AN OVERVIEW OF REGULATION FOR EMBEDDED GENERATION.

LAGOS – JULY, 2014.

Outline of Presentation: 1. Definition & Types of Embedded Generation (EG)

2. Benefits of Embedded Generation

3. Technical & Economic Considerations of Embedded Generation

4. Aim of EG, Legal & Regulatory Provisions

5. General Provisions

6. Connection of Embedded Generation

7. Commercial Arrangements

8. Participation in other regulated activities

9. Miscellaneous Provisions

10. Conclusion

Embedded Generation:

Embedded Generation (EG) is when a generator is connected to a

distribution network operated by the Distribution Company (DisCo)

licensed by the Commission.

The generators are connected directly to or near the load centre on the

distribution network (i.e., 33kV, 11kV or 0.415kV).

Embedded generation ensures that power generated is utilized in a

particular locality, state, or geo-political region, and/or supplied to an

eligible customers and others. Therefore, if a State or Local Government

builds an embedded generation facility, the power generated can be

supplied to its constituents.

Technology Types of Embedded Generation:

Generally, EG tends to consist of smaller or modular generators

that use a variety of generation technologies such as the

following:

Modular Combined Cycle Turbines

OCGT

Wind Turbine

Small, Mini/Micro Hydro

Micro Steam Turbine

Solar (PV or Thermal)

Oil-fired Power

Geothermal

Biomass

Diesel and Oil fired

Tidal Wave

Benefits of Embedded Generation (EG):

Business Activities – Provision of opportunities for various manufacturing and service

activities in Nigeria.

Economy – Growth in the revenue of businesses, and in the country’s economy.

Investment – Will attract investments, both from local and foreign sources (in the power

sector, and other sectors)

Government Participation – Increases the participation of Local and State

Governments in the power sector.

Reliability of Supply – Reliable power supply protects sensitive industrial equipments,

and ensures optimal operation of the equipments.

Minimise line losses and voltage sag - Closeness to load results in more efficient power

transportation.

Substitute for supply from the Grid - Source of power in areas not connected to the

grid (i.e. rural areas).

Backup / Stand-by Generation - Ensure regular power when supply from grid is

temporarily insufficient to meet the demand.

Ancillary Services – Provision of Voltage or Frequency Control.

Employment – Increase in power supply encourages industrialization, which translates

to a decrease in the unemployment rate.

Technical Benefits of Embedded Generation

Reduced cost of connection.

Transmission use of networks costs is avoided.

Ease of deployment of the infrastructure.

Network Loss Factor is reduced.

Improved utilization of distribution assets by the Discos.

End users can benefit through adequate supply of electricity, lower end user

tariffs, and potentially increased reliability and quality of supply.

EG has lower capital cost, modular construction and short build times.

Growth in EG will contribute to fuel diversity, mix and security of supply as

diverse sources are tapped including Renewable Energy Plants.

Reduction of GHG emissions in Nigeria.

In the long term, reduction of overall costs of energy consumed by

providing a more efficient electricity system that generates and supply power

close to the point of use.

Technical Considerations for Embedded Generation:

•Load Requirement - Profile of load plus running regime at load

centres

•Network Protection - Over current protection of Embedded

Generation infrastructures under short-circuit conditions (e.g.

protective devices), reverse power protection etc..

•Connection to Distribution network - Conditions for connecting

to Distribution network (e.g. min/max generation, metering etc.)

•Technology of plant - Suitability of Embedded Generation type to

load condition

Economic Considerations for Embedded Generation:

•Cost / Benefits of Embedded Generation - Measure and quantify

the costs and benefits of / against supply from the grid network.

•Income Generation - Expected revenue from sale of excess power

to the Distribution network.

•Operating Costs - Start up and running costs and expected

payback period.

•Fuel requirement - Source and reliability of fuel supply,

especially for hydro carbon fuel based Embedded Generation (e.g.

gas, oil, diesel etc.)

Legal and Regulatory provisions for Embedded Generation

EPSR Act 2005 - S. 62 states that engaging in the business of electricity generation of

1MW and above requires a licence be issued by NERC, excluding captive (i.e., strictly for

own use). Specifically, S. 64 explains further the activities of a generation licensee, which

includes successor companies or IPPs.

Distribution Code - Part 2 S. 4.14 of the Planning and Connection Code provides for the

requirements for connecting generators to distribution networks.

Market Rules - Sections 22.4.1 & 2 permits the distributor to purchase embedded

generation under certain conditions.

The main aim of this Regulation is to provide a regulatory framework for fair

competition between grid supplied power and distribution connected supplied power

that will ultimately result to improved availability, reliability, quality, safety and

affordability of supply to meet the demands of the consumers.

Eligibility

Distribution Licensees intending to procure embedded generation shall

first apply to the Commission for permission and shall satisfy S. 22.4.1&2

of the Market Rules prior to approval by the Commission.

The maximum embedded generation capacity allowable for a given

Distribution System shall be a percentage of the peak system load as

determined by the Commission from time to time.

Commercial Arrangements:

NETWORK AGREEMENTS: The Embedded Generator and the Distribution

Licensee shall enter into the following Agreements:

oConnection Agreement/Interface Agreement

oUse of Networks Agreement

oAncillary Services Agreement

The Distribution Licensee shall develop and publish standard agreements, and

such other additional terms and conditions approved by the Commission.

NETWORK CHARGES : All Charges by the Distribution Licensee shall be as

approved by the Commission.

The Distribution Licensee shall provide in the connection offer a disaggregation

of the proposed charges which shall indicate the cost of the following:

dedicated connection assets required for the connection;

extension of the existing asset ;

modification and augmentation of the existing network;

metering and data collection; and

any provision for operation, repair and maintenance of relevant network

assets.

Eligible Customers: Subject to the declaration of eligible customers by the Hon.

Minister, the EG may enter into agreements with eligible customers (not covered by

MYTO).

oThe EG shall agree with the Distribution Licensee on the use of its network.

oThe Distribution Use of System (DUoS) Charge shall be guided by the provisions of

the tariff methodology in force.

Distribution and Trading Licensees: The tariff methodology in force shall apply, subject

to the satisfaction of conditions specified in Section 22.4.1-2(a)&(b) of the Market Rules.

Feed-In-Tariffs (FITs): Feed-In-Tariffs (FITs) approved by the Commission, shall be

applied for energy supplied by Renewable Energy Embedded Generators.

Recovery of Costs by the Embedded Generator: Where the Distribution Licensee

cannot undertake the re-enforcements and extension needed to evacuate the power into its

network, the Connection Agreement shall provide for the recovery of the cost incurred by

the EG.

Tariff

Billing and Metering

Metering of Customers and Embedded Generators shall be mandatory.

Billing shall be consolidated in the master database system of the

Distribution Licensee for proper energy accounting irrespective of metering

technology.

Licensing Requirements and Procedures:

General Provisions

The process of licensing of an Embedded Generator shall not exceed six (6) months.

An application shall be submitted in the form and manner approved by the

Commission.

Conditions for Grant of a Licence

The Commission may issue a licence to construct, own, operate and maintain, or to procure

the construction, operation and maintenance of an Embedded Generation facility; provided

that a licence shall not be issued unless the Commission is satisfied that S. 22.4.1&2 of the

Market Rules as well as other conditions stipulated in these regulations are complied with.

Embedded Generation Licence Application Procedure

All applications for an embedded generation licence, and related proceedings shall be

governed by NERC Application for Licence Regulations 2010.

Licensing Requirements and Procedures:

The application shall be accompanied by the following documents:

Power Purchase Agreement (PPA);

Connection Agreement;

Use of Distribution System Agreement;

Ancillary Services Agreement;

Fuel Supply Agreement (FSA);

EIA Approval (above 10MW) or plan for managing effluents if below 10MW;

Registered title deed; and

Corporate Documents.

Miscellaneous Provisions:

Proceedings before the Commission

All proceedings before the Commission shall be governed by the Business Rules.

Amendment or repeal

The Commission may amend or repeal any provision of the Regulation.

Dispute resolution

Disputes between the Distribution Licensee and Embedded Generator which are not

resolved by the parties will be handled in accordance with the procedure outlined in Rule 43

of the Market Rules (market participants), or the Dispute Resolution procedure approved by

the Commission (non-market participant).

Conclusion:

Approval of this Regulation – A positive move towards laying out the regulatory

frameworks and conditions for the operation of EG, which will be a better option for several

investors intending to participate in the market. (e.g., state and local governments).

Network Access – The Commission shall ensure open access to the distribution networks

by all EGs by supervising the activities of the Discos regarding applications for connections

( e.g., review of the periodic reports submitted by the Discos).

Provision of information - Information regarding the distribution network(s) must be

freely available to prospective investors and EG for the project to succeed (e.g., all

necessary information required should be easily accessible).