The Nigerian Electricity Regulatory Commission (NERC)” is the independent body established by section 31 of the Electric Power Sector Reform Act (“EPSR Act”) 2005 to undertake technical and economic regulation of the Nigerian Electricity Supply Industry. The NERC is tasked with the responsibility of issuing and regulating licenses for power supply in Nigeria. In order to carry out this responsibility, the NERC has established the NERC Licensing and Operating Fees Regulation 2010 responsible for regulating the application processes and requirements for obtaining a power license in Nigeria. Nigeria has twenty-three (23) power generating plants connected to the national grid with the capacity to generate 11,165.4 MW of electricity. These plants are managed by generation companies (GenCos), Independent Power Providers, and Niger Delta Holding Company. The NERC has its head-quarters in Abuja, six zonal offices in the six geopolitical zones of the country, and is responsible for ensuring an efficiently managed electricity supply industry that meets the needs of Nigerians for stable, adequate and safe electricity supply.
The EPSR Act provides that any person intending to engage in the business of electricity generation, transmission, system operation, distribution or trading shall be required to obtain an operator’s license from the Nigerian Electricity Regulatory Commission. However, a person may still be allowed to construct, own or operate an electricity generating project with a capacity not exceeding 1 megawatt (MW) in total at a site or an electricity distribution project with a capacity not exceeding 100 kilowatts (kW) in aggregate at a site, or such other capacity as the Commission may determine from time to time, without the need for a license. If the Commission deems it necessary in the public interest, it may issue an interim license to an individual for any or all of the activities specified in the Act for a period not exceeding eighteen (18) months, or such shorter period as may be specified in the Act. Individuals who violate the provisions and procedures in obtaining a power license outlined in the Act, shall be held accountable and may face legal actions.
This article provides a comprehensive overview of the different classes of licenses available under the EPSR Act and is primarily descriptive with the aim to provide a clear understanding of the various classes of licenses available under the Act.
Classes of Licenses
1. Generation licenses
A generation license shall authorize the licensee to construct, own, operate and maintain a generation station for purposes of generation and supply of electricity in accordance with the EPSR Act and subject to such terms and conditions as the Commission may fix. The holder of a generation license may sell power or ancillary services to any of the classes of persons specified in the license. Under the Act, the Commission has the authority to grant generation licenses to either one or multiple successor companies or to companies that are not successor companies.
2. Transmission licenses
A transmission license is granted by the Commission to authorize the licensee to undertake grid construction, operation, and maintenance of transmission systems within Nigeria, or that connect Nigeria with a neighbouring jurisdiction. The transmission licensee that is a successor company, may also have an obligation to carry out system operation, including the procurement of ancillary services, pursuant to the terms of a system operation license issued by the Commission to such licensee.
3. System operation license
(1) A system operation license shall be granted to a licensee subject to the terms and conditions fixed by the Commission and shall authorize the licensee to carryon system operation, including, but not limited to; generation scheduling, commitment, dispatch, transmission scheduling, generation outage co‐ordination, transmission congestion management, international transmission co‐ordination, procurement and scheduling of ancillary services, system planning for long term capacity, administration of the wholesale electricity market, and such other activities as may be required for reliable and efficient system operation. The Commission shall establish a procedure for the open, transparent and competitive awarding of all contracts for procuring ancillary services. However, if circumstances require an alternative method or if the commission deems it necessary, a different procedure may be used.
4. Distribution licenses
A distribution license shall authorize the licensee to construct, operate and maintain a distribution system and facilities, including, but not limited to, the activities specified in the license, subject to the terms and conditions fixed by the commission. A distribution licensee may also have the obligation of providing electricity to its distribution customers, pursuant to the terms of a trading license issued by the Commission to the distribution licensee. A distribution licensee holding a trading license may purchase power for resale from another trading licensee and may, with the prior approval of the Commission, purchase power from other sources as long as it doesn’t violate the terms and conditions of the trading license. All bulk purchase contracts of power by a distribution licensee shall be awarded according to an open, transparent, and competitive manner, pursuant to a procedure established by the Commission, unless the commission requires an alternative method or if the commission deems it necessary, a different procedure may be used.
5. Trading licenses
A trading license permits a trading licensee to engage in the purchasing, selling, and trading of power and the Commission shall have the authority to determine the terms and conditions of trading licenses as may be appropriate in the circumstances, and having due regard to the nature of the activities in which the licensee intends to engage. The Commission may also issue a temporary bulk purchase and resale license, giving the licensee the ability to purchase electrical power and ancillary services from independent power producers and successors generation companies for the purpose of re‐sales to one or more other licensees, or to an eligible customer. All contracts for purchases of electrical power and ancillary services by the holder of such temporary license shall be awarded according to an open, transparent, and competitive manner, pursuant to a procedure established by the Commission, unless the circumstances require otherwise which prompts the Commission to use an alternative method.
In conclusion, licensing regulations play a vital role in ensuring the efficient and effective operation of the Nigerian power sector. The regulatory framework provides the necessary guidelines that govern the licensing process, operations of various players in the sector, and enforces compliance with established standards which helps to ensure that the sector operates in a safe, reliable and sustainable manner. The licensing process is critical in ensuring that, only competent and qualified individuals or entities are granted permission to participate in the sector. However, there is a need for constant review and improvement of licensing regulations to address emerging challenges and ensure that they remain relevant to the changing needs of the sector which will support the growth and development of the sector for the benefit of all stakeholders.
At Centurion Law Group, we offer assistance with the application processes for acquiring licenses.
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Author: Ariteshoma Etete, Junior Associate, Centurion Law Group, Nigeria.