How electricity investors can make money from eligible customer regulation
The eligible customer declaration regulation submitted to Babatunde Fashola, minister for Power, Works and Housing by the Nigerian Electricity Regulatory Commission (NERC) yesterday could create new investment streams for businesses that aggregate customers to apply for the status.
“A group of end users may combine multiple sites and apply for eligibility status from the Commission with each application being considered on its own merit,” says section two of the regulation.
By this provision, it is now possible for businesses to create Special Purpose Vehicles who can apply for eligibility status on behalf of a group of end-users and will execute the transaction documents. They only need to be connected to the same Distribution Licensee’s network and have a minimum consumption of 500KVA at each site and all located within the same geographical network.
The first category of eligible customers include a group of end-users registered with NERC and connected to a metered 11KV or 33KV delivery point on the distribution network of an electricity distribution company and with consumption in excess of 2MW on monthly basis.
According to Wesley, energy consultant and CEO of New Hampshire Capital Ltd, “This means that large housing estates and commercial establishments, such as the 1004 Housing Estate in Victoria Island, VGC; Banana Island estates; “Shoprite” malls, and other large residential estates and malls can chose to connect directly to a GENCO, so long they are registered with NERC as a group of end users.
Omonfoman said it could mean more reliable grid power and a reduction in their operating costs per savings on diesel power generation.
Power firms who package these kinds of customers into an eligible customer could make a fortune. But this will involve investing in the right infrastructure such as metering, power lines, transformers and electrical switchgears.
To assuage DisCos concern for revenue loss on account of large customers buying power directly from GenCos, the regulation provides other than customers connected directly to the transmission system, eligible customers at 11KV and 33KV would need to enter into an agreement with DISCOs, called Distribution Use of System (DUoS) to get supply from GENCOs.
“DisCos expectedly would still earn the percentage of the revenues due to them from the overall electricity tariff. However, the DUoS may likely come with minimum service level expectations that DISCOs would have to meet to ensure that such customers get supply directly,” said Omonfoman.
Analysts say this could spur competition in the sector even as they are concerned about compliance with the regulation by operators.
“A key issue that will impact the regulation is incentives for DisCos whose distribution network would be used and enforcement of the regulation are key to drive competition,” says Chuks Nwani, an energy analyst.
The GenCos, however, anticipate better margins on account of the regulation. “With stranded generation capacity in the electricity market and poor market liquidity, declaration of eligible customer is the brilliant way to liberate the electricity sector from the current monopoly by some under-performing companies,” says Joy Ogaji,
the executive secretary, Association of Power Generation Companies in an opinion piece.
Analysts believe the policy will lead to increased generation capacity, resolve the problem of stranded power due to DisCos rejection of power, and address issues bothering on financial viability of the electricity supply value chain.