NERC removes NBET from Discos’ power purchase transactions

The Nigerian Electricity Regulatory Commission has terminated the involvement of the Nigerian Bulk Electricity Trading Plc in transactions between distribution companies and power producers concerning the purchase of electricity.

In its new order on the Transition of Bilateral Trading in the Nigerian Electricity Supply Industry released on Friday, NERC stated that distribution companies (Discos) can now purchase electricity directly from generation companies (Gencos) without NBET acting as an intermediary.

“NBET shall forthwith cease to enter into new contracts for the purchase and resale of electricity and ancillary services in the Nigerian Electricity Supply Industry,” the commission ordered.

This directive is in accordance with Section 7(2) of the Electricity Act 2023.

It was also stated that any contract executed by NBET in violation of this order shall not be approved by the commission and will be treated as an infraction subject to regulatory sanctions.

According to the regulator, the order aims to steer the electricity market towards bilateral contracting for energy and capacity between generation and/or trading licensees and distribution licensees, thus limiting the Federal Government’s fiscal exposure to market risks.

The new order is also intended to foster a more competitive market structure, as envisioned by the Electricity Act, by repositioning NBET from its current role as the sole bulk electricity trader in the Nigerian Electricity Supply Industry.

NERC stated that the order will “provide an equal opportunity for all hydro and thermal GenCos with existing ‘take-and-pay’ contracts with NBET to reduce their contracted capacities by trading directly with Discos on a bilateral basis.”

It will also transition the contractual framework for bulk energy trading in the NESI to “take-or-pay” contracts, thereby fostering increased certainty and market discipline among market participants.

The commission revealed that since 2022, it has issued trading licenses to ten private companies interested in trading electricity bilaterally with Discos and eligible customers.

This interest in electricity trading indicates significant potential in wholesale electricity trade outside the NBET single-buyer pool.

“The commission has further received requests for regulatory approval from some aspirational Discos for the purchase of electricity from parties other than NBET, i.e., directly from the Gencos or through other trading licensees.

“On the supply side, the commission has received notifications from several Gencos signalling their intention to exercise their partial or full exit rights contained in their Power Purchase Agreements with NBET to contract for the supply of electricity directly to Discos, other bulk traders, and eligible customers, in accordance with the provisions of the Act.

“The key incentive for Gencos contracting bilaterally for energy and capacity with Discos is to secure satisfactory off-take commitments backed by some form of payment guarantees, thus enabling more predictability in generation and gas availability,” the order read in part.

This order comes at a time when NBET has appointed an acting Managing Director/Chief Executive Officer.

The management appointed Johnson Akinnawo as the acting Managing Director/Chief Executive Officer, succeeding Nnaemeka Ewelukwa, whose four-year tenure ended on July 24.

A statement from NBET management noted that the acting managing director was previously the General Manager of Origination, Contract Management, and Administration.

“Mr Akinnawo now leads NBET at a time when the company is implementing measures to stabilise the electricity market and address liquidity in the electricity value chain. He is working collaboratively with the regulator, other critical sector participants and the Federal Government of Nigeria to ensure the sustained and continuous settlement of all obligations to GenCos, including those from Discos and the government.

“As the Chairman of NBET’s Working Group on the implementation of an Energy Exchange, Mr Akinnawo is also leading the company’s efforts to facilitate a more sustainable electricity market in the country,” the management disclosed in a statement.

NBET has been the manager and administrator of the electricity pool in the Nigerian electricity supply industry. It was incorporated on July 29, 2010, by the Federal Government to act as a credible and creditworthy off-taker and to receive credit support and/or capitalisation from the Federal Government, thus enabling the company to guarantee 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 selling bulk electricity and ancillary services to Discos.

However, the Electricity Act 2023 mandates the regulatory commission to steer the industry’s development from its current transitional electricity market stage to subsequent stages of the market as provided in the Market Rules or amendments to such rules as the Commission may approve.

Section 7(2) of the Act provides that: “For subsection (1) and in preparation for the initiation of medium-term and long-term Electricity Market stages as recognised under this Act, the commission shall, by its directive and within such period as it may specify, direct NBET Plc, the trading licensee holding the licence for the bulk procurement and bulk sale of electricity and ancillary services, to cease, by its licence, entering into contracts for the purchase and resale of electricity and ancillary services and to novate its existing contractual rights and obligations to other licensees.”