On the 24th May, 2017, the Nigerian Electricity Regulatory Commission (NERC) released a new Mini Grid Regulation to govern the development of integrated electricity generation and distribution supply systems of under 1MW either in isolation from the Distribution Companies (Discos) or interconnected to the Discos’ existing network infrastructure.

The Mini Grid Regulation seeks to incentivize and simplify the process for private sector participation in the Mini Grid sector of the Nigerian Electricity Market, which will in turn contribute to increasing access to electricity in unserved and underserved parts of Nigeria (rural and urban areas).

Detail Commercial Solicitors (DETAIL) served as Legal Advisers to the Nigerian Energy Support Programme (funded by the European Union and the German Government) in the drafting of the Mini Grid Regulation. DETAIL is also providing legal advisory services to the Nigerian Energy Support Programme on Mini-Grid Pilot Projects in rural areas across five states in Nigeria, namely Niger, Ogun, Sokoto, Cross River and Plateau. DETAIL’s role includes advising on viable project structures that can be adopted by State Governments and the development of a suit of template agreements to be used for the Mini-Grid Projects in Nigeria.

Some key provisions of the regulation are as follows:

1. An Isolated Mini Grid with distributed power larger than 100kW and up to 1MW of generation capacity will require a Permit from NERC, subject to conditions delineated in Section 7 of the Regulation, some of which include the written consent of the Distribution Licensee that the intended area to be developed is within the Distribution Licensee’s 5-year expansion plan, and the submission of an executed agreement between the Community and the Mini Grid Developer.

2. For Isolated Mini Grids with distributed power of up to 100kW, a Permit is optional, as the Isolated Mini Grid Developer may only choose to register as a Mini Grid Developer with NERC. However, registration as a Mini Grid Permit Holder with NERC will accord the Mini Grid Developer the right to compensation where a Distribution Licensee extends its network to the Mini Grid Developer’s coverage area.

3. Developers seeking to provide an Interconnected Mini Grid will be required to execute a Tripartite Contract with the host community and the Distribution Licensee operating in the host community. The Mini Grid Operator will also pay the Distribution Licensee a network usage charge to be agreed between the Mini Grid Operator, and the Distribution Licensee. The Tripartite Contract and network usage charge will be approved by NERC.

4. The Mini Grid Regulation provides for the following with respect to the determination of tariffs and other charges:

a. For Mini Grid Permit Holders, the retail tariff and other charges are determined using the applicable MYTO methodology to be approved by NERC, subject to technical and non-technical losses to a maximum of 10%.

b. For Mini Grid Operators, the retail tariffs may be determined by:
i. using the applicable MYTO methodology; or
ii. by agreement between the Mini Grid Operator and the Community (being represented by a minimum number of customers utilizing 60% of the electricity output of the Community).

Where the Mini Grid Operator determines the retail tariff by agreement, the Mini Grid Operator is required to submit a copy of the executed agreement to NERC for its records.

5. The Mini Grid Regulation includes standardized template contracts, forms and guidelines as annexures. The template contracts may be adopted and amended as required, as this is expected to promote uniformity of contracts and agreements in the sector.

6. The Mini Grid Regulation also provides for a compensation mechanism to protect the rights of a Mini Grid Permit Holder, where the Distribution Licensee extends its distribution network to the Mini Grid Developer’s area of operation. The Mini Grid Permit Holder may:

a. convert to an Interconnected Mini Grid Operator; or

b. transfer all assets the Mini Grid Permit Holder chooses not to remove from the Mini Grid system to the Distribution Licensee in return for compensation. The key highlights of the compensation mechanism under the Mini Grid Regulation are as follows:

i. Where the expansion by the Distribution Licensee is within the first 5 years of the commissioning of the Mini Grid (Initial Period), the Mini Grid Operator will be compensated by the Distribution Licensee before the handover of assets equal to the remaining depreciated value of assets (including construction and development cost) as defined by NERC, plus the revenue the Mini Grid Operator generated from the Mini Grid, twelve (12) months prior to the date of connection to distribution network.

ii. Where the expansion by the Distribution Licensee occurs after the Initial Period, the Mini Grid Permit Holder will receive compensation before the handover of assets equal to the remaining depreciated value of the assets as defined by NERC plus the revenue the Mini Grid Operator generated from the Mini Grid, twelve (12) months prior to the date of connection to the distribution network.

The full version of the Mini Grid Regulation is available on NERC’s website at www.nercng.org.