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Electricity bulk trader plans major cuts in PPA negotiation cycle

By BusinessNews Staff on January 22, 2015

The Nigerian Bulk Electricity Trading Plc (NBET) on Tuesday said it expects to shorten the multi-year negotiations often associated with the closure of Power Purchase Agreements (PPAs) with potential developers of electricity generation plants in Nigeria.

NBET is also referred to as the bulk trader, and buys bulk electricity from generation companies for resale to distribution companies in the country within the liberalised power sector.

It said while presenting a handbook on PPA to stakeholders in the country’s power industry, that with its experience in negotiating and closing up frontline and legacy PPAs in the country’s reformed power industry, it is able to understand and proffer solutions to recurrent issues in signing off functional PPAs with new power developers and has thus aggregated its experience into the handbook.

PPAs are instruments used to facilitate the sale and purchase of electricity. It is usually signed between a generator and a credible off-taker as the case maybe and defines the revenue cycle in such trading arrangement.

NBET explained in Abuja that the handbook, like existing PPAs it had concluded on, represents an attempt to give ready-made solutions to the challenges that investors in power generation confront while drawing up standard and acceptable PPAs.

“This is a handbook that will resonate with power project developers seeking to generate power from different energy sources,” said the Managing Director of NBET, Mr. Rumundaka Wonodi.

“It is an important contribution to the body of knowledge on electricity generation in Africa, and is of particular importance to key stakeholders in the Nigerian electricity sector,” Wonodi added.

On the need for the publication which was developed in partnership with the United States Agency for International Development (USAID), Wonodi explained: “In negotiation of PPAs, a lot of issues are on the table that need to be negotiated and positions taken on them.

“What we have done in the past is that we started with people who are developing their projects and we are negotiating the PPA with them but somewhere along the line, we find that there are new issues that need to be brought to the table and we look at them and agree on how to treat them.”

“For instance, how do we treat a situation that involves getting to the point where the sponsor cite issues of non-completion of gas pipeline to a power plant that has been completed and that will be what we call deemed completion because the power plant is complete and deemed to be producing but cannot because the gas pipeline is not there.

“What we have done now is that having completed some PPAs with our experience, we now know most if not all the issues that will come up and then we put them into a handbook to highlight the issues that you will have to deal with when you are negotiating a PPA and then give a possible solution on some of the ways to resolve it,” he added.

Wonodi further said: “What this handbook does is that instead of going through three to four years identifying issues in the PPA, they are identified and put in a handbook for use by the regulator, government and financiers for better understanding of the PPA process.”

He, however, noted that content of the handbook is not prescriptive but shows issues and possible ways to address them.

“We are trying to do things more efficiently and timely. Based on the Azura experience, very quickly, we are going to put out a standard PPA and what that will do for the sector is that it will already have issues that we have resolved in signing PPAs.

It will actually make our PPA an off-the-shelf piece that any developer can take and modify in line with his project specifics and be ready to sign it. With this handbook, it will be much easier for the developer but it will then depend on the developer to get all the critical things needed,” he stated.

Meanwhile, it is understood that about four electricity distribution companies have posted Letters of Credit (LC) to the NBET as part of expected financial guarantees required for trading in the Transitional Electricity Market (TEM).

Wonodi and Chairman of the Nigerian Electricity Regulator Commission (NERC),
Dr. Sam Amadi, confirmed the development at the sideline of the PPA handbook presentation.

Amadi specifically confirmed that other distribution companies that are yet to make the LC posting, have until Friday this week as deadline to effect the posting.
He also stated that the demand for a 12-months long LC by gas suppliers as a condition to guarantee their supply of gas to generation companies have been taken up for resolution by stakeholders in the market.

[ThisDay]

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