1. Introduction
The COP28 United Nations Climate Change Conference ended on a historic note as representatives of nearly 200 nations unanimously reached a pact to completely "phase out" the use of oil, gas and coal by 2050.1 This is a remarkable milestone as the world runs against time to checkmate the deleterious effects of fossil fuels on the environment. At the heart of the global drive to attain net zero in renewable energy. However, environmental consideration is by no means the only reason for the call to embrace renewable energy as it also boasts of an array of economic, political and security benefits.2 While the 2050 target has attracted a lot of plaudits, the admonition by COP28 President, Sultan al-Jaber, on the need for countries to take concrete steps to implement the pact is very instructive.3 It is on this note that this article attempts to explore how recent trends in the legal frameworks on electricity in Nigeria can make the country a major player in the renewable energy industry.
2. Why Renewable Energy?
Renewable energy is energy generated from sources that are constantly naturally replenished at a rate higher than the rate they are consumed.4 This is in contradistinction to fossil fuels (oil, gas and coal) which take millions of years to form.5 The commonest sources of renewable energy are solar, wind, hydro, biomass, geothermal heat and ocean energy.6 There are several reasons why renewable energy has become more fashionable. Some of these are:
a. Environmental Benefits: As stated earlier, there is now a consensus on the need to phase out fossil fuels due to their harmful effects on the environment. The production and use of these fuels not only contribute substantially to global climate change through greenhouse emission, which now threatens our shared existence but also more often than not result in air and water pollution, damage to land due to mining, destruction of biodiversity and associated health problems.7 In sharp contrast, the adverse effects of renewable energy on the environment are much less harmful8 so much so that it is otherwise called clean energy.9
b. Economic Benefits: Renewable energy has several economic benefits which makes it preferable to energy derived from fossil fuels. For instance, the cost associated with the generation of energy from renewable sources has been consistently plummeting over the years.10 It has also been projected that the renewable energy industry would create more jobs than those that would become redundant as the world transitions away from fossil fuel.11 Further, the funds that are funneled into environmental remedial works and allied health conditions as a result of the production and burning of fossil fuel will become free and available to be channeled into other productive ends.12 Another benefit is that sources of renewable energy are more stable and predictable, thus making them less prone to price volatility and supply risk such as what was experienced in Europe and other parts of the world in the wake of the war between Russia and Ukraine.13 Finally, renewable energy makes for easy accessibility to energy, even for rural dwellers, and it goes without saying that this will improve the economic wellbeing of both individuals and the state.14 (not exhaustive).
c. Political and Security Benefits: Unlike fossil fuels which are not evenly distributed, every country has sources of renewable energy. This guarantees energy security as no country will have to rely on another for its energy needs as is currently the case. This also gives sovereign nations the much needed independence in their relationships with others without the fear of putting their energy sector in jeopardy. Finally, on this point, renewable energy encourages energy democracy because of how segmented it can be. It gives locals and consumers more control over the energy industry.15
3. Renewable Energy and the Nigeria Electricity Supply Industry (NESI)
Energy is required for heating, cooling, mobility, manufacturing and to power appliances. Virtually all of these needs can be met by electric energy which is a cleaner form of energy. However, electric energy is only as clean as the sources from which it is derived. Prior to the enactment of the Electricity Act 2003 (the Act or EA hereafter), the generation of electricity from renewable energy sources was largely governed by policy documents and regulatory interventions of the Nigerian Electricity Regulatory Commission (NERC or the Commission). For example, renewable energy was mentioned just once in the repealed Electric Power Sector Reform Act, 2005.16 Therefore, it is safe to submit that the EA is the clearest legislative intervention yet in Nigeria to promote the transition to renewable energy. For its worth, some of the salient provisions contained therein which are very relevant to the subject matter under consideration are as follows:
a. NERC to Support Development and Utilization of Renewable Energy: While NERC has until the new legal dispensation to a limited extent been promoting the incorporation of renewable energy into Nigeria's energy mix,17 it now has an express mandate under the Act to support the development and utilization of renewable energy in the NESI. To this end, NERC is empowered to set technical guidelines to govern the operations of renewable energy companies as well as commercial regulations and guidelines to give the companies a competitive edge in the electricity market.18 With the requisite willpower, this will make renewable energy the major contributor to on-grid, mini-grid and off-grid electricity supply in Nigeria.
b. Prescription of Renewable Purchase Obligations and Generation Purchase Obligations: NERC is also empowered by the Act to obligate electricity generating companies (Gencos) ensure that a particular percentage of the electricity produced by each of them is from renewable sources.19 In a similar vein, it may prescribe that a certain percentage of electricity purchased by distribution and trading licensees shall be from renewable energy sources.20 The Commission is further enjoined to monitor compliance.21 However, it should be noted that even prior to the enactment of the extant Act, NERC already came up with an initiative of a similar nature vide the Feed-In Tariff Regulations. By the said Regulations, the Commission set a target for grid-connected renewable generation capacity to the tune of 1GW by 2018 and 2GW by 2020.22 It thereafter allocated same between the 11 distribution companies and Nigerian Bulk Electricity Trading Company (NBET).23 A major drawback of the Feed-In Regulations is that Discos and NBET cannot go above the upper limits set for them by the Commission. This is at variance with the tenor of the extant Act which encourages the integration of electricity into transmission and distribution networks as much as possible.
c. Introduction of Feed-In Tariffs for Renewable Energy Companies: To ensure return on investments for investors in renewable energy, the Commission is empowered to prescribe the requisite tariffs to be charged on renewable energy taking into cognizance the cost of production, the location of generation plants, reasonable rate of return and the balance between the interests of consumers and investors.24 The feed-in tariff, which unlike what is obtainable under the Feed-In Regulations, is applicable to plants of all sizes, guarantees producers of electricity from renewable energy sources buyers under long-term standard power purchase agreements which may have a lifetime of up to 20 years.25 The Act goes further to prohibit Discos from buying or negotiating a power purchase agreement with a generator of electricity from renewable energy sources in a manner that is inconsistent with the guidelines provided by the NERC.26 The feed-in tariff policy, if effectively implemented would encourage investors to commit their funds into renewable energy generation projects in Nigeria since it would provide a considerable level of shelter to them from some of the risks inherent in the production of renewable energy.27
d. Incentives for Independent Power Producers (IPPs): To further encourage investment in renewable energy, the Commission is empowered to provide incentives to IPPs for investments in the generation of electricity from renewable sources specified under the Act.28 It goes without saying that the IPPs will be eligible to enjoy the benefits highlighted above in addition to others as the Commission may deem fit. IPPs play a crucial role in NESI by augmenting the electricity produced by the Gencos and the National Integrated Power Projects (NIPPs). Accordingly, adequate incentives for them will encourage IPPs to key into the renewable energy agenda which will in turn expedite the transition from fossil fuels.
e. Unhindered Access to Transmission and Distribution Networks: Another remarkable provision contained in the Act is that transmission and distribution companies are mandated to upon request by a generator of electricity from a renewable energy source within their respective coverage areas, promptly connect them to their networks except where there is a reasonable ground upon which such requests cannot be entertained.29 What is more, the transmission and generating companies are required to upgrade their systems at reasonable economic expense to onboard electricity generated from renewable sources.30 Such upgrade must be done as soon as practicable if so requested by a generator of electricity from renewable sources31 provided that in either case, the cost of such upgrade shall be borne by either the transmission or distribution company and the generator of electricity from renewable source in equal shares.32 By these provisions, electricity derived from renewable energy can easily be wheeled from the plant where it is produced for onward forwarding to end-users.
f. Mini-Grid License to Renewable Energy Companies: The Act also clothes the Commission with the power to grant license of mini-grid concessions to renewable energy companies to serve consumers named area to the exclusion of others.33 This will go a long way in improving access to electricity, particularly in rural areas which are not connected to a grid system.
g. The Rural Electrification Agency: This Agency was established to promote access to electricity to rural, unserved and underserved communities.34 Due to the remote nature of most of these communities, the mini-grid and off-grid electricity options are preferable. It is on this note that renewable energy becomes crucial since it can be easily sourced from the aforementioned communities. The Act provides that the Agency shall leverage renewable energy and collaborate with other stakeholders in furtherance of its objectives.35 Further, the Commission is mandated to support the Agency in its renewable energy drive.36
h. Tax Relief and Incentives: The Federal Ministry of Finance is obligated by the Act to introduce tax incentives to promote the generation and consumption of electricity generated from renewable sources in Nigeria, and in accordance with the Industrial Development (Income Tax Relief) Act and other fiscal policy framework foster such tax reliefs encourage investments in renewable energy projects in Nigeria.37 Tax incentives is one of the most effective methods through which governments the world over attract investments into key sectors of their economies. Therefore, investors and consumers alike will be more favorably disposed to the production and consumption of electricity generated from the renewable sources if they are guaranteed some form of tax reliefs by the government.
4. The Role of State Governments in the Realization of the Net Zero Goal
Before the historic pact at COP28, former President Muhammadu Buhari, in November 2021, had pledged Nigeria's commitment to the attainment of net zero by the year 2060.38 In furtherance of this objective, Nigeria launched an ambitious Energy Transition Plan on 24th August 2022. The plan through which Nigeria intends to reach net zero by 2060 requires a huge sum of USD $1.6 trillion, including USD $410 billion above projected usual spending.39 According to the plan, to achieve net-zero goals, about 220GW of solar, biomass and hydro generation capacity, 90 GW of storage and 34GW of hydrogen systems need to be built.40
Even with a combination of renewable and fossil fuel sources, Nigeria currently has an installed capacity of about 18GW, while it generates about 8GW.41 It goes without saying that all hands need to be on deck to attain the goal of 220GW solely generated from renewable sources and its associated infrastructure by 2060, which in any case is 10 years later than the 2050 target set at COP28. This is where state governments come in. Prior to the recent constitutional amendment in March 2023, NESI was to a large extent centralized, with state governments only having the power to legislate on the generation, transmission and distribution of electricity in areas within their jurisdictions that are not under the coverage of the national grid. However, with the aforesaid constitutional amendment vide the Fifth Alteration (No.17) Act, 2023, state governments are now clothed with the constitutional powers to establish their respective state electricity markets. Before the amendment, Item 14(b), Part II of the Second Schedule of the Constitution of the Federal Republic of Nigeria 1999 (CFRN) read as follows: "A House of Assembly of a State may make laws for the State with respect to – (b) the generation, transmission and distribution of electricity to areas not covered by a national grid system within the state..." (emphasis supplied). However, the phrase "not covered by a national grid system" has been deleted vide the above-named Alteration Act.
With the lifting of the constitutional impediment which hitherto limited the powers of state governments in NESI to areas not covered by a national grid system, it is expected that they would start setting up their respective electricity markets without further delay by enacting state electricity laws and coming up with actionable policies that will promote the production and consumption of electricity which is generated from renewable sources. Such collaborative effort will obviously make Nigeria's net zero target more feasible.
5. Conclusion
There is now a consensus that the phasing out of fossil fuels is inevitable primarily due to the adverse effects that their continuous production and use have on the environment and human health. As commendable as the COP28 Conference pact on the phasing out of fossil fuels by 2050 is, the admonition by the COP28 President that "we are what we do, not what we say,"42 should be given a serious thought by all stakeholders. As the largest democracy and economy in Africa, Nigeria must take the lead by walking the talk. While there is still room for improvement, it is commendable that some legislations and policies have been put in place to usher in a power sector solely driven by renewables. What is left is for the federal and state governments as well as other stakeholders to put in place a conducive environment that would promote a thriving renewable energy industry.
Footnotes
1. Valerie Volcovici, Gloria Dickie and William James, 'Nations strike deal at COP28 to transition away from fossil fuels' (Reuters, 14 December 2023) https://www.reuters.com/business/environment/countries-push-cop28-deal-fossil-fuels-talks-spill-into-overtime-2023-12-12/ accessed 14 February 2024.
2.Janet L. Sawin and Freyr Sverrisson and Anna Leidreiter, 'RENEWABLE ENERGY AND SUSTAINABLE DEVELOPMENT: Accounting for Impacts on the Path to 100% RE' (July 2016, World Future Council) 8 https://www.worldfuturecouncil.org/wp-content/uploads/2016/08/WFC_2016_Renewable-Energy-and-Sustainable-Development.pdf accessed 14 February 2024.
3. Valerie (n 1).
4. United Nations, 'What is renewable energy?' (United Nations) https://www.un.org/en/climatechange/what-is-renewable-energy accessed 14 February 2024.
5. Ibid.
6. See section 232 of the Electricity Act 2023 (EA) where the phrase 'renewable energy sources' as 'renewable non-fossil energy sources like wind, solar, geothermal, wave, tidal, hydropower, biomass, landfill.'
7. Janet (n 2) 8.
8. United Nations (n 4).
9. Lora Shinn, 'Renewable Energy: The Clean Facts' (NRDC, 1 June 2021) <https://www.nrdc.org/stories/renewable-energy-clean-facts> accessed 17 February 2024.
10. Christine Lo, 'Renewable Energy Costs Have Dropped Much Faster Than Expected, But There's A Catch' (Forbes, 14 September 2022) https://www.forbes.com/sites/christinero/2022/09/14/renewable-energy-costs-have-dropped-much-faster-than-expected-but-theres-a-catch/?sh=3ea4d9c63164 accessed 19 February 2024.
11. Omri Wallach, 'How many jobs could the clean energy transition create?' (World Economic Forum, 25 March 2022) https://www.weforum.org/agenda/2022/03/the-clean-energy-employment-shift-by-2030/ accessed 19 February 2024.
12. Janet (n 2) 13.
13. Christine (n 10).
14. Janet (n 2) 11, 12.
15. Ibid, 13 – 17.
16. Section 88(9)(c).
17. See generally the Regulations on Feed-In Tariff for Renewable Energy Sourced Electricity in Nigeria, 2015 (Feed-In Tariffs Regulations).
18. See generally section 164 EA.
19. Section 164(f) EA.
20. Ibid.
21. Ibid.
22. Paragraph 8(f) Feed-In Tariff Regulations.
23. Paragraphs 8(h) & (i) and Schedule 3 Feed-In Tariff Regulations.
24. Section 164(L) and section 168(3) EA.
25. Section 164(L) EA.
26. Section 168(1) EA.
27. Will Kenton, 'Feed-In Tariff (FIT): Explanation, History and Uses' (Investopedia, 24 February 2021) https://www.investopedia.com/terms/f/feed-in-tariff.asp#:~:text=A%20feed-in%20tariff%20is%20a%20policy%20tool%20designed,price%20for%20what%20they%20deliver%20to%20the%20grid accessed 15 February 2024.
28. Section 164(O) EA.
29. Section 171(1) EA.
30. Section 171(1)(a) EA.
31. Section 171(1)(b) EA.
32. Section 171(2) EA.
33. Section 164(m) EA.
34. See generally sections 128 & 129 EA.
35. Section 129(1)(d) EA.
36. Section 164(p) EA.
37. Section 166 EA.
38. Felipe Gaitán Michelsen, 'Nigeria's Energy Transition Plan' (The Energy Circle: September 26, 2022) https://www.energycircle.org/2022/09/26/nigerias-energy-transition-plan/ accessed 19 February 2024. See also section 1(f) of the Climate Change Act, 2021 which sets a target for year 2060 – 2070 for the attainment of net zero GHG emission.
39. Nigeria Energy Transition Plan, 'Financing' (NETP) https://www.energytransition.gov.ng/finance/ accessed 14 February 2024. See also Felipe (n 38).
40. Nigeria Energy Transition Plan (n 39).
41. Deji Elumoye, 'FG: Nigeria's Installed Electricity Capacity Stands at 18,000mw, Generates 8,000mw Daily' (THISDAY, 3 April 2022) https://www.thisdaylive.com/index.php/2022/03/04/fg-nigerias-installed-electricity-capacity-stands-at-18000mw-generates-8000mw-daily accessed 19 February 2024.
42.Valerie (n 1).
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