Babatunde Adeleke
President Bola Tinubu has signed the much-touted electricity bill into law, opening the opportunity for states and private entities to legally generate, distribute and regulate power supply. The new act will therefore replace the Electricity and Power Sector Reform Act, of 2005, taking away the monopoly of power generation and distribution that has bedevilled Nigeria’s power sector for years.
The Nigerian power generating and transmission sector has changed dynamically over the last few years, in particular, the privatization process of the Power Holding Company of Nigeria (PHCN) which took place in November 2013 and involved the unbundling of PHCN and privatisation of the power generation companies (GENCOs) and distribution companies (DISCOs).
While the distribution arm of the defunct PHCN was privatized, the generating arm still remained strictly government business. The new act aims to change that presently. The bill, first passed in July of 2022 under Buhari’sadministration and the benefits are huge as we will soon find out with proper implementation.
The act empowers the Nigerian Electricity Regulatory Commission (NERC) to regulate the electricity sector within Nigeria. This regulatory authority is independent of the powers of the states to enact laws and establish electricity markets within their respective territories. The act also allows states and private individuals (subject to licencing) to generate their own electricity.
The Act also outlines the process by which NERC can transfer regulatory responsibilities to state regulators once they are established. Until a state establishes its own electricity market laws. As it stands, Lagos, Edo, and Kaduna states have already enacted electricity market laws and can commence regulation of their markets. However, in states without such laws, NERC will continue to regulate. NERC will also retain the responsibility for cross-border regulations, encompassing generation and transmission activities that span multiple states.
The Act also allows for the construction, ownership, and operation of electricity generation projects with a total capacity not exceeding 1 megawatt (MW) at a site, or electricity distribution projects with a capacity not exceeding 100 kilowatts (KW) at a site, or as determined by NERC from time to time, without the need for a license.
How does this act change the status quo?
The passage of the act means that anyone may construct, own, or operate an undertaking for generating electricity not exceeding one megawatt in aggregate at a site, or an undertaking for distribution of electricity with a capacity not exceeding 100 kilowatts in aggregate at a site, or such other capacity as the Commission may determine from time to time, without a licence.
The act also gives sweeping power to lawmakers who will carry out oversight responsibilities and function over the NESI through its respective Committees on Power in the Senate and House of Representatives. States can regulate their electricity markets by issuing licences to private investors who can operate mini-grids and power plants within the state. However, the Act precludes interstate and transnational electricity distribution.
It is expected that the act will lead to investments in power generation, transmission, and distribution infrastructure. This will result in improved access to electricity, reduced power outages, and increased reliability of the power supply.
The power bills also include provisions to encourage energy efficiency practices and the use of renewable energy sources. This will lead to reduced energy consumption, lower greenhouse gas emissions, and a shift towards a more sustainable and environmentally friendly power sector.
Quite importantly, assenting to the bill is a fulfilment of a promise he made on the campaign trail. While speaking at Chatham House in December of 2022, he claimed that the centralised approach had failed and that the government should play less of a role in price fixing, operation and regulation in the energy sector.
“Fixing the problem by a review of energy supply is another priority. There’s no version of the world where Nigeria’s ambition can be achieved without solving the problem of how to provide energy to homes and businesses across the country.”
“It is time to recognise that the centralised approach to energy policy infrastructure is not an optimal arrangement and it is not likely to improve by mere tinkering around the sides. The federal government as regulator and operator and price fixer is a broken model. We will ensure to fix this.”
All eyes will now be on the implementation phase of the act as it starts impact in the real world.