MINI-GRID REGULATION:CREATING

CONDUCIVE LEGAL FRAMEWORK FOR

EXPANDING EMBEDDED GENERATION

DR. ABDUSSALAM YUSUF

NERC, Abuja
Presentation at the Seminar on Developing and financing off-grid
solutions in the Nigerian Power sector, at Transcorp Hilton Hotel, Abuja.
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4th October 2017
 Contents

01 Background/Legal Authority
02 Objectives of Eligibility
03 Eligibility and the New Market
04 Issues on the Consultation
05 Mini-grid Regulation
06 Impacts

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 Rural Electrification targets
90%
60%

2030
Sample
Text 2020
 The Rural Electrification Goal The Goal of
Federal Government of Nigeria is to increase
access to electricity to 75% and 90% by 2020
and 2030 respectively and at least 10% of
renewable energy mix by 2025 as contained in
the National Electric Power Policy (NEPP) of
2001 and the Rural Electrification Policy of
2005 respectively

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 The Rural Electrification Strategy This rural electrification
strategy while striving to achieve Federal Govt. goals shall:
i. Promote a full menu of rural electrification optionsgrid
and off-grid (mini-grid & stand-alone) from thermal &
renewable, etc.; ii. Ensure close co-ordination of rural
electrification expansion with economic development
objectives; iii. Encourage States, local communities and
businesses to develop and contribute financially to rural
electrification, and; iv. Facilitate the entry of new market
participants and continued development of local rural
electrification (RE) ventures whose activities may include
the production, installation, operation, maintenance, and
distribution/sales of equipment, systems, and services
related to power supply in rural areas.

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 The RE Fund: i. Will be used to develop both grid-
connected and off-grid rural electrification; ii. Will be
comprised of contributions from government, donors
etc. in accordance with provisions of EPSR Act of 2005;
iii. Will be open to bids from a wide range of
organizations (developers); iv. Will be used for funding
of connections to supply (grid and off-grid) but not for
consumption through open competitive bids; v. Will
only provide a portion of the total funding so that
other parties (distribution companies, local
communities, business groups, etc.) would have to
provide the rest.

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 The main goal of the RE Strategy is to reduce inequalities in access to electricity and the associated opportunities for increased social welfare,
education, health and income generating opportunities.
The Rural Electrification Strategy and Implementation Plan aims to achieve for the year 2020 a rural electrification rate of 40%, meaning that 10
million rural consumers, at a cost of N9 billion. It is estimated that 15% of the increase in serviced households will come from higher connections to
the existing grid, 40% from extension of the interconnected grid, 25% from isolated grids and 20% from photovoltaic solar systems
The fundamental element of the new approach is that it will be progressively demand-driven; Government will determine policy, promote
investments, set tariff and provide guidance to investors. Any capable sponsor: private companies, NGOs, local authorities and communities will all
be able to initiate electrification projects
For areas which are not yet attractive for the private sector, Government will promote public-private partnership to electrify them in a realistic time
The new paradigm guarantees that the investor will recover all the cost of supply either from tariff or tax. Accordingly the Rural Electrification Fund
was established as the instrument for achieving equitable regional distribution access to electricity
The development of this infrastructure faces important economic barriers.
The up-front investment in grid extension projects is huge, whereas initial demand is relatively low;
in order to make rural electrification projects commercially viable and tariffs affordable for an important number of rural communities, the Fund will
utilise subsidies to buy down investment costs, risks and information barriers to public or private initiatives.
The efficiency of REF operation will be measured by number of access created per invested subsidy amount subject to the satisfaction of regional
equity requirements.
a minority of households in the grid distribution area will benefit from direct access to electricity for many years, all households in the area benefit
from the indirect access through public lighting, and the facilitation of better education, health, water and telecom services.
Tariff Policy
In order to stimulate decentralised initiatives, projects must be commercially viable.
Tariff revenue must cover the costs to the service provider, allowing private capital to make a return on equity and finance the investment.
This implies that consumers in different parts of the country will pay different tariffs. . The principle of local cost-reflective tariffs will be applied also
to the new distribution and supply licenses that are created out of UEBs distribution areas:
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 RESIP strategy
The Strategy is to Promote

full menu of options

1 grid and off-grid (mini-grid stand-alone

& stand-alone

2 participation of all tiers of govt, CBO

and Private sectors
Mini-grid

3 entry of new market participants

 3-Year Plan
Basis of Mini-grid Regulation in the EPSRA 2005

The purpose of the

REF shall be to
promote, support and
provide rural
electrification
programmes through
Public and private
sector participation in
order to:
(c) promote
expansion of the grid
and development of
off grid electrification;
 What is a mini-grid?
Isolated Mini-grid <100
A mini-grid, in the context kW
of rural electrification, is
an integrated Only registration required but may opt for a permit
decentralized local
generation, transmission Isolated mini-grid
and distribution system >100kW and <1MW
serving numerous
endusers that stand on its Requires permit and minimum network standards
own separated from the
national grid with an Interconnected Mini-grid
installed generation >100kW and <1MW
capacity below 1MW
 Why regulating mini-grid?
Major barriers against investment in mini-grid
Concerned that grid may arrive faster than expected, and
all customers shift over to main grid.
Concerned that competitors might steal good sites
(especially an issue when subsidies start to be available)
Lack of clarity about whether cost-reflective tariffs can be
charged.
Customers need confidence that:
Mini-grid is safe
Power is reliable
Not too expensive

Slide 12
 Features of the mini-grid regulation

Up to date maps of the existing grid and mini-grids

shall be made available on-line to the public
Permit
Streamlined for projects < 1 MW
Voluntary for projects < 100 kW
Exclusivity period : legal right to reserve a site subject to
demonstrating progress
Tariffs: permission to charge cost-reflective tariffs
Quality of service
Dispute resolution framework
Options when main grid arrives

Slide 13
 Mini-grid Classification

By Mode By size
<100kW
Isolated (Requires only
registration)

=>100kW and <1MW

interconnected
(Requires a permit)
 Isolated mini-grid <100kW
With No permit With a permit

Mandatory Registration Voluntarily elect to

obtain a permit
with NERC Secure permit from
Permit obligation- No NERC
Compensation? Yes
Compensation - No Compliance with
Mandatory distribution national standards
Secure tariff based
code compliance? No
approved model
To quite within 2 month Health & safety
compliance - yes
Health and safety
standard are mandatory
Your Logo
 Isolated Mini-grid Permit Process

1 Establish contact with community

Obtain exclusivity (12 months, may

2 extend for 6 month)

Apply for permit or registration (as

3 required)

Obtain tariff approval

4

Collect building permits, ESIA etc

5

Install, commission, operate

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 Interconnected Mini-grid Permit Process
Site identification
1

Exclusivity agreement (if required)

2

Tripartite Agreem. Mini-grid Developer-

Community-Disco
3 network usage fee and usage condition

Approval of tripartite agreement between

mini-grid-community-Disco(NERC)
4

Installation, commissioning, operation of mini-

grid system
5 May coordinate with disco
 Require document for permit
application
Main Document
Registration/Incorporation papers
Site title document
Relevant maps and drawings
Contract between the Community Representative and
Mini-Grid Operator
Environmental Impact Assessment
Building Permit only in case they need to build
powerhouse (e.g. not applicable for container solution
all documents should be uploaded on the online
tool)
 Mini-grids and the
Arrival of the National Grid
The SPP operates as a combined SPP-SPD

Source:
Diagram by Richard Engel
and Chris Greacen, 2013

Abuja, 18 July 2017

Big brother meets small brother page 21
Abuja, 18 July 2017
Big brother meets small brother page 22
What is a mini-grid
anyway?
Mini-grid: an electric network used to
distribute electric current within one
or several villages. Generally <10,000
customers and include local
generation.

Slide 23
 Before the grid arrives
Customers Customers

M M Mini-Grid
M M M
M

National
Grid

Small Power
Producer
Large Plants
Key: = power from utility = power from SPP M = meter
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Co-existence

Slide 25
 Assets abandoned
Customers Customers

Extension
of
National
Grid
National
Grid

Small Power
Producer
Large Plants
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 Small Power Distributor (SPD)
Customers Customers

M
M
M M
M M

M Mini-Grid
National
Grid

Small Power
Producer
Large Plants

Key: = power from utility = power from SPP M = meter 27

 Small Power Producer (SPP)
Customers Customers

M M Mini-Grid
M M M
M

National M
Grid

Small Power
Producer
Large Plants
Key: = power from utility = power from SPP M = meter
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 Background/ Legal Authority

S(27) of EPSR Act 2005 provides that the Minister may issue a directive
to the Commission specifying the class or classes of end-users that,
from time to time, shall constitute eligible customers.

These sources of generation capacity would in principle comprise

of generation licensees (successor GenCos and IPPs) and any
wholesale electricity trader licensed to buy and sell power.

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What is Eligibility?

A framework that permits

customers to purchase
electricity(Capacity and GENCOs Generating Companies

Energy) from a supplier of

their choice through a contract
at a price that may be
unregulated. It gives the TRANSCOs Transmission Company
TCN
customer access and the
discretion to choose from any
supplier outside the grid, at a
price and terms that may be DISCOs Distribution Companies

different from grid power

END-USERS

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 Who Qualifies for Eligibility?
01 02
11KV/33KV

End User Connected 132KV/330KV End User Connected Directly on 33KV Network

03 04 >2MW

End User Connected directly to the GENCO

Customers on Above 2MW Capacity
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Present Market Structure-Pre Eligibility Future Market Structure-Post Eligibility

IPP
Successor GENCOs
IPP
Successor GENCOs
NIPPs capacity
Bilateral
Contract

Extra capacity
Contracts NIPPs Bilateral

capacity
Contract
Contracts

PPAs
PPAs
PPAs

Bilateral Contracts
PPAs
NBET
NBET
Contracts
Vesting

Contracts
Vesting
DisCos
Eligible
DisCos
Eligible Customer
Customer 32
Objectives

The declaration of eligibility of electricity customers is expected to facilitate

competition in the supply of electricity, promote the rapid expansion of
generation capacity and open up a window for improvement in quality of
supply.

Eligibility will encourage opening up third party access to transmission and

distribution infrastructure as a precursor to full retail competition into the
Nigerian electricity market.

Generation licensees may benefit from stable operation and efficiency due
to the flatter load profiles of eligible customers and possible lower
technical losses depending on the required interconnection

Eligibility will allow successor GenCos with excess capacity over and
above their contractual capacity with Nigeria Bulk Electricity Trading to
access underserved customers thus improving the financial liquidity of the
industry.

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 Issues
Stakeholders comments received covered the following broad issues:
Third Party Access (TUOS & DUOS pricing)
Loss of Customers and Revenue
Tariff Rebalancing
Competition Transition Charges
Metering Requirement
System Operations
Proposed phasing of implementation
Contracting Parties
Appropriateness of Threshold and Implementation timelines
Appropriate Process for Exit, Notification and Switching Rules
Determination of stranded costs, exit fees and standby charges
Determination of consumption threshold for eligibility criteria
Provider of Last Resort in the event of third party failure be addressed
Proportion of new generation capacity to be contracted by Eligible Customers

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SUMMARY OF THE MINI-GRID REGULATION

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WHY REGULATING MINI-GRID?

Addressing Barriers to Rural Electrification

Investments

Slide 36
Barriers to Private Investment in Rural Electrification

Investors concerns
Expansion
Stranded Profitability
scope Will cost reflective
investment Will competitors tariff be allowed ?
Would the main grid steal good
arrive too soon? contiguous sites ?

consumers concerns
Safety
Would the mini-grid Affordability
operate at the required
Reliability Will it be not be too
safety standards How reliable is small expensive ?
scale utility ?
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 Removing the Barriers
How does the mini-grid regulation Address these
concerns ?
Permit
Streamlined for projects >100kW and < 1 MW
Voluntary for projects < 100 kW
Exclusivity period : legal right to reserve a site subject to
demonstrating progress
Tariffs: permission to charge cost-reflective tariffs
Provides for
Quality of service
Dispute resolution framework
Options when main grid arrives

Slide 38
 WHAT IS A MINI-GRID?
A mini-grid, in the context
of rural electrification, is
an integrated
decentralized local
generation, transmission
and distribution system
serving numerous
endusers that stand on its
own separated from the
national grid with an
installed generation
capacity below 1MW
Isolated Mini-grid <100
kW
Only registration required but may opt for a permit
Isolated mini-grid
>100kW and <1MW
Requires permit and minimum network standards
Interconnected Mini-grid
>100kW and <1MW
Requires permit and minimum network standards
 ISOLATED MINI-GRID <100KW
With No permit
With a permit
Mandatory Registration with Voluntarily elect to
NERC obtain a permit

No Permit obligation Entitled to exit

compensation
No exit Compensation
Must Comply with
May deviate from distribution Distribution codes
codes
Secure tariff based
To quit within 2 month of approved model
Disco arrival
Health & safety codes
Must comply with Health & compliant
safety standards Your Logo
 ISOLATED MINI-GRID DEVELOPMENT PROCESS
Identify site
1 (outside of Discos approved Expansion plan)

2 Establish contact with community

Sign 12 month exclusivity agreement with

3 the community

Collect building permits from municipality,

4 ESIA from Ministry of Environment

Apply to NERC for permit or registration (as

5 required) and tariff approval

Install, commission, operate

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INTERCONNECTED MINI-GRID PERMIT PROCESS
Identify Site
1

Sign Exclusivity
2 agreement

Sign Tripartite Agreement ( Minigrid

3 Developer-Community-Disco)
Agree on network usage fee and
usage conditions

Obtain approval of tripartite

4 agreement/permit from NERC

Install, commission, & operate of mini-grid

5 system
 REQUIRE DOCUMENTS FOR PERMIT APPLICATION

Company Site title Relevant maps

Registration/Incorporation documents and drawings
papers

Contract between the

ESIA approvals Building Permit (if build Community Representative &
of powerhouse is Mini-Grid Operator/and Disco
required)

All documents are uploaded on the online tool on the Commissions website
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 Arrival of Disco network

Disco takes over the MG

network
Compensate the MG
(salvage value of
network + 1 year
revenue)
MG may take away its
generation facility
or become
embedded/emergency
generator
Source: Diagram by Richard Engel and Chris Greacen, 2013

Abuja, 18 July 2017 page 44

 Applying Online
The application forms, the tariff simulation
tool and the Mini-grid regulation will be made
available on the Commissions website
www.nerc.gov.ng

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 Screenshot of the Homepage
Access to the Developer Page

Search Engine

Links to the Main

Text and relevant
Annexes

The design presented here is not final.

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 Mini-Grid Developer Space: Application Process (2/3)

An application can only be submitted to NERC once :

all the relevant forms have been properly completed

the last pages of the forms including the signature have to be

uploaded

all others documents have been uploaded

the tariff calculation has been performed (if required)

A submission button will then be activated on the website in

order to send the application.
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 Mini-Grid Developer Space: Application Process (3/3)

Once the developer has submitted its request:

the developer receives an email confirming the date of the submission.

NERC receives a notification and has, according to the regulation, 30 working days to process the
application.

NERC connects to the Online Tool to access and review the

documents.
If the request is approved, an email is sent to the developer. In case of permit issuance, he is invited to retrieve the
documents in exchange of the legal fee.

If the request is not approved, the developer is informed per email with a justification (e.g. document not compliant,
wrong information in a form). The developer can then make the necessary adjustments and submit the request again.

Once approved, the Online Tool displays the Status of the

Project.
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 Market Impact
Increased generation capacity from small IPPs
Impact on Tariff of non-eligible customers
Impact on substations resource utilization
Impact on Disco revenue

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 THANK YOU
Contact us at:
Adamawa Plaza, Plot 1099 First Avenue,
Off Shehu Shagari Way,
Central Business District,
Abuja

Website: www.nerc.gov.ng
E-mail: info@nerc.gov.ng
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