Renewable energy policy and regulation in Nigeria – Lexology

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The policy and regulatory framework

i The policy backgroundImpact of government policy on renewable energy development

While the policy direction of the government towards the diversification of Nigeria’s energy mix has been largely progressive, the administrative challenges have stifled these efforts, particularly with respect to the cost of importing components and equipment required to develop renewable energy projects. With the current duty and VAT payable on solar equipment (10 per cent) and the additional 20 per cent payable on deep-cycle batteries required for energy storage, growth in the renewable energy sector currently valued at over US$50 million is significantly impeded as most of the projects are not bankable.

Support for renewable energy technological development

The government through its agencies and parastatals has put in place several initiatives aimed at supporting the indigenous development of renewable energy technology. A large part of these programmes is aimed at supporting research and development in the area of renewable energy solutions.

The Ministry of Science and Technology, through the RCET, supports research and development activities leading to the local production of solar panels, wind turbines and balancing systems (converters, inverters, controllers and chargers, etc.).

The ECN, in line with its mandate to promote the development of energy resources and renewable energy, has established a number of centres across federal institutions in Nigeria, one of which is the Sokoto Energy Research Centre, at Usmanu Danfodiyo University, Sokoto. Since its inception, the Sokoto Centre alone has been involved in over 60 pilot projects that cut across the various aspects of renewable energy technology. Other centres established in universities across Nigeria include the National Centre for Energy Research and Development, University of Nigeria, Nsukka, and the National Centre for Energy Efficiency and Conservation at the University of Lagos.

In addition to the above, the National Agency for Science and Engineering Infrastructure (NASENI), established in 1992 by the federal government, runs the 5MW Solar Panel Plant at Karshi, Abuja, for the production of solar panels and modules for Nigerians. In collaboration with the government, NASENI is pioneering the manufacture of solar plant modules and small hydropower turbines in the northern part of Nigeria; it is anticipated that these will be installed in each of the country’s six geopolitical zones.

Incentives

The NREEEP provides incentives centred around renewable energy, some of which include: (1) customs duty exemptions for two years on the importation of equipment and materials used in renewable energy projects; (2) five-year tax holidays for manufacturers from date of commencement of manufacturing; (3) five-year tax holidays on dividend incomes from investments in domestic renewable energy sources; (4) provision of soft loans and special low-interest loans from the power sector development fund for renewable energy supply; and (5) grants to communities to encourage renewable energy projects.

The NERC REFIT Regulations aim at generating a minimum of 2,000MW of electricity from renewable energy by the year 2020. The power generated is accorded priority access to the grid at a guaranteed price through mandatory renewable power purchase obligations on power distribution companies (Discos) and NBET. The Regulations, however, are limited to projects with a capacity of between 1MW and 30MW, and solar projects with a capacity of 5MW and below; off-grid renewable projects do not fall within the ambit of the Regulation.

There are currently no tax credits for renewable energy as the Nigerian market has yet to develop sufficiently to accommodate initiatives of this kind; however, there are plans by the federal government, under the NREEEP, to introduce tax credits for producers of renewable energy appliances and fixtures.

Incentives for solar energy resources

The policies and incentives discussed above are largely applicable to all sources of renewable energy. However, manufacturers of solar energy-powered equipment and gadgets enjoy tax exemption (pioneer status) for an initial period of three years, which is extendable for one or two additional years. This incentive is not available to other renewable energy sources.

ii The regulatory frameworkRenewable energy sector regulators and key counterpartiesNigerian Electricity Reform Commission

NERC is responsible for granting all licences and approvals with respect to the entire electricity value chain (generation, distribution, transmission, trading, system operations, metering, etc.).

Transmission Company of Nigeria

The Transmission Company of Nigeria (TCN) is one of the entities created following the unbundling of the power sector. The TCN is currently the only entity licensed for transmission of electricity and consists of the market operator, the system operator and the transmission service provider. Given the TCN’s monopolistic status, on-grid renewable projects require collaboration and contractual arrangements with the TCN. The market operator is also responsible for the administration of the market rules applicable to projects supplying power via the transmission network.

Nigerian Bulk Electricity Trader

Nigerian Bulk Electricity Trader (NBET) is currently the sole holder of a bulk purchase and resale licence in Nigeria. NBET enters into bulk PPAs with generation companies and independent power producers (IPPs) for the bulk purchase of power, which is then resold to the relevant Discos in Nigeria under a vesting contract.

Standards Organisation of Nigeria

The Standards Organisation of Nigeria (SON) is responsible for setting the standards of all products and equipment in or brought into Nigeria. SON through its electrical and electronics group certifies products that are imported or manufactured in Nigeria and ensures that all products and equipment are of the correct quality and standards.

Nigerian Electricity Management Services Agency

The Nigerian Electricity Management Services Agency (NEMSA) has responsibility for ensuring the enforcement of technical standards in the power sector and conducting inspections of electricity projects. NEMSA collaborates with SON and other governmental agencies to ensure that all major electrical materials are of the correct quality and standard.

Nigerian Customs Service

The Nigerian Customs Service (NCS) is responsible for implementing and collecting import and excise duties for products and equipment imported into Nigeria. The import duty and VAT currently imposed on the importation of solar equipment and its components is paid to the NCS.

Federal Ministry of Environment

The FMoE is the principal authority in respect of environmental matters in Nigeria. In addition to policymaking, the FMoE is in charge of EIAs for projects in Nigeria (including renewable energy projects) and issues EIA certificates for approved projects.

National Environmental Standards and Regulations Enforcement Agency

The National Environmental Standards and Regulations Enforcement Agency (NESREA) is responsible for the protection and development of the environment, biodiversity conservation and sustainable development of Nigeria’s natural resources in general, and for environmental technology. NESREA is also responsible for enforcing compliance with environmental laws, guidelines, policies and standards.

Environmental concerns

Pursuant to the provisions of the EIA Act, no activity may be undertaken or authorised by the public or private sector without prior consideration, at an early stage, of its environmental effects. Where the extent, nature or location of a proposed project or activity is such that it is likely to significantly affect the environment, its environmental impact assessment shall be undertaken in accordance with the provisions of the EIA Act.

Energy project developers in Nigeria have to comply with the provisions of the EIA Act. The FMoE has EIA guidelines for power sector projects, including renewable energy projects, which set out the procedure for carrying out EIAs for power projects in Nigeria.

However, under the current regulatory framework, renewable energy project proponents in Nigeria find the cost and applicable timelines for EIAs unfavourable. While recognising the obvious importance of EIAs, it would be helpful to have a simplified, affordable and efficient EIA process to speed up renewable energy project implementation, especially in respect of mini-grid projects.

Green attributes or renewable energy credits and renewable energy tracking

Nigeria’s renewable energy market is still largely new and not sophisticated enough to ascribe special values to electricity from renewable energy in terms of green attributes or renewable energy credits. However, it is important to note that NREEEP proposes a power production tax credit (PPTC).

The PPTC seeks to incentivise individuals who generate electricity from renewable energy with tax credits. While this has not yet been implemented in Nigeria, it is a step in the right direction towards improving Nigeria’s energy mix, as well as placing value on electricity generated from renewable energy. It is expected that the implementation of the policy and the PPTC will encourage private investment in the industry.

Furthermore, renewable energy power projects in Nigeria are largely off-grid, as the market has not yet developed to the point where several developers can feed power generated from renewable energy sources into the grid. While the government in recent times has shown a keen interest in ramping up renewable energy development in Nigeria, the mechanisms in place to effectively track such development across the country are minimal. The REA intends to provide data on renewable energy projects across Nigeria through its Nigerian Energy Database (NED). Although currently operational, the NED has not yet been fully developed.

Regulatory approvals and timelines

Building and construction permits are issued by the applicable state governments, and timelines for these vary from state to state. The following federal authorities issue regulatory approvals according to the stated timelines.

NERC

  1. Generation licence: six months from acknowledgement of the application;
  2. mini-grid permit: 30 days from the date of receipt of a completed application; and
  3. captive generation permit: three months from acknowledgement of the application.

FMoE

EIA/EMP certificate: between six months and one year.

NEMSA

NEMSA certificate: one month.

Source: https://www.lexology.com/library/detail.aspx?g=f96f56e5-c90b-4eef-8728-b618044430d0

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