LEGAL AND REGULATORY FRAMEWORK FOR RENEWABLE ENERGY POWER PROJECTS IN NIGERIA – CONTRACTUAL ARRANGEMENTS FOR C&I PROJECTS

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Abiodun OyeledunAssociate Partner

Nnenda HayatuddiniAssociate

JUNE, 2019

OUTLINE

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1. Key Stakeholders in the RE Space

2. Legal Framework for RE Projects

3. Power Generation Options

4. Tariff Framework

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KEY STAKEHOLDERS IN RE SPACE

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Manufacturers Association of

Nigeria

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LEGAL FRAMEWORK FOR RE PROJECTS

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LAWS

Electricity Power Sector Reform Act 2005

Nigerian Electricity Management Services Act 2014

Environmental Impact Assessment Act 1992

NERC REGULATIONS

Licensing Tariff

NERC Application For License Regulations2010

Renewable Energy Feed-In-Tariff Regulations2015 (currently not applicable)

NERC Licensing And Operating FeesRegulations 2010

Generation Technical Standards and Codes

Captive Power Generation Regulation 2008 Metering Code, Distribution Code, Grid Code

Embedded Generation Regulation 2012 Nigerian Electricity Supply and InstallationStandards Regulations 2015.

Eligible Customer Regulation 2017 Health & Safety Codes

NERC Regulation for the Procurement ofGeneration Capacity, 2014

Distribution

Independent Electricity Distribution Network Regulation 2012

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POWER GENERATION OPTIONS

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Option Capacity

IPP on-grid > 1MW

Embedded Generation

> 1MW but no more than 20MW

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Option Capacity

Captive self consumption > 1MW

Off-Grid IPP > 1MW

Unlicensed IPP < than 1MW

Mini-Grid between 0kw and 1MW

ON-GRID GENERATION OPTIONS

OFF-GRID GENERATION OPTIONS

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TARIFF FRAMEWORK FOR RE PROJECTS

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REGULATING TARIFFS FOR RENEWABLE PROJECTS IN NIGERIA

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GENERATION OPTION TARIFF REGULATION

IPP On- Grid • Intended to be REFIT• REFIT currently not applicable. Subject to review in 2018

Embedded Generation • Intended to be REFIT• REFIT currently not applicable. Subject to review in 2018

IPP - Off grid REFIT does not apply. Bilateral Negotiation.

Mini-Grid • Permit Holder: Tariff is calculated using NERC’s MYTOmethodology designed for Mini Grid

• Registered Operators: Tariff may be based on the MYTOmethodology or an agreed tariff between the Operator andat least 60% of the community.

Captive Generation Tariff is not regulated however may be subject to review by NERC where excess power is being sold.

Unlicensed IPP • Unregulated generation option • Bilateral negotiation.

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CONTRACTUAL FRAMEWORK FOR RE PROJECTS IN NIGERIA

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OUTLINE

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1. Key Power Project Development Contracts

2. Key Risks and Mitigation Factors for Project Contracts

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KEY POWER PROJECT DEVELOPMENT CONTRACTS

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Contract Purpose

Land Related/ Access

Contracts

Land documents/ contract underpin the right of a project developer toaccess/utilize land for the project development. The documentstherefore represent the title/interest of the developer to the land.

Power Purchase

Agreement

This agreement sets out the terms on which a power generationcompany supplies electric energy to an off-taker. Some of the key termsin a PPA include: obligations of the parties, Take or Pay clauses,contract quantities, provision of credit enhancements, tariffs, liabilitiesand indemnities , Termination and compensation regime etc.

Construction Contract

A construction contract is used to set out the terms and conditions for the construction and development of a power project (generation, transmission or distribution). It is executed by the Developer (as the Company/Employer) and the Contractor.

Operation And

Maintenance Agreement

An operation and maintenance agreement is required to effectively run the project profitably. Except the developer has expertise in operating the project, it is best to procure an operation and maintenance contractor.

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CONTRACTUAL FRAMEWORK

Risks▪ Title.

▪ Perfection.

▪ Community.

Mitigation▪ Due diligence.

▪ License approach.

▪ Community relations

Construction Contracts

Risk• Performance• Advance

Payment• Completion• Cost overrun

Mitigation• Performance bond• Advance payment

bond• Turnkey/ Limited

EOT/ LD’s• Fixed cost

Access Agreements

Power Purchase Agreement

O& M Agreement

Risk▪ Performance▪ Split O&M/

Interface ▪ Cost overrun▪ I.P ownership

Mitigation▪ Incentive based

payments, KPI’s▪ Wrapped agreement.▪ Opex controls▪ Contractual agreement

on ownership of IP.

Risk▪ Offtake risk.

▪ Default

▪ Foreign Exchange.

Mitigation▪ Take or Pay/ Payment

Guarantee▪ Termination

compensation/ Put call option

▪ Hedging ▪ Tariff structure

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QUESTIONS???

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THANK YOU

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