NERC Orders 10% Embedded Generation for DisCos by 2025: Analyst Insights
The Nigerian Electricity Regulatory Commission (NERC) has mandated all electricity distribution companies (DisCos) in Nigeria to procure at least 10 percent of their contracted energy offtake from embedded generation sources, half of which must be procured from renewable energy sources.
This is expected to be made available by April 1, 2025. For example, Abuja Disco is expected to procure at least 61.1 MW from embedded generation sources, out of which 31 MW must be from renewable energy sources.
Babatunde Osadare, an experienced energy professional with a demonstrated history of working in the energy industry across its value chain, gives insights into the mandate below.
Background
The electricity industry is highly regulated, with clearly stipulated allowable CAPEX, OPEX, return on investment, and allowed revenue requirements. Due to the historical shortage of grid energy, Discos are usually unable to earn sufficient revenue to meet their operational requirements.
Consequently, the volumetric risk has usually been borne by the government, which has to intervene periodically by absolving the revenue shortfall arising from generation shortfalls to make the power value chain whole.
To mitigate and reduce this revenue shortfall exposure, Discos have been urged to look at other bilateral energy sources and, more recently, to procure power from embedded sources, including energy from renewables.
Beyond the mandate for Discos to act, NERC is also keenly monitoring the Discos implementation plan towards achieving this objective. It has also advised the Discos to strongly consider leveraging the recently approved World Bank-Nigeria Distributed Access through Renewable Energy Scale-Up (DARES) Programme, under which up to $750 million has been made available for financial and technical support.
These regulatory efforts, in addition to the drive of the Renewable Energy Agency of Nigeria and the various State governments, will go a long way in boosting energy access initiatives, including increased renewable energy adoption.
Why is this important?
Focused regulatory action is a very important tool in driving the adoption of utility-scale renewable energy development. It is a major signpost for the future of the power industry and can incentivize investment decisions for those seeking to play in the sector.
The Discos can play a vital role in the acceleration of renewable energy adoption given their already existing customer base, wide reach, and existing distribution infrastructure, which in some cases require investments to strengthen and expand to enable them to offtake power from renewable energy sources.
Osadare made it known on his LinkedIn page that other ways of driving utility-scale renewable energy adoption include certainty in investment policies, sensitisation and community education, and liberalisation of renewable energy technologies.
