Liquidity challenges of Distribution Companies pose high risk to the execution of bilateral power contract1

The bilateral power contracts introduced by Nigerian Electricity Regulatory Commission NERC to aid the direct sale of power from Generation Companies (GenCos) to Distribution Companies (DisCos) may be challenged by the liquidity challenges faced by most of the DisCos.

NERC had earlier in the year, instructed the 3 biggest DisCos - Eko, Ikeja and Abuja DisCos, to commence the implementation of bilateral contracts with GenCos of their choice effective 31 March 2023. The bilateralpower contract follows an unsuccessful implementation of the partial activation exercise of the Power Purchase Agreement (PPA) in June 2022 which was overseen by NERC and the Nigerian Bulk Electricity Trading Plc (NBET). The PPA created a long-term contract with GenCos with conditions for purchase of electricity generated by the companies. The PPA was not fully implemented due to challenges with the national grid and non-payment of outstanding debts which should facilitate the repairs of units in the power plants. Based on the PPA, the GenCos were assured payment of 100 percent of their monthly market invoices upon fulfilment of their obligations as stipulated in the PPA. The PPA also stipulated that failure of NBET to pay the monthly market invoices will attract interest on any outstanding amounts. The failure of the partial activation, according to GenCos, was due to an absence of a handshake between the PPA and other interrelated agreements, and the imposition of contractual terms on the GenCos which were not in the original agreement.

Based on the above, the bilateral power contract, which will allow the DisCos to engage directly with willing GenCos for energy supply on mutually agreed terms, is expected to improve on the PPA, boost power generation and electricity supply in the country. However, the GenCos are still concerned that the DisCos debt profile, poor financial positions, lack of detailed payment plan for the energy purchased, and a mutually agreed penalty for default may affect its success as was the case in the PPA with NBET.

Norwegian renewable energy investment firm signs a US$6.5 million solar energy deal in Nigeria2

A Norwegian renewable energy investment firm, Empower New Energy, in collaboration with Powercell Limited, a clean energy Nigerian company, has signed a US$6.5 million solar energy deal in Lagos. The project, which is aimed at promoting the use of clean energy in Nigeria to reduce pollution, is the largest solar investment deal signed by Empower New Energy in Nigeria.

The Lagos State Commissioner for Energy, during the signing ceremony, noted that the State plans to create a sustainable electricity market to reduce the reliance on fossil fuels and boost the use of renewable energy. He also noted that Lagos State government has a set target of generating 1,000 Megawatts (MW) of electricity using solar sources by 2030.

Norway’s Minister of Foreign Affairs said the development and steps taken by the Lagos government would push energy companies towards clean technology and attract green investments.