission has ordered that NBET’s firm contracts will largely be funded through the PSRP Financing Plan.
The disbursement waterfall of DisCo revenue collections for energy/capacity payments will prioritize bilaterally traded energy between DisCos and GenCos, firm contracts of NBET with five GenCos, and NBET pool energy under interim “take & pay” framework PPAs.
To ensure market discipline, NBET’s bilaterally contracted capacity by all DisCos must align with the allowed recoverable generation cost from the end-user tariffs of the DisCos, mitigating the risk of payment defaults.
END OF AN ERA
The NBET was incorporated on July 29, 2010, by the Federal Government of Nigeria to act as a credible and credit worthy off-taker and to be provided with credit support and/or capitalisation by the Federal Government.
It was supposed to enable the guaranteed payments to GenCos while facilitating bankable project financed independent power projects.
NBET was subsequently licensed as a bulk trader by the Commission on August 23, 2011 with a key mandate of procuring and sale of bulk electricity and ancillary services to DisCos, pursuant to sections 25(a) and 68(2) of now defunct EPSRA and parts 5 and part 7 of the Market Rules for Transitional and Medium-Term Stages of NESI (“MarketRules”).
Advisors Reports gathered that that licence issued to NBET had a tenure of 10 (ten) years and was renewed upon expiration in August 2021 but for a term of 3 years.
The Commission had raised concerns about the ongoing involvement of the NBET) in the power market, stating that it has hindered the transition to bilateral contracting between DisCos and Generation Companies (GenCos).
This situation, according to NERC, has left the Federal Government of Nigeria (FGN) vulnerable to revenue shortfalls beyond the intended tariff support.
