New Tariff Rules by the NERC to Regulate Mini-grid Operations in Nigeria

Mini grid

Legal Informer

The Nigerian Electricity Regulatory Commission (NERC) has introduced new tariff rules to regulate mini-grid operations in Nigeria. As a governmental agency responsible for overseeing and regulating the electricity sector, NERC plays a crucial role in establishing tariffs, ensuring service quality, and enforcing industry regulations to promote efficiency, reliability, and fair competition in the country’s electricity market.

NERC’s involvement in electricity regulation extends to the supervision of mini-grids, including both isolated and interconnected systems. Mini-grids consist of dedicated power generation facilities providing electricity to their networks. These facilities can be operated by the mini-grid operator or by an individual contracted by the operator to supply generation capacity. NERC actively regulates and facilitates the development of mini-grids, contributing to the overall progress and governance of Nigeria’s electricity sector.

In accordance with NERC regulations, adjustments to input parameters used in tariff calculations will be made, aligning with the Multi-Year Tariff Order (MYTO) methodology. These adjustments aim to ensure tariff calculations accurately reflect observed values during inspections. MYTO serves as a systematic approach for determining electricity tariffs over a multi-year period, considering factors such as capital and operating costs, inflation, and projected revenue. NERC oversees this tariff adjustment process, reinforcing its role in maintaining a fair and accurate tariff structure.

The tariffs, representing the rates at which electricity is charged, will undergo modifications to accurately reflect the true costs incurred by mini-grids. Simultaneously, the calculation of the depreciated value associated with the depreciation of assets over time will be scrutinized and adjusted, subject to approval by the Nigerian Electricity Regulatory Commission.

NERC has set a defined limit for technical losses within mini-grids, restricting it to 4%

Mini-grid permit holders interconnected with Distribution Companies (DisCos) are required to remit a Distribution Use of System (“DUOS”) Charge, which must be mutually agreed upon by both parties and approved by the regulatory authorization of the Commission. 

Addressing technical losses within the power distribution network, NERC has set a defined limit for technical losses within mini-grids, restricting it to 4%. The recently enacted Electricity Act (EA) signed by NERC’s chairman, Sanusi Garba, designates acceptable limits for non-technical losses in mini-grids, particularly those associated with interconnected solar plants. The stipulations set the permissible threshold for non-technical losses at 3%, with allowable technical losses capped at 4%.

In conclusion, these new regulations reflect the Nigerian power sector’s commitment to addressing challenges related to technical losses, enhancing the efficiency and reliability of the electricity infrastructure. The establishment of specific limits for technical and non-technical losses ensures a more resilient and sustainable power sector for Nigeria’s future.

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