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Nigerian Govt permits DisCos to purchase electricity directly from producers

by Maryam Olaniyi

The Federal Government has given Electricity Distribution Companies, DisCos, in Nigeria the nod to buy electricity directly from power generation companies, GenCos.

The Nigerian Electricity Regulatory Commission, NERC, disclosed this in its 2024 Multi-year Tariff Order, MYTO, which was recently issued to the country’s 11 DisCos.

NERC noted that the DisCos can procure electricity directly from GenCos through bilateral contracts.

The regulator said the new order recognises a revision to the DisCos’ partially contracted capacity, PCC, to ensure a minimum energy offtake from January 1 2024.

Accordingly, NERC said the minimum energy offtake requirement for the 11 DisCos this year is 4,063MWh/h.

The DisCos are required “to secure adequate bilateral contracts to facilitate a seamless exit from NBET’s vesting contract regime,” it said.

NERC explained 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.

The development will end the ten-year reign of the Nigerian Bulk Electricity Trading Plc, NBET, which buys electricity in bulk from generation companies through power purchase agreements and sells through vesting contracts to the DisCos.

Ayodele Oni, an energy law expert and partner at Bloomfield Law Practice, speaking on the development, said, “With the just released 2024 Multi-Year Tariff Order for each DisCo, it would appear that DisCos are now generally allowed to procure bilateral power from generation companies, directly.

“This is in preparation for the transition of the bulk trader, NBET.”

It was gathered that under the partial activation of contract, PAC regime, DisCos have take-or-pay obligations on their Partially Contracted Capacity, PCC, meaning they must pay for available capacity irrespective of their offtake.

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