Updated: Nov 19
Despite the passage of the Electric Power Sector Reform Act (EPSRA) in 2005 and the privatization of the power sector in 2010, Nigeria's power sector continues to face the same challenges it has always had. To address these challenges, the government enacted the Electricity Act (EA) 2023.
Overview of EA 2023
The EA 2023 is a new legal framework for the Nigerian power sector. It consolidates the existing laws and provides a comprehensive legal and institutional framework for the sector. The Act covers all aspects of the power sector, including generation, transmission, distribution, supply, trading, and consumer protection. It also includes a holistic, integrated resource plan that promotes the use of renewable and non-renewable energy sources and attracts investments into the sector.
The EA 2023 is a significant development for the Nigerian power sector. The Act is a positive step towards addressing the challenges of the Nigerian power sector. Although, it is too early to say what the impact of the EA 2023 will be. It is hoped that the Act will help to address the challenges that have plagued the sector for many years and improve the delivery of electricity to Nigerians.
The Energy Act (EA) of 2023 in Nigeria introduces significant changes to the power sector, aiming to decentralize and democratize the energy landscape. Key provisions include:
Key Provisions of EA 2023
Decentralization and State Electricity Markets:
States now have legislative autonomy to regulate electricity activities within their borders.
This decentralization fosters flexibility, accountability, and transparency, allowing states to regulate and improve energy access within their jurisdiction.
State electricity markets provide opportunities for innovative financing, including PPPs, to address energy challenges.
Transition of Regulatory Authority:
The Act transfers regulatory authority from the National Electricity Regulatory Commission (NERC) to state regulatory agencies in states that establish their electricity markets.
States without their regulatory bodies remain under NERC regulation until they establish their agencies.
Integrated National Electricity Policy:
Mandates the Ministry responsible for power to develop and publish an Integrated National Electricity Policy and Strategic Implementation Plan to guide sector development.
Focuses on optimal utilization of renewable and non-renewable sources, rural electrification, and public-private partnerships.
Unbundling of Transmission Company and Creation of ISO:
Unbundling of the Transmission Company of Nigeria (TCN) to separate market and system operations, with the creation of an Independent System Operator (ISO).
ISO to issue market rules and manage market operations, encouraging private participation in the transmission sub-sector.
State Licensing/Regulation of Mini-Grids and Networks:
States now have regulatory authority over mini-grid operations, Independent Electricity Distribution Network Operations, and Independent Electricity Transmission Network Operations.
Enables states to establish frameworks for attracting investments in electricity activities within their jurisdictions.
Disaggregation of Distribution Licenses:
Separation of distribution and supply activities under distinct licenses, attracting more participants into the sector.
Renewable Generation, Purchase, and Distribution Obligations:
The Act imposes obligations on power generation and distribution companies to incorporate renewable energy sources, supporting Nigeria's target of a 30% share of renewable energy by 2030.
New Trading License Regime:
The Act discontinues the Nigerian Bulk Electricity Trader's (NBET) monopoly, allowing other licensees to undertake trading activities in the electricity market.
Intervention Powers in Failing Licensees:
NERC has intervention powers to dissolve failing licensees' boards, appoint administrators, and revoke licenses if necessary.
Establishment of N-HYPPADEX:
Introduction of the National Hydroelectric Power Producing Area Development Commission (N-HYPPADEX) to formulate policies for the development of hydroelectric power-producing areas.
Opportunities and Challenges
The EA 2023 creates opportunities for public and private participation, state-level innovation, investment in state electricity markets, new entrants in the trading sector, and improvements in transmission networks through PPPs and concessionary arrangements.
The Energy Act of 2023 introduces significant provisions for optimizing Nigeria's electricity market. However, concerns arise about potential challenges to coherence and coordination in the decentralized regime. The past framework offered diverse options, but implementation hurdles, including political will, financial constraints, and infrastructure issues, hindered success. The transfer of responsibilities to states without addressing these challenges may lead to replication of existing problems. To ensure a successful transition, a nationwide stakeholders' meeting involving NERC, the Federal Government, the Ministry responsible for power, and State Governments is crucial. The scheduled stakeholders' workshop by NERC in July 2023 presents an opportunity to address challenges, plan implementation, and prevent the recurrence of issues faced under the old regime.
State of Nigeria’s Use of Natural Gas to Generate Electricity
Nigeria's endeavors to utilize natural gas for electricity generation encounter multifaceted challenges that collectively impede the sector's success. Infrastructure deficiencies, spanning production, processing, and transportation, disrupt the supply chain and compromise the reliability of natural gas availability. The prevalent practice of gas flaring, particularly during oil extraction, not only squanders valuable resources but also contributes to environmental degradation. Security concerns in gas-producing regions, exemplified by vandalism and theft of infrastructure, further exacerbate disruptions in the natural gas supply. Compounding these issues is the insufficient investment in the sector, hindering both exploration and production. The inadequacies in infrastructure development and maintenance pose additional obstacles, limiting the sector's growth. Pricing inconsistencies, payment challenges, and policy uncertainties create financial uncertainties and act as deterrents for prospective investors. Market distortions, coupled with coordination challenges among stakeholders, impede effective planning and execution of natural gas projects for electricity generation. Weaknesses in the electricity transmission and distribution infrastructure exacerbate the hurdles, limiting the capacity to efficiently deliver power from natural gas plants to end-users.
State-Led Initiatives for Enhanced Energy Generation and Green Energy Adoption
State governments possess the capacity to enhance energy generation and encourage the adoption of green energy through a variety of strategic initiatives. Firstly, by investing in renewable energy projects such as solar, wind, and biomass, states can diversify their energy portfolios. This diversification not only broadens the sources of energy but also contributes to environmental sustainability. Additionally, fostering partnerships with independent power producers (IPPs) can be a viable strategy. Collaborating with private entities for the development of independent power projects enables states to harness additional energy sources and strengthen their energy infrastructure.
To optimize energy consumption, implementing energy efficiency programs is crucial. These initiatives can be tailored for industries, commercial establishments, and public infrastructure, ensuring a more judicious use of available energy resources. States can also explore their hydropower potential, investing in small to medium-scale hydropower projects. Such projects offer a reliable and sustainable source of energy and contribute to the overall energy security of the state.
Encouraging the adoption of cogeneration systems within industries is another avenue for states to consider. Cogeneration allows for the simultaneous production of electricity and useful heat, significantly enhancing energy efficiency. On the front of green energy usage, states can implement net metering programs to empower consumers to generate their renewable energy and contribute excess electricity to the grid. This approach is particularly effective in promoting the installation of solar rooftops. Enforcing and incentivizing green building standards is instrumental in fostering sustainable construction practices. These standards promote the incorporation of energy-efficient technologies and renewable energy sources into building designs.
Financial incentives and tax breaks can be provided to businesses and individuals embracing green energy technologies or making energy-efficient upgrades. This approach encourages a more widespread adoption of sustainable practices. Community outreach and education initiatives play a pivotal role in raising awareness about the benefits of green energy and providing guidance on reducing energy consumption. By fostering public understanding, states can cultivate a culture of sustainability.
Implementing green procurement policies, favoring the purchase of energy-efficient and environmentally friendly products and services, contributes to creating a market for green technologies. Additionally, public-private partnerships (PPPs) can be leveraged to develop and maintain green infrastructure projects, such as solar parks and wind farms. Establishing supportive regulatory frameworks is essential to create an environment that encourages the integration of renewable energy sources into the existing energy grid. Finally, the development and promotion of green certification programs for businesses and residential buildings can incentivize the adoption of sustainable energy practices, furthering the state's commitment to environmental responsibility.