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NIGERIAN ELECTRICTY REGULATORY COMMISSION

DRAFT FEED-IN TARIFF REGULATIONSFORRENEWABLE ENERGY SOURCED ELECTRICITY IN

NIGERIA

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REGULATIONS NO: NERC – XXXX

NIGERIAN ELECTRICITY REGULATORY COMMISSION

DRAFT FEED-IN TARIFF REGULATIONS FOR RENEWABLE ENERGY SOURCED ELECTRICITY IN

NIGERIA

In exercise of the powers conferred under Sections 32 (1)(b),(d) & (f), 32 (2)(a) & (g), of the

Electric Power Sector Reform Act, 2005 (Act no. 6 of 2005), and all other powers enabling it on

this behalf, the Nigerian Electricity Regulatory Commission (NERC) hereby makes the following

Regulationsfor procurement and pricing for renewable energy sourced electricity.

ARRANGEMENT OF CLAUSES

CHAPTER I

GENERAL

1. Definitions and Interpretation:

(a) In these REGULATIONS, unless the context otherwise requires:

“Act” means the Electric Power Sector Reform Act, 2005.

“Applicant” means a person who has applied to the Commission for licence under

these REGULATIONS.

“Agreement" or "PPA": power purchase agreement means the agreement

between the Investor and the Off-taker together with any related agreement;

“Buyer”: Off-taker or purchaser of electrical energy from Feed-in-Tariff power

plant.

“Commission” means the Nigerian Electricity Regulatory Commission

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“Commissioning”: the conduct of tests necessary to put a Unit or the Plant (as

the case may be) into operation and supply to the grid;

“Commissioning Date”: the date on which the developed power plant commences the

operation of supplying electricity to the grid;

“Connection Point”: the point of common coupling at which the energy sent out(Net

Electrical Output) from the Seller’s Plant is delivered into Buyer’s system;

“Grid” as defined in the Grid code.

“kW”: abbreviation for kilowatt;

“kWh”: abbreviation for kilowatt hour being three million six hundred thousand

(3,600,000) Joules as defined in ISO 1000.1992(E);

“’Licensee’’ means any person who holds a licence issued under Part IV of the Act.

“Month” means a calendar month.

MW”: abbreviation for megawatt being one thousand (1,000) kW;

“Off-Taker”: the Buyer of electrical energy for the purpose of selling the electricity to

customers connected to the national grid or off-grid (mini-grid) systems.

“Plant”: Seller’s electrical energy generating power plant ;

“Seller”: Investor/Developer of Feed-in-Tariff power plant

“Year” means a period of twelve (12) months.

(b) Any term that is defined in the Act, and Rules and Codes of the Commission and used,

but not defined in these regulations has the same meaning.

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CHAPTER II

Feed-in Tariffs (FIT) is a regulatory mechanism for accelerating investment in renewable

energy sources electricity using long-term contracts and pricing based on the levelised cost of

production. By offering long-term contracts and guaranteed pricing, producers are protected

from some of the inherent risks in renewable energy production, thus allowing for more

diversity in energy technologies. Focused on new renewable energy power projects, FIT

contains an obligation to connect as well as obligation to purchase by the distribution

companies thus giving assured long term revenue flow for investors and a reduced financial

risk.The basic economic principle underpinning the FITs is the establishment of a tariff (price)

that covers the cost of generation plus a "reasonable profit" to incentivise developers to

invest.

To stimulate investment, the price for the electricity produced should be high enough to bring

reasonable return on investment for a specific technology and should be certain and for a

term long enough to allow for project financing to be raised by the project.

Renewable Energy FIT guarantees a purchase price over a fixed duration for different priority

technologies, ensuring appropriate return on investment for developers butlimiting producer

surplus (that could impact negatively on electricity prices) via a gradual annual tariff reduction

(known as tariff degression) for new projects as a result of learning effects and cost

reductions. The extra unit energy cost arising from the inclusion of renewable energy is met

through a marginal increase in consumer tariff (burden sharing by all consumers).

Maximum annual capacity limits is established for specified technologies to avoid excessive

increases on consumer electricity prices and to limit impacts of intermittent and non-firm

power on gridstability and power quality.The qualifying renewable energy generators will

accept a Standardised Power Purchase Agreement thus reducing administrative costs.

The feed in tariff covering solar,wind, small hydro and biomass sources, published in 2010 by

the Commission as part of the MYTO 2,elicited very high investment interest in solar energy

resource. Although, the tariffs have not resulted in the signing of any PPA, the feedback from

the PPA negotiation process has necessitated a review of some of the assumptions and

clauses in the extant FIT for clarity and easy interpretation of the regulation.

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To reduce the transactions costs associated with negotiating and signing a PPA for a small

renewable generator, thefeed in tariff is accompanied bystandardised PPA for projects of up

to 30 MW, connected at distribution voltages as embedded, non-despatchable generators.For

larger projects, competitive tendering procurement process will be conducted following

resource assessments and generation adequacy studies to identify the supply gaps and

suitable interconnection nodes.In line with the extant bulk electricity procurement regulation,

non-solicited renewable projects larger than 30 MW may also be accepted but they have to

pass load flow and system stability tests. While the tariffs offered are technology-specific, the

Standardised PPA is technology-neutral with only a limited number of negotiable clauses and

penalties for non-delivery on agreed commercial operation date (COD).

With the aim of supporting the wider green electricity market and ensuring flexibility in the

market, renewable energy IPPs are permitted to sell power direct to buyers wishing to

purchase renewable energy outside of the REFIT mechanism, subject to fulfilment of

necessary licence conditions.

The establishment of the Renewable Energy Feed-In Tariff (REFIT) will provide an excellent

opportunity to increase the deployment of renewable energy in the country and contribute

towards thesustained growth of the sector in the country, the region and internationally.

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OBJECTIVE AND SCOPE

The overall aim of the REFIT regulation is to boost power supply in the country,enhance

attainment of the national targets on renewable energy sourced electricity and encourage as

well as support greater private sector participation in power generation from renewable

energy technologies, byproviding investment security and market stability for investors in

electricity generation from renewable energy sources.This is in line with the vision of the

National Energy Policy which include among others: “To develop, promote and harness the

Renewable Energy (RE) resources of the country and incorporate all viable ones into the

national energy mix”. It is also intended to encourage private investors to operate their

power plants prudently and efficiently so as to maximize returns.

Objective of the REFIT

establish a guaranteed price for electricity generated from renewables for a fixed

period of time that provides a stable income stream and an adequate return on

investment;

provide access to the grid and an obligation to purchase power generated;

establish a level playing field for renewable and conventional electricity generation;

attract private sector investment to support the establishment of a self-sustaining

renewable market.

The initial phase of the REFIT is aimed at kick starting and stimulating the renewable energy

sector and has therefore been designed to be simple and streamlined. Future phases may add

more technologies, bands within technologies, and incentives for projects in different

geographical areas.

2. Scope

The programme cap for the REFIT program is 2000MW. The capacity caps for each renewable

energy technology is as contained in table 1.

The provisions of these Regulations shall apply to

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a) All qualifying renewable energy sourced electricity of capacity above 1MW and smaller

than 30MW at a site that is connected to the transmission grid or the distribution

networks

b) The renewable component of a hybrid installation where such component meets the

requisite size conditions as stated in (a) above.

Minimum and Maximum Project Size

.

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CHAPTER III

3. Purchase Obligation

Subject to the costs being met by the developer, the Off-taker shall connect to plants

generating electricity from eligible renewable energy sources. The Off-taker shall guarantee

priority purchase and distribution of all electricity supplied by such renewable energy projects

(capacity up to 30 MW) as defined in this regulation.

The Feed-in-Tariffs values set in this regulation include a standardised allowance for

interconnection costs. The costs of connection, including the costs of construction,

upgrading of transmission/distribution lines, substations, and associated equipment are

therefore to be borne by the developer.

Pursuant to this regulation the Bulk Trader shall be obliged to, as a matter of priority,

purchase 50% of the renewable energy electricity capacity limit established by this regulation

leaving the remaining 50% for the Distribution licensees. Distribution Licensees shall be

obliged to provide access and connect licensed embedded renewable energy electricity

generation plants to the distribution network in their areas of operation.

The Renewable Energy Power Generators shall be responsible for all costs for shallow

connection to the grid. Thus, the Renewable Energy Power Generators shall pay for the costs

of connecting their plant physically to the nearest point of the electricity distribution network

(at the appropriate voltage level).

With prior arrangements, the Off-taker may construct or upgrade its grid at a reasonable

economic expense to facilitate interconnection and meet all technical requirements and

recover the associated costs from the Seller through the Feed-in-Tariff. Any costs for

reinforcements of the network (deep connection cost) shall be borne by either the System

Operator or the Licensed Distributors, whichever is applicable

The purchase and transmission and distribution of electricity supplied by large renewable

energy projects (capacity exceeds 30 MW) shall be subject to the terms of the negotiated PPA.

The Standardised PPA template is to be used as basis for negotiations by the two sides.

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Qualifying Renewable Energy Generators

For the purpose of this regulation the eligible Renewable Energy Power sources shall be

defined as a new electricity generating project using the following technologies and of a

capacity equal or greater than the stated minimum for that technology as in table 2:

• Wind (on - shore)

• Small hydro (less than 30 MW)

• Biomass (including municipal solid waste)

• Solar Photovoltaic

Qualification of other renewable energy technologies will be considered for inclusion in later

time. REFIT only includes power generation from generators connected to the Transmission

System and Distribution System and excludes off-grid power generation

REFIT is limited to projects between 1 MW and 30 MW installed capacity. Renewable energy

projects above the Maximum Installed Project Capacity can be developed through the existing

power procurement guidelines/regulation and negotiation of with either the Bulk Trader,

Distribution licensees or individual buyers. NERC has already developed a model PPA for such

bilateral transaction. Off-grid projects are not included in the REFIT arrangement. NERC shall

work in close consultation and collaboration with the Rural Electrification Agency to develop

the technical and operational modalities for off-grid projects

Applications to qualify as an RE Generator shall be made to the Commission in conjunction

with the application for a licence to generate electricity. Applicants are required to state the

specific REFIT technology and tariff category. Approval of qualification for the REFIT shall be

defined in the Generation Licence. This will specify the technology, the tariff approved,

duration of the REFIT and other specific licensing conditions.

Application forms for a Generation Licence are provided on www.nercng.org. Details on the

application process are provided in the relevant Sections of the Electricity Power Sector

Regulation Act 2005.

Tariffs

The tariff schedule for the period starting from 2015based on long range marginal cost is set

out in Appendix 1.

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Licensees awarded these tariffs will have them adjusted for inflation using the Consumer Price

Index (CPI) or another suitable inflation index semi-annually (November and May).The

Commission will monitor uptake, taking into account the impacts of each REFIT in an annual

tariff review. This will take place as part of the annual monitoring and review.

A full tariff review will take place every year for the first five year period of implementation

and every three years thereafter. The resulting tariffs will only be applicable to new projects.

Following the completion and end of the duration of the contracted REFIT tariff, the Generator

shall be required to negotiate tariffs under market conditions applicable at the time.

Project Capacity Cap

The maximum total installed renewable energy project capacity is based on the draft National

Energy Master Plan which envisaged that by the end of the decade, 10% of the national

energy supply shall be from renewable.

It is recognized that certain renewable technologies are more expensive than the others, the

country must encourage the inclusion of every viable renewable resource in the energy mix

for the purpose of energy security and regional spread. The additional power generation costs

resulting from the REFIT may be covered through the following sources:

• Burden sharing by electricity consumers

• Power Consumer assistance Fund (PCAF)

• Rural Electrification Fund

• Donor support

• Carbon finance.

However since all the last four are either not in place yet, this value not predictable or are not

under the control of the Commission, burden sharing is the only financing mechanism

considered.

The Commission is fully aware of the need to avoid high increases in electricity prices which

could have negative socio-economic impacts on the country’s poor and on industry; hence,

capacity limits are applied to all REFIT technologies, specifically limiting the uptake of certain

high-cost technologies. The limits have been carefully determine based on the least cost

optimization model.

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A total of 2000MW of RE power is envisaged to be admissible into the grid (1000 MW by the

end of 2018 and 2000 MW by the end of 2020) while the total grid capacity is anticipated to

be within10000 MW to 20000MW by 2020. Based on a total cost optimization study the

following technology limits have been established. The NBET should procure 50% of the

requirement and Disco to procure 50%. The following will be guidelines for NBET and Discos in

respect of technologies

Table 1: Target Grid-Connected Renewable Generation Capacity by the year 2020

Technology Capacity Limit (MW)

Solar 387

Wind 412

SHP 675

Biomass 526

To prevent over subscription of REFIT, and minimize the resulting increase tariff, the

Commission shall limits specific technologies for each DisCo (see table 2) in line with the

potential of the renewable energy resources in its jurisdiction. A capacity cap for any resource

may be exceeded if the additional capacity is at the price of next cheaper technology.

Table 2: Allocation of Renewable Energy Capacity (MW) by Buyers up to 2018

Biomass Solar small Hydro Wind Total

Abuja 8.6 17.3 17.3 14.4 57.5

Benin 15.8 9.0 13.5 6.8 45

Enugu 15.8 9.0 13.5 6.8 45

Ibadan 22.8 13.0 19.5 9.8 65

Jos 4.1 8.3 8.3 6.9 27.5

Kaduna 6.0 12.0 12.0 10.0 40

Kano 6.0 12.0 12.0 10.0 40

Eko 19.3 11.0 16.5 8.3 55

Ikeja 26.3 15.0 22. 11.3 75

Port Harcourt 11.4 6.5 9.8 4.9 32.5

Yola 2.6 5.3 5.3 4.4 17.5

Total(Disco) 138.5 118.3 150.0 93.3 500.0 NBET 125 75 187.5 112.5 500.0 System Total 263.5 193.3 337.5 205.8 1000.0

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Tariff Methodology

The Long Run Marginal Cost (LRMC) and Levelised Cost of Energy (LCOE) is adopted as the

methodology used to set the Feed-In Tariffs (REFITs) for the qualifying REFIT technologies. This

methodology allows the cost of capital and the operating cost of the project to be recovered

over the term of the Power Purchase Agreement (PPA) based on reasonable level of

output/capacity;

Feed-in tariff Assumptions

REFIT assumptions and values for small renewable projects (1-30MW) are provided in the

schedule 1 to this regulation.

The following policy assumptions underlie the calculation of these REFIT values:

i. REFIT values are calculated on a technology-specific basis using the principle of LRMC

which incorporate a reasonable investor return;

ii. REFIT values shall not exceed the Long Run Marginal Costs (LRMC)of generation

iii. the REFIT is denominated in US dollars or the equivalent for other currencies converted

at the naira Exchange Rate on the Effective Date of the Power Purchase Agreement

published by Central Bank of Nigeria;

iv. the REFIT applicable at the time a PPA is signed is the fixed value which will apply over

the 20 year life of the PPA, except for the O&M component (the Indexed Component)

of the REFIT will be subject to semi annual indexation using the Nigerian Consumer

Price Index, using the base index prevailing at the time of signing the PPA.

v. The REFIT will continue to be adjusted in relation to US$ to naira exchange rate on a

semi-annual basis.

The escalable portion of the tariff for each respective technology is provided in schedule

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Table 3: Assumptions for Renewable energy feed in Tariff Computation

Renewable

Energy

Capital

Cost

US$/kW

Fixed

Cost

US$/kW

Capacity

Utilisation

Factor

Auxiliary

Power

Requirement

Useful

Life(years)

Wind 1165 1823 32% 1% 20

Small

Hydro

1560 5064 45% 1% 20

Solar PV 2025 2228 19% 1% 20

Biomass 901 4861 60% 10% 20

TERM OF TARIFF

The term of the REFIT Power Purchase Agreement will be twenty (20) years

The REFIT will be reviewed every year for the first five-year period of implementation and

every three years thereafter and the resulting tariffs will apply only to new projects. The

annual review will allow appropriate adjustment for new entrant in view of the falling price of

RE technologies. It will also prevent capacity hoarding since the contract becomes effective

only at the time of feeding power into the grid.

Due to the lack of local real-time project data, a reduction rate will currently not be applicable

to REFIT. Tariff adjustments providing a tariff line-of-sight will be taken into account in

subsequent reviews when the local market becomes established;

REFIT Governance Structure

In accordance with its mandate under the section of Electricity Power Sector Reform Act of

2005, NERC shall be fully responsible for the regulation of the feed-in tariffs. Such

responsibilities include review of the tariff structure for priority renewable energy

technologies; Development and review of the REFIT guidelines; monitoring licensed renewable

energy generators and verifying electricity production; Establishing and reviewing technology

specific capacity limits to prevent oversubscription of the REFIT; Reviewing and updating the

REFIT tariff model in line with the monitoring exercise. A standard technology-specific PPA will

be used for REFIT projects and the Commission will approve the PPA.

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As the regulator, NERC approves the design of the REFIT program; develops eligibility

guidelines and screening criteria to determine whether applications received from RE

developers qualify for the program; builds and maintains the REFIT website (or retains a third

party vendor to do it); evaluates applications submitted by project developers; and manages

the project queue.

The REFIT program administrator invites applications from RE developers, which are

submitted through the website, and evaluates the applications for compliance with pre-

established eligibility criteria. Applicants are placed into a two-tier queue: the active queue

for projects that are determined to be eligible for the REFIT program and that within the

quantity cap; and the reserve queue for qualifying projects that are eligible to advance into

the active queue if space opens up. The REFIT regulator establishes the queue by evaluating

applications on a first come, first served basis. As applications are submitted, they are time

stamped and reviewed in that order

Eligible projects that apply for the REFIT after the active queue has filled up are placed in the

reserve queue. The REFIT program administrator actively monitors the projects in the active

queue for compliance with development milestones in the PPA. Applicants not meeting the

set milestone are moved to the reserve queue to make space for others. This is to prevent

capacity hoarding whereby capacity targets are reserved for non-performing licensees.

The Buyer (NBET or DisCos)– Serves as the counterparty for PPAs with RE project developers;

provides interconnection services, including design studies, cost estimates and construction of

required facilities; responsible for payment and settlement of seller’s invoices; submits

invoices to the Market Operator to pass through the cost of renewable energy to consumer

tariffs.

Standard Form RE PPA

The PPA is a must-take contract. All energy supplied by the RE developer to the buyer will be

purchased by the buyer subject only to such necessary directions and protocols as may be

issued by the buyer (or the System Operator) for the protection of its electric system. The

pricing in the PPA is based on the REFIT tariff which is calculated to cover the technology-

specific cost of renewable energy. From time-to-time, the tariff levels may change due to

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review by NERC or annual tariff degression; however, the prevailing tariff at the time a PPA is

signed is fixed for the term of that agreement. The PPA has a term of 20 years, starting from

commencement of the Commercial Operation Date.

The PPA shows the duties and obligations that bind both the buyer and the seller, including:

(a) term of the agreement;

(b) pricing;

(c) responsibilities for grid interconnection;

(d) metering;

(e) billing and payment;

(f) coordinated operations;

(g) construction milestones;

(h) other standard contract clauses (insurance, force majeure, limitation of liability, dispute

resolution etc).

No capacity payment required and no capacity testing; contract is essentially for non-firm

energy

Application and Project Selection Process

Renewable energy generators feeding into the grid will require a PPA. The project

developerfor such renewable generation projects must be an entity legally registered in

Nigeria, such as a private or public company, a limited liability partnership, an NGO, a trust, a

public agency or government authority.

The procedures for applying for and implementing the Refit shall follow the Application and

Implementation Guidelines, as published by the NERC, the first step being submission of an

Expression of Interest (EOI).

Licensing conditions, procedures and evaluation criteria for license applications

All applicants for generation license under the REFIT shall be obliged to fulfil all the

requirements and obligations for licensing sentout by NERC pursuant to the EPSRA 2005. The

application must include:

The type of licence required;

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Generation and sale of electricity under the REFIT as one of the options for type

of license required;

Contribution of the project to grid stabilization and reduction in network losses;

Acceptance of the standardized Power Purchase Agreement;

To state expected socio economic impacts such as economic development and

employment creation.The cumulative capacity contribution by REFIT projects of

up to 30 MW shall not exceed 10% of system-wide generation capacity.. As

the system-wide installed generation capacity improves a comprehensive

impact study will be carried out to determine whether a higher level of

embedded capacity can be accommodated.

For large renewable projects above 30MW, integrated resource planing will be carried out

beforeNERC will initiate a competitive bidding process. In this approach, the buyers will solicit

bids, short list them on the basis of qualifications and competencies, and at the full proposal

stage, have the short listed candidates compete for the lowest levelised price in line with

existing power procurement regulation issued by the Commission.

The basis for the PPA in the case of the larger renewable generators is the Standardised

Power Purchase Agreement template with only a limited number of negotiableclauses.

DESIGN OF FEED-in-TARIFFS

Electricity generation costs vary according to the Renewable Energy Sourced Electricity

technology used. Therefore, the REFIT levels are technology specific and depend on:

i. The investment costs for the plant (including the costs of feasibility studies, site survey

etc

ii. development, construction costs, and the costs of connecting to the transmission

iii. system including transmission lines, substations and associated equipment;

iv. The Operations and Maintenance (O&M) Costs;

v. Fuel costs where applicable;

vi. Financing costs and a fair return on theinvested capital;

vii. Estimated lifetime of the power plant;

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viii. Amount of electricity to be generated.

REFITS are also based on the best estimates of different load factors of energy availability.

The following are the assumed benchmark cost and technical parameter for each of the

identified technologies:

COMPLIANCE WITH TECHNICAL, LEGAL AND REGULATORY REQUIREMENTS

All projects implemented under the Feed-in-Tariff system shall comply with all relevant

technical, legal and regulatory requirements of Nigeria. In particular, projects will abide by the

provision of the Connection Guidelines for Small-Scale Renewable Generation Plant as well as

the relevant codes pursuant to the EPSRA 2005(Grid Code, transmission codes, health and

Safety regulation).

REVIEW OF FEED-IN-TARIFFS

This Feed-in-Tariffs policy shall be subject to review every three years due to changes in

technology from the date of publication. However, a policy review may be undertaken earlier

than three years in exceptional cases. Any changes made during such reviews shall only apply

to Renewable energy sourced electricity power plants that shall be developed after the

revised guidelines are published. For the avoidance of doubt, REFIT values applicable to an

executed PPA contracts will remain unchanged.

Rights and Obligations of Qualified Renewable Energy Power Generators

For RE Generators connecting to a Distribution System (i.e. “Embedded Generators”) the

provisions of the Distribution Code shall apply. For RE Generators connecting to the

Transmission system the Grid Code applies. The connection can be to either Transmission or

Distribution voltage networks, as appropriate. The cost of connecting to the grid at the

appropriate voltage level, ie the shallow connection, shall be borne by the RE Generator in

accordance with the Distribution/Transmission Tariff Code.

All RE Generators have the responsibility to ensure power production is from credible

renewable energy sources. Failure to provide credible evidence on renewable energy power

generation or evidence to prove that power was not produced from non-renewable sources

could lead to the termination of the Generation Licence.

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The Buyer shall be obliged to enter into a PPA with RE Generators and make payment for

renewable energy generated and supplied to the Distribution System and Transmission

System under the REFIT. Any wheeling charges incurred in purchasing power under the REFIT

shall be at the cost of Buyer.

The Buyer shall be obliged to record the total annual cost of power purchased under REFIT

including Wheeling Charges.

The Buyer has the right and the obligation to inspect RE Generators to verify production of

renewable energy. For RE Generators with an installed capacity greater than 30MW, the

capacity verification shall be carried out annually by Buyer.

Monitoring, Reporting and Review

The Commission shall act as the overall authority for verification of the electricity production

from renewable energy sources. Also, the Commission shall maintain a database of qualifying

renewable energy producers.

The Commission shall be responsible for overall monitoring and review of the REFIT

programme. Data on the energy purchased under REFIT per technology band and the total

cost of the REFIT shall be gathered and maintained by the NERC through the Buyer.

The Commission shall liaise with Buyer and the System Operator to monitor dispatch issues

arising from the connection and generation of power under REFIT. Annually the Commission

shall publish a report on the progress achieved. This report shall include the following:

Progress on RE, Changes or additions in qualifying technologies, cost of development resulting

from the market expansion of the technologies.

THE COMMON SEAL OF

NIGERIAN ELECTRICITY REGULATORY COMMISSION

Was affixed pursuant to the ORDER OF THE COMMISSION

On this ……............................ day of…….........................................…………………. 2015.

Dr. Sam Amadi

Chairman/CEO