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Introduction

The Nigerian Electricity Regulatory Commission (NERC) recently issued the Draft Net Billing Regulations, 2025, in exercise of its powers to make regulations under section 46(2) of the Electricity Act, 2023. 

A net billing arrangement is an arrangement under which an electricity consumer (user or prosumer) within the supply area of an electricity distribution licensee (DisCo) with a renewable energy system may ‘export’ excess electricity to the distribution network of the DisCo and receive energy-based compensation or “credits” for such exports. The credits are netted against the user’s electricity bill (for the energy ‘imported’ from the distribution network of the DisCo) over a given period.

The objectives of the draft regulation are to:

i.    establish a standardised framework for the interconnection of renewable energy installations at customer premises to an electricity distribution network, thus enabling prosumers to export surplus power to the grid under a credit-based billing system;

ii.    provide a clear compensation mechanism for the utilisation of excess power produced by a prosumer with a renewable energy facility installed at its premises; and

iii.    ensure that the interconnection of a renewable energy facility with a distribution network is implemented without compromising safety and overall network reliability.

When this draft regulation is enacted, Nigeria will join other countries, including Kenya, South Africa, India, Indonesia, Italy, Mexico, Portugal, Finland, Spain, Chile, Croatia, Poland, and the United States (New York and Arizona), which have a net billing legal framework. The development of a net billing framework in Nigeria will help the country achieve its energy transition plans and its climate change commitments.

This article, therefore, analyses the draft regulation by examining its key provisions and impact on the future of Nigeria’s power sector.

Key Provisions

Application: The draft regulation applies only to renewable energy systems connected to a distribution network, with a minimum installed capacity of 50kWp and not exceeding 5MWp per prosumer in Nigeria. 

Renewable energy sources covered under the net billing arrangement are only solar and small wind energy.

Scope and Administration: DisCos are required to enter into net billing arrangements with users/prosumers on a first-come, first-served, and non-discriminatory basis. 

It should be noted that the aggregated excess capacity that can be injected into a DisCo’s network (i.e. 0.4kV/11kV/33kV) by a prosumer must not be more than 30% of the average load of such network.

Application Procedure

A prosumer wishing to enter into a net billing arrangement with a DisCo would be required to undergo a three-step application process as follows:

Application to the DisCo: The prosumer would apply to the concerned Disco. Upon receipt of the application, the DisCo would carry out a technical feasibility study on the distribution system and issue a Distribution System Technical Feasibility Report within 10 days to the prosumer. Where the DisCo eventually approves the application, the prosumer must execute a net billing agreement with the DisCo within 5 days of receiving the report.

Application to NERC: Further to the above, the prosumer would apply to NERC for a registration certificate, which would be issued to the prosumer within 10 days of NERC‘s receipt of the completed application. The prosumer would be expected to pay a connectivity charge; carry out the installation of the renewable energy system and the net meter within 60 days; and then contract a certified engineer to prepare a net billing installation report.

Application to NEMSA: Thereafter, the prosumer would apply to the Nigerian Electricity Management Services Agency (NEMSA) for an inspection and pre-commissioning test. NEMSA will then inspect within 10 days of receiving the inspection application and issue an inspection certificate within 7 days after a successful test. Subsequently, the prosumer would apply to the DisCo for the commissioning of the renewable energy facilities, and the DisCo would commission the interconnection point within three days.

Technical and Operational Standards

The draft regulation sets high technical and operational standards to be complied with by the relevant parties to the net billing arrangement, some of which include: 

a.    Installation, interconnection, maintenance and operation of Net Billing Systems must be executed by a certified engineer licensed by the Council for the Regulation of Engineering in Nigeria (COREN).

b.    The prosumer must ensure that the voltage fluctuations at the point of interconnection do not exceed  5% of the nominal voltage.

c.    Paralleling devices such as relays and contactors must withstand 220% of the nominal voltage at the interconnection point in compliance with IEC 61727 standards.

Metering Requirement

The prosumer is required to provide a net meter with a revenue-grade import/export or dual-register smart meter that is installed and conforms with the Metering Code.

Applicable Tariffs

The energy consumed by the prosumer from the DisCo must be charged at the applicable end-user tariff approved by NERC. The energy exported by the prosumer to the DisCo must be credited at a tariff determined, using the net metering tariff tool, which is based on two elements: a fixed charge, which is the average of the grid-connected hydropower plant generation tariff as determined by NERC; and a variable charge, which is the prosumer’s incurred interconnection costs, excluding the cost of the renewable energy system itself.

Billing and Carried-Forward Credit

The DisCo is required to issue monthly bills to the prosumers in accordance with NERC’s approved billing cycle, clearly showing:

a.    Energy imported from the DisCo’s network (kWh);
b.    Energy exported to the DisCo’s network (kWh); 
c.    Applicable tariffs for import and export; and 
d.    Monetary value of the net bill.

Where the net billed amount is positive, the prosumer must pay the DisCo within the allowed settlement period. However, where the net billed amount is negative, the prosumer is entitled to a Carried-Forward Credit which shall roll forward indefinitely and be applied to offset future consumption charges until fully utilised, transferred, or extinguished. Carried-Forward Credit means the monetary value accrued to a prosumer when the value of the energy exported to the grid exceeds the value of the energy consumed from the grid in a billing cycle.

Commentaries and Analysis 

We note that the renewable energy sources contemplated in the draft regulation are limited to solar and small wind energy sources; they do not extend to other renewable energy sources such as hydro, biomass and biogas. One wonders about the rationale for excluding these other renewable energy sources. We believe all renewable energy sources should form part of the net billing framework for completeness.

Stakeholders have also raised concerns that, in terms of technology, the draft regulation is too prescriptive or restrictive and have suggested that it be expanded to accommodate other technologies that meet the minimum requirements.

In addition, the draft regulation caps the aggregated excess capacity which the prosumer can inject into the DisCo’s network at 30% of the average load of such network. It is unclear whether this cap is based on a technical study conducted across all the DisCos networks in Nigeria, and whether prosumers, who are willing to invest in the network capacity, so that they can inject more power into the DisCos’ networks, will be restrained from doing so due to the 30% cap. It is proposed that this cap be replaced with a flexible mechanism that takes into consideration the state of each network and the level of investment the prosumer is willing to make to reinforce the network for its net billing arrangement with the DisCo.

We consider the three-step application process under the draft regulations to be administratively complex and cumbersome. If implemented as currently drafted, the process may not deliver successful net billing arrangements in Nigeria. As such, we suggest that the application process be streamlined, with some of its provisions eliminated or merged with the others. For instance, the process that requires prosumers to apply to NEMSA and then return to the DisCos to continue the commissioning process should be merged. The prosumers, DisCos and NEMSA should all be part of the inspection and commissioning process. 

An alternative approach would be for NERC to develop a one-stop application platform through which a prosumer can initiate the process, and all subsequent steps requiring the involvement of NERC, the DisCos and NEMSA would be seamlessly executed and tracked on the same platform, without the need for separate applications or manual follow-ups by the prosumer.

Furthermore, the draft regulation provides for a net metering tool, which would be used in determining the applicable tariffs. However, the net metering tool is yet to be developed. 

Under the net billing arrangement, the DisCo would continue to issue a credit to the prosumer where the cost of the power injected into the DisCo’s network exceeds what the prosumer took from the DisCo. Such credit will continue to accrue until the DisCo’s cost of power equals that of the prosumer. The draft regulation further provides that where the prosumer relocates the net billing system, the accrued credits will be zeroed, and the prosumer will be required to initiate a fresh application in the new location with the DisCo. 

This requirement for the prosumer to lose all credits accrued simply because of its relocation works a hardship for prosumers. It would not encourage potential prosumers to buy into the net billing arrangements. It is proposed that a relocation involving a new DisCo should trigger a refund of the accrued credits. However, where the relocation involves the same DisCo, it should only be noted, as well as the amendment process to the existing documentation and adjustments to the accrued credits, taking into consideration the peculiarities of the new location.

In addition, the draft regulation is unclear on whether an increase in a prosumer’s generation capacity would require a fresh application or merely an amendment to the existing approval process, following the inspection, testing and commissioning of the upgraded system. It is recommended that the regulation should clarify this process to avoid uncertainty and ensure that capacity upgrades are efficiently incorporated without unnecessary procedural repetition.

The draft regulation provides that any dispute arising under it will be referred to NERC for final adjudication. This appears to confer final judicial authority on NERC, which does not align with the Electricity Act, 2023, as decisions of NERC are subject to appeal to the Federal High Court. It is recommended that the draft regulation should clarify NERC’s role as a first-instance forum for dispute resolution, while preserving the statutory right of appeal.

Conclusion

In conclusion, the draft regulation represents a significant step towards integrating renewable energy at the distribution level of Nigeria’s power sector. However, to achieve true scalability, the net billing framework must balance regulatory oversight against market flexibility and reality. If the draft is further refined in line with the suggestions of key stakeholders, the net billing framework could become a cornerstone towards Nigeria’s clean energy transition and the achievement of our net-zero goals.

Detail Commercial Solicitors is distinct as Nigeria’s first commercial solicitor firm to specialise exclusively in non-courtroom practice. Based in Lagos, Nigeria’s business capital, DETAIL is totally committed to its clients’ business objectives and is reputed for dealing with the minutiae. Email: info@detailsolicitors.com.