Nigeria Introduces New Electricity Model For Commercial Customers

Nigeria is keying into a business model that would enable electricity distribution companies (Discos) and distributed energy resource (DER) developers provide clean energy to large commercial and industrial C&I customers in the country.

In parts of Sub-Saharan Africa and in particular, Nigeria, C&I customers are held back by an unreliable electricity supply and usually resort to fossil fuel-powered self-generation, which increase costs and reduces profitability, stifling much-needed industrialisation.

In advancing the initiative, RMI, together with the Abuja Electricity Distribution Company (AEDC), has released a report that identifies the new model as providing support to the country’s ailing power sector.

If implemented, the model could very quickly improve electricity supply and sectoral viability in the C&I sector. This is especially crucial to Nigeria’s economy, where the model will be trialled. If successfully implemented, the model could enable finance savings, reduce risk and drastically reduce CO2 emissions.

RMI estimates that the market size for C&I DERs in Nigeria could be over 2GW by 2030, a significant increase from about 20MW today.

RMI Africa Senior Associate,  Olatunde Okeowo, said their model was influenced somewhat by Nigeria’s NERC regulations for mini-grids as that policy can be used as the supporting regulation for projects sized under 1MW.

He explained that the model could also be used in countries other than Nigeria.

“We have not done any specific analysis on how it would have to be adapted to work in other countries but the basic principle – DER developer and electric utility work together to supply power to a large C&I customer – can be applied in other countries,” said Okeowo.

The report, ‘Improving Electricity Supply for Large Customers in Nigeria,’ provides a framework for collaboration between Disco and DER developer.

To support and encourage the broader sector to consider using the business model, the report includes template contract documents to provide a starting point for collaborative project development.

These include: a generic request for proposal (RFP) to enable Discos and their large C&I customers to jointly procure a qualified DER developer: a generic tripartite agreement to stipulate the contract terms among the DER developer, the DisCo and the customer throughout the installation, operation and maintenance of the project and a scoring matrix to assist in evaluating proposals received in response to the RFP.

While RMI believes the model holds great promise for improving power supply in Nigeria, they do recognise that successful demonstration would be useful.

The NPO sees a clear opportunity for innovation and collaboration across the sector, where stakeholders such as Discos, developers, policymakers, investors and development partners could share insight to refine and scale implementation.

RMI has taken lessons learned from an earlier business model that emphasised collaboration between IBEDC and Nayo Tech, to develop this new model.

“The major lesson from that project is how to develop a framework for a Disco and a developer to work together to supply a customer.

The Mokoloki undergrid mini-grid was one of the first DER projects to have a Disco and developer work together so that experience was helpful for understanding the motivations of both sides and how to design a business model that was attractive to both parties,” said Okeowo.

The AEDC helped RMI with the research into the business model with a feasibility study. Okeowo said AEDC learned: “The design for each project will vary based on factors such as the customer’s load profile, hours of Disco supply and reliability of Disco supply.”

“In general detailed data for these factors should be collected and analysed using system optimisation software so that projects can be sized properly,” said Okeowo.

RMI Nigeria Programme director, Suleiman Babamanu, said, fostering collaboration between Discos and DER developers through a business model would enable ‘win-win-win’ opportunities by reducing costs for large C&I customers, improving Discos revenues and providing DER developers with access to a larger pool of customers.

“We believe that this will accelerate the growth of the C&I solar market in Nigeria and make reliable electricity supply more efficient and affordable for a wider range of C&I customers,” said Babamanu.

AEDC’s head of financial performance management, Collins Chukwuma Obi, said:“innovative business models of this nature will help AEDC improve its operating revenue, reduce technical, commercial and collection losses whilst ensuring security of supply to [an] increasing number of customers requiring reliable power for their homes and businesses.”

Okeowo pointed out that the blended tariff suggested by the business model is a tariff the developer would charge the customer, which blends the cost of electricity from the DER developer and electricity from the Disco.

“The Disco tariff is still the tariff set by NERC. However, the business model allows the Disco to reduce losses from customers and in some cases earn a usage fee for the use of its network, thereby increasing their profitability,” Okeowo said.