The eligible customer criteria declared by the Minister of Power is a clear business opportunity.
Generally speaking, it means qualified customers can get electricity directly from GenCos and other Suppliers. This brings a number of opportunities for investors and fund managers as enumerated below.
Opportunity for Independent Electricity Distribution Network Owners – IEDNOs.
A person or group of individuals can invest in a dedicated electricity network and supply power to housing estates, manufacturers, and heavy electricity consumers throughout Nigeria. This will be according to the Independent Electricity Distribution Network [IEDN] regulations set by the Nigerian Electricity Regulatory Commission (NERC).
With the development in the power sector, IEDNOs will spring up in the Nigerian Electricity Supply Industry [NESI] and that is a layer of business opportunity for consideration. With a dedicated and independent “wire business” (cables, overhead lines, transformers etc) built from the generator to the estate, say, pre-paidmeters can be installed in consumers’ premises so that rates/tariff are reasonably guaranteed. This should provide a good return on investment (ROI) – money to pay investors and declare profit which can be traded in local/international financial market, even on the floor of the Nigerian Stock Exchange (NSE)!!!
Opportunity for Electricity Suppliers
It is possible to source for finance and register with the Nigerian Electricity Regulatory Commission (NERC) as electricity suppliers, procure power and sell to estates, Industries, technology/energy parks etc.
The risk is lower because there is no requirement for large scale investment in network infrastructure. The opportunity is in looking for estates and reliable customers here and there to supply electricity based on contracts.
Requirements to be an electricity trader
1. Obtain and complete trading licence application form.
2. Company Registration, partnerships etc
3. Title deed to site
4. Tax clearance for last 3 years.
5. 10-year business plan.
6. Financing agreement or letter from financial institution(s).
7. Power Purchase Agreement (PPA) with Generators or other suppliers.
8. Network Agreement with TCN.
9. Retail agreement with the end user- customers (like the estates, heavy energy consumers, any DisCo etc)
A very good alternative to item 8 is to look for or invest in Independent Electricity Distribution Network owners.
Opportunity for consultancy
There will be alot of consultancy services required to make a success of the declaration of customer eligibility. There will be need for transaction experts and lawyers, aggregators, technocrats who can plan, manage, operate, control and maintain electricity networks. There will be opportunities for the provision of ancillary & metering services, including trainers for power and non-power systems related subjects that have bearing on the operation of a successful electricity market. Safety will be a more critical issue within NESI if deaths from electrocution have to be curtailed.
TCN & DisCo Bottlenecks- off-grid, microgrid solutions to the rescue
If the transmission network is weak and the distribution networks are begging for investment, the natural monopolies cannot lead us to the “promise land”. This a major risk in the value chain. Unless there is a third party guarantee for getting paid for what is pushed into the grid and or sold to customers, it will be difficult to sell business proposals to astute investors with the current level of inefficiency in the sector.
Fortunately, there is an existing framework for microgrid and independent electricity distribution network which makes it possible for electricity suppliers to connect directly to eligible customers. We now have many on-going off-grid solar projects and distributed generation in the North. We also have similar projects down south. Watch out for how Lagos State will move with the newly passed bill on revamping the electricity systems in the state. Expect other states in the South-West to follow!!!
Power Purchase Agreement (PPA) with GenCos and Independent Suppliers of electricity
GenCos (Generating Companies) are the generators of electricity that we have currently. They include companies like Transcorp Power, North-South Power, Egbin, Afam etc. They currently sell the electricity we use to the National grid owned and operated by the Transmission Company of Nigeria (TCN). Based on agreements/contracts with the Market Operator (MO) and the Nigerian Bulk Electricity Trader (NBET), they get paid from the collections made by DisCos from consumers. If they have to sell directly ro eligible customers according to laid down rules, a power purchase agreement/contract has to be in place.
Apart from these, there are independent power producers from whom eligible custmers will be able to buy electricity. Recently we have had Azura and Accugas. There are other IPPs and NIPP projects that will generate electricity.
Individuals can also generate and sell electricity themselves within the regulatory limits.
Summarily, people will do business, and therefore, have power purchase agreement with either:
1. The GenCos we have today or
2. Independent Power Producers.
It is important to mention that electricity can and will also be procured through existing distribution companies (DisCos). For example, bi-lateral agreements will be required between DisCos and other stakeholders for the operation and maintenance of distribution systems in their franchise areas in many cases for the forseeable future.
As an investor, it is best to be involved in the generation of electricity, its independent distribution and supply to metered customers to take full advantage of customer eligibility.
However, the easiest/cheapest model to start with is electricity trading.