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Order on the Transition to Bilateral Trading in the Nigerian Electricity Supply Industry
Post-unbundling of PHCN, the Nigerian Bulk Electricity Trading Company (NBET) was established in 2010 to manage energy procurement between GenCos and DisCos. NBET's role as a bulk trader was initially for 10 years and was renewed in 2021 for three more years. The Electricity Act 2023 mandates the transition to bilateral trading, moving away from NBET’s single-buyer model.
Trends in Wholesale Energy Trading
- Since 2022, NERC has issued trading licenses to private companies interested in bilateral trading.
- Several GenCos intend to exit NBET agreements and contract directly with DisCos.
Current State of Energy Trading
- NESI has faced liquidity challenges due to non-cost reflective tariffs, subsidy delays, and poor billing by DisCos.
- Only 8 out of 28 GenCos have fully effective contracts backed by payment guarantees with NBET.
Objectives of the Order
- Transition to bilateral contracting to limit government fiscal exposure.
- Foster a competitive market by moving away from a sole bulk electricity trader in NESI.
- Allow GenCos with "take-and-pay" contracts to trade directly with DisCos.
- Move towards "take-or-pay" contracts for predictability and market discipline.
Key Provisions
- NBET will cease entering new contracts for electricity and ancillary services.
- NBET will continue administering existing contracts with five specific GenCos.
- DisCos are encouraged to contract bilaterally with GenCos.
- GenCos must notify NBET of bilateral contracts by 30 September 2024.
- A framework for energy dispatch and payment prioritization is established.
This Order aims to steer the Nigerian electricity market towards a more competitive, efficient, and financially sustainable structure by promoting bilateral contracts between generation and distribution companies.
Read the full order at: ORDER-ON-THE-TRANSITION-TO-BILATERAL-TRADING-IN-NESI.pdf (http://nerc.gov.ng)
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