Nigeria to allow power distribution companies to buy directly from generation companies

Nigeria's power distribution companies (DisCos) have been granted permission by the Nigerian Electricity Regulatory Commission (NERC) to purchase electricity directly from generation companies (GenCos). 

This shift comes after over a decade of relying on the Nigerian Bulk Electricity Trading (NBET) as an intermediary. The move allows DisCos to engage in bilateral contracts with GenCos, streamlining the electricity supply chain, BusinessDay reports.

In 2013, DisCos and GenCos were privatised and operated under a vesting contract system overseen by NBET. This new directive allows DisCos to leave this system and purchase electricity directly from GenCos. This change is intended to improve efficiency, accountability, and competitiveness in Nigeria's electricity market by cutting down on intermediaries and enabling a more direct relationship between producers and distributors.

Starting January 1, 2024, DisCos are required to obtain bilateral contracts to guarantee a minimum energy purchase. This measure helps reduce energy-related risks for DisCos and accelerates the migration of customers to higher service bands. The change is hoped to be a positive step for the troubled electricity industry as it addresses long-standing liquidity issues and encourages innovation in the sector through a more direct and accountable procurement system.

According to BusinessDay, the decision may result in short-term challenges, such as potential cost increases for residential customers, but industry experts view this transformation as a game-changer. It has the potential to create a more competitive and efficient power sector, encouraging the diversification of energy sources and setting the stage for increased renewable energy adoption in Nigeria.