The primary objective of any business is to make profit and significant reduction of cost is one of the strategies that companies adopt for the purpose of maximising profits. Over the years, we have seen companies move their production plants from Nigeria to neighboring countries majorly because of high energy costs and the absence of stable electricity in the country.
On 8 June 2023, President Bola Tinubu signed the Electricity Act, 2023 (the Act) into law. The Act repeals the Electric Power Sector Reform Act 2005 (EPSRA) and aims to consolidate the laws relating to electricity in Nigeria across the entire value chain of the Nigerian Power Sector, including the integration of renewable energy to Nigeria's energy mix. In addition, the Act aims to encourage state government participation in the power sector and increase private sector investment.
In this article, we focus on the significant changes introduced by the Electricity Act, the potential impact on existing Generation Companies (Gencos), Distribution Companies (Discos) and the Transmission Company of Nigeria (TCN), and opportunities for state governments and other investors.
Summary of the Key Changes Introduced by the Act
Prior to the enactment of the Act, the EPSRA saw to the unbundling of the then National Electric Power Authority (NEPA) and enabled private sector participation in the power sector by the further unbundling of the Power Holding Company of Nigeria (PHCN) into six (6) Gencos, eleven (11) Discos and the TCN. However, eighteen (18) years after the passage of the EPSRA and about ten (10) years after the full privatisation of the Gencos and Discos, it appears that not much significant progress has been made with regards to stability of power supply in the country.
The Act being a unified legal and institutional framework for the Nigerian Power Sector, provides guidance on the operation of the electricity market and more importantly seeks to stimulate policy measures to attract investment across the Nigerian electricity value chain for the development of a competitive electricity market in Nigeria. Some of the key provisions highlighted in the Act have been summarised below:
- Creation of State Electricity Markets
On the strength of the constitutional amendment assented to by former President Muhammadu Buhari, granting states the authority to create an independent electricity market within their jurisdiction, the Act makes provision for states within the Federation to license electricity generation, transmission, and distribution in all their territories, allowing them to establish state electricity boards to oversee and provide guidance on electricity operations within the state.
Based on the provisions of the Act, state houses of assemblies are expected to enact laws to guide the operations of the electricity markets within their states. However, where the state does not have any law in place, the federal laws on operations of electricity activities will continue to apply in the state.
The creation of state electricity markets is bound to reduce reliance on the national grid and improve access to energy and electricity supply as it gives room for states to explore other means of electricity supply and attraction of investments for the development of their states. In addition, it encourages states to be creative in proffering solutions to the specific electricity issues being faced in their jurisdiction.
- Incorporation and Licensing of Independent Systems
Operator (ISO)
The Act mandates the TCN to incorporate an entity to be licensed as an ISO to perform the market and system operation functions previously performed by the TCN. In addition, the TCN is required to transfer all assets and liabilities relating to its market and system operation functions to the ISO after incorporation and licensing while retaining its transmission license and all transmission assets and liabilities. To avoid disruptions of industry operations, the Nigerian Electricity Regulatory Commission (NERC or "the Commission"), being the apex regulator of the Nigerian Electricity Supply Industry (NESI), is expected to draw up a plan and timeline for the transition process.
Considering the challenges faced by the TCN in discharging its responsibilities, it became necessary to unbundle the TCN to enable it focus solely on transmission while the ISO focuses on the system operation functions highlighted in Section 67(1) of the Act. It is expected that the unbundling will yield better results within the transmission sub-sector of the Nigerian Power Sector as specialisation has proven several times to improve productivity and efficiency.
- Development and Utilisation of Renewable Energy
Another major objective of the Act is the stimulation of development and utilisation of renewable energy sources and the creation of an enabling environment to attract investments in renewable energy, in order to increase the contribution of renewable energy to the overall energy mix of Nigeria.
To achieve this objective, it is expected that the Commission would award licenses of mini-grid concessions to renewable energy companies for the exclusive generation and distribution of electricity to certain geographical locations. In addition, the Commission is expected to provide regulations relating to the activities and pricing of renewable energy in Nigeria.
Despite the entry of numerous renewable energy companies into the Nigerian electricity market, the huge cost of operations which in turn translates to increased prices for renewable energy products, has made this source of energy unattractive to the average consumer. Given that the Act mandates the Ministry of Finance to introduce tax incentives that may be necessary for the promotion and facilitation of generation and consumption of electricity from renewable energy sources, it is expected that this will attract more investments into the power sector and result in improved energy access and affordable renewable energy generators/products.
- Establishment of the National Hydroelectric Power
Producing Areas Development Commission (N-HYPPADEC)
The Act establishes the N-HYPPADEC for the formulation of policies and guidelines for the development of hydroelectric power producing areas. The N-HYPPADEC is expected to establish and maintain a Fund for the management of its operations. The Act provides that 10% of the total revenue generated by any company or authority from the operations of any hydroelectric dams in any member State of the N-HYPPADEC shall be paid and credited to the N-HYPPADEC for the purpose of driving the development of hydroelectric power-producing areas in Nigeria. The Act also highlights other sources by which the Fund would be financed, one of which is the Federal Government's contribution by Appropriations through the National Assembly.
Depending on the success of the activities of the N-HYPPADEC, other non-member states may be motivated to explore hydroelectric power generation in order to benefit from the incentives that may be available to the members of the N-HYPPADEC. - Formulation of National Integrated Electricity Policy
and Strategic Implementation Plan (NIEPSIP)
The Federal Government through the Ministry of Power is required by the Act to prepare and publish an Integrated National Electricity Policy and Strategic Implementation Plan, within one year from the commencement of the Act, after due consultation with relevant stakeholders and government authorities. The Plan is to be approved by the Federal Executive Council before being published in the Federal Government Gazette and is expected to be reviewed periodically as required, but not later than every five years.
The Plan is expected to highlight various strategies for the development of the Nigerian Power sector based on the optimal mix of renewable and non-renewable sources of energy, rural electrification, public-private partnership, power-source specific policies including waivers and subsidies to encourage the development of renewable energy.
- Offences and Penalties
The Act did not fail to highlight punishments for various illegal activities such as electricity and electricity materials theft, interference with meters, and negligent damaging of electricity materials. Some of these punishments range from payment of fines to several years imprisonment and in some cases, both forms of punishment apply.
It is expected that the imposition of fines and punishments for the various categories of offences highlighted in the Act would discourage theft of electricity and electricity materials and other illegal electricity activities, subject to proper monitoring and implementation of the provisions of the Act.
"A major provision that requires the immediate attention of
the newly appointed Honourable Minister of Power, Mr. Adelabu
Adebayo, is the initiation of the process for the preparation and
publication of the NIEPSIP, as the plan is expected to provide a
template for the overall development of the Nigerian Power
Sector."
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