Mini-grid operators to pay DisCos under new NERC guidelines – Businessday NG

The Nigerian Electricity Regulatory Commission has introduced comprehensive commercial guidelines that establish a new payment framework for interconnected mini-grid operators, requiring them to compensate distribution companies for network usage while addressing longstanding barriers to mini-grid deployment across the country.

The Guidelines on Commercial Framework for Interconnected Mini-Grids, which took effect on December 1, 2025, introduce a two-part pricing structure designed to clarify financial relationships between mini-grid developers and distribution licensees. The framework comes as Nigeria continues to grapple with significant electricity access deficits, particularly in underserved and previously unserved communities.

Under the new guidelines, interconnected mini-grid operators must pay distribution companies through two distinct components: a fixed Rental Fee for capital recovery and a variable Cost of Energy charge based on actual consumption.

The Rental Fee compensates DisCos for the use of distribution infrastructure and interconnection assets. According to the guidelines, this fee is calculated based on the distribution company’s Regulated Asset Base, incorporating 100 percent of depreciation costs and 50 percent of the return on investment component. Notably, operational and maintenance costs are excluded from this calculation, as DisCos will not incur direct operating expenses on mini-grid sites.

The Cost of Energy component represents the monthly charge for electricity supplied through the Point of Common Coupling, where mini-grids connect to the distribution network. This variable charge includes upstream generation and transmission costs, regulatory borrowings, and a portion of distribution-related expenses.

NERC developed these guidelines to resolve commercial uncertainties that stakeholders identified as significant barriers to mini-grid deployment. Despite the Commission’s Mini-Grid Regulations issued in 2023, ambiguities surrounding rental fees, energy costs, and legacy debt treatment had hindered the sector’s growth potential.

The regulatory framework follows directives introduced in the April 2024 Supplementary Multi-Year Tariff Order, which required distribution companies to improve service reliability and deploy distributed energy solutions, including interconnected mini-grids and embedded generation systems.

Read also: NERC warns DisCos to cooperate with state electricity regulators

Mini-grid developers and DisCos have actively deployed solutions under the 2023 regulations, expanding electricity access in previously unserved areas and improving service quality in underserved communities. However, the absence of clear commercial provisions limited the full utilization of mini-grids to address Nigeria’s electricity access challenges.

The Cost of Energy structure allows full pass-through of certain upstream costs while limiting distribution-related charges. Mini-grid operators must pay 100 percent of generation costs, transmission network charges, and regulatory borrowings. However, only 33 percent of distribution operational expenses and 25 percent of regulated losses are recoverable from mini-grid operators.

The reduced operational expense pass-through reflects the limited distribution services provided to mini-grids, which primarily involve fault management, switching, and system coordination up to the 11KV interconnection point. The 25 percent loss allocation accounts for potential technical losses between the 33KV transformer and the mini-grid interconnection point.

One of the most contentious issues addressed in the guidelines concerns legacy debt—pre-existing financial obligations that customers in mini-grid service areas may owe to distribution companies. The new framework establishes a structured approach to debt recovery while protecting consumers.

Where customers have verified outstanding debts owed to DisCos, mini-grid operators and distribution companies must execute a Debt Recovery Agreement. The guidelines cap debt recovery at no more than 10 percent of energy purchases by debtor customers, ensuring that legacy obligations do not create excessive burdens on consumers or impede mini-grid operations.

Customers must be notified in writing of any debt recovery arrangements, and disputes arising from legacy debt provisions will be resolved under NERC’s Consumer Protection Regulations.

Settlement and Oversight

All payments from mini-grid operators to distribution companies must flow through designated feeder collection accounts administered under agreements with NESI Stabilisation Strategy Limited. This centralized settlement approach aims to ensure transparency and proper fund allocation within the electricity sector.

Distribution companies will issue monthly invoices based on certified meter readings at the Point of Common Coupling. The guidelines establish protocols for provisional settlement in cases of meter failure or data loss, requiring parties to use validated historical data or approved proxy estimates.

Industry Impact

The guidelines aim to enhance transparency and bankability of mini-grid projects, providing clarity for commercial negotiations between developers and distribution licensees. By establishing standardised pricing frameworks and cost allocation methods, NERC seeks to promote safe interconnection while ensuring cost recovery for network asset usage.

The regulatory framework protects the interests of consumers, mini-grid developers, and distribution licensees through transparent pricing, dispute resolution mechanisms, and oversight provisions. As Nigeria pursues expanded electricity access, these commercial guidelines provide the foundation for accelerated mini-grid deployment in communities where conventional grid extension remains economically unfeasible.

Industry stakeholders now face a clearer path forward, with defined financial obligations and streamlined administrative processes designed to unlock the sector’s potential in addressing the nation’s substantial electricity access deficit.