On 25 July 2024, the Nigerian Electricity Regulatory Commission (“NERC”) issued the Order on the Transition to Bilateral Trading in the Nigerian Electricity Supply Industry (“NESI”). The Order took effect from its date of issue and compels electricity Distribution Companies (“DisCos”) to bypass the Nigerian Electricity Bulk Trader (“NBET”) and contract directly with electricity Generation Companies (“GenCos”) through Power Purchase Agreements (“PPAs”). Simplified examples of key PPA clauses are –
Preamble/Recitals: The preamble is an introductory written statement of facts or assumptions based on the contract agreement. It is usually given the heading: RECITALS, WHEREAS, or BACKGROUND written in all-caps or bold. I prefer to use BACKGROUND as the other words, especially WHEREAS are deemed to be archaic in many jurisdictions. An example of a BACKGROUND goes as follows – Buyer carries on the business of distribution and supply of electricity and is duly licenced by NERC to distribute and supply electricity in its franchise area which comprises Wazobia State/Seller owns, operates and maintains a power generation facility rated as having an installed capacity of 40MW at Lagbaja Town, Nigeria (the “Power Plant”) and is duly licensed by NERC as an on-grid electricity licensee.
Definition of Terms: This is used to make interpreting the contract agreement easier. They make contract provisions concise and the use of defined terms should at all times reduce any risk of ambiguity. The main purpose of the definition is to achieve clarity without needless repetition. For example –
In this Agreement, the following expressions, and their derivatives, with their first letters appearing in capital letters shall have the meanings assigned to them below unless otherwise specified or required by the context, it being understood that such expressions appearing in small letters shall have their common meaning as the context requires. The same principle shall apply to expressions defined elsewhere in this Agreement.
‘Contract year’ means any consecutive 12-month period commencing with the completion date or its anniversary …”
Terms of PPA: The current standard appears to be that the PPA will have a term of 20 or 25 years or 15 years is also common. An example of a term of PPA is as follows –
This agreement shall, as on the effective date and continue in force and effect, value and binding for the duration of the 10. The term shall be for a period of 20 contract years from the share porches close.
Development Milestones/Timelines: The development milestones clause provides for the power project development progress within the agreed milestone dates. Development milestones may include the date for the acquisition of all permits and licenses, the date for execution of the construction contract, the completion of construction, and the commencement of commercial operation.
Commissioning and Testing Procedures: This provision contains a set of guidelines for plant testing and commissioning but may not be required where the GenCo is already operational. Commissioning and testing of the power plant is required before the commercial operation date (COD) to ensure that the individual plant and equipment are functioning according to the design and the contractor performance outputs of the power plant. An example of the commissioning testing procedures clause is as follows –
The commissioning procedure shall consist of procedures and tests designed to demonstrate that the plant is capable of operating to power industry standards of performance and safety. The available capacity of the plans shall be verified by periodic capacity tests. Such tests will be conducted by the system operator, or if the system operator does not conduct such tests, Seller shall arrange for such tests in accordance with the Grid Code and the Market Rules, as applicable.
Operations and Maintenance: This provision contains details of the maintenance and operational obligations of the Seller throughout the tenor of the PPA. An example of an operations and maintenance clause reads as follows –
Seller shall at all times during the term either directly or through a contractor, operate, maintain and repair the plant and components thereof in accordance with the Market Rules, the Market Procedures and good industry practice. The appointment of an operations and maintenance contract by the seller shall not relieve Seller of any of its obligations or excuse Seller from any liability regarding the design, insuring, operation or maintenance of the plant or any liability whatsoever resulting from the breach of any term or condition of this Agreement.
Dispute Resolution: The dispute resolution clause indicates clear procedures for conflict resolution in case of disputes and all conflicts on invoices. An example of the dispute resolution clause reads as follows –
a. In the event that there are arises between the parties any dispute, the party wishing to declare dispute to the other party shall do so by written notice stating the issues in dispute (“notice of dispute”).
b. For a period of not less than 30 days of delivery of a notice of the dispute, the parties shall attempt in good faith to settle the dispute by negotiations and among designated authorised representatives of each party. In the event that the parties are unable to reach an agreement within 30 days, or such longer period as they may agree, then either party may refer the dispute to arbitration which dispute shall be determined and settled in accordance with the arbitration clause herein.
Metering: The metering provision sets out the rules surrounding metering. However, in case of conflicts between the PPA provisions and the metering code, the metering code supersedes. An example of a metering clause reads as follows –
Metering of gross energy output, reactive power voltage, and power quality by the parties for the purposes of this agreement shall be done in accordance with the Metering Market Procedures and Metering Code. Seller may maintain additional meters for personal purposes that do not conform to the Metering Code, such as meters measuring gross generator output.