Significant Shifts: Exploring the Electricity Act 2023 and Its Impact on Nigeria’s Power Sector

President Bola Ahmed Tinubu has signed into law, the Electricity Act 2023 (‘the Act)[1], which was passed by lawmakers in July 2022 during President Muhammadu Buhari’s administration. This Act  replaces the Electricity and Power Sector Reform Act (EPSRA) of 2005, signifying a potential shift in Nigeria’s power landscape. The  Act aims to harmonize a range of laws that oversee the electricity supply sector, leading to the creation of a comprehensive institutional framework. This framework is designed to navigate the complexities of post-privatization within the Nigerian Electricity Supply Industry (NESI). Furthermore, the Act encourages increased involvement in the private sector, bringing new energy to the sector. One of the key goals of the Electricity Act is to address monopolistic tendencies in electricity generation, transmission, and distribution at the national level. This involves empowering states, corporations, and individuals to play active roles in these processes. The Act also serves as a guiding principle for the post-privatization phase of the NESI,  urging  enhanced private sector investments. This development has the potential to lead to a decentralized and diversified energy landscape, fostering an environment conducive to entrepreneurial energy initiatives. With this Act, , Nigeria could be on a path toward a transformed energy future.

KEY INNOVATIONS INTRODUCED BY THE ACT

A.  Decentralization of The Power Sector and Creation of State Electricity Markets

The  Act has introduced a significant change, particularly with the decentralization of the power sector and the establishment of state electricity markets. This change is linked to a recent constitutional amendment on March 17th, 2023, which grants individual states the authority to oversee electricity activities within their borders, irrespective of their connection to the national grid. The Federal Government, however, still retains its control over interstate and international electricity activities. Under sections 230 (2 – 9) of the Act , the federating states of Nigeria gain new authority. Thus, states can now create their own electricity markets and set up regulatory bodies to oversee electricity activities within their jurisdiction[2].

Prior to the enactment of the Act and the subsequent assent by the President, , the Nigerian Electricity Supply Industry (NESI) operated as a centrally controlled electricity market. The Federal Government as a result, regulated electricity services in the entire country, while states were limited to areas outside the national grid. The  Act  alters this structure, allowing states to independently regulate electricity operations in their respective states.

This shift towards decentralization and state electricity markets has significant implications for the NESI. It enhances energy access, distribution efficiency, and supply consistency within each state, thereby reducing over-reliance on the national grid and addressing underserved areas in the states.

One  notable aspect of this new approach is the creation of streamlined regulatory frameworks. Unlike the previous era with a single regulator for the whole nation, the new system encourages adaptability, accountability, and transparency. This restructuring promotes states to attract investment in projects, from concession-based endeavors to dynamic Public-Private Partnerships (PPPs).

The  Act  not only changes structures; it also equips states to tackle ongoing electricity supply challenges. By adopting innovative energy solutions, states can bridge supply gaps and tap into renewable energy resources.

B. Integrated National Electricity Policy And Strategic Implementation Plan

The Act has also introduced the Integrated National Electricity Policy and Strategic Implementation Plan in Section 3(1)[3]. This empowers the Ministry responsible for the power to create and release the Plan within a year of the Act’s enactment. The Act mandates a reassessment of this framework every five years[4].

This Plan aims to guide the evolution of the electric power sector, blending renewable and non-renewable energy sources for energy equilibrium. It targets urban and rural areas using mechanisms like Mini grids. The Plan extends beyond electrification to bulk power procurement and localized energy distribution, promoting public-private partnerships.

Policies, including incentives and subsidies, are integral, especially for fostering renewable energy growth. This provision guides the comprehensive use of Nigeria’s energy resources. The result is an enhanced energy supply for the NESI strengthening its resilience and sustainability.

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C.  Unbundling Of Transmission Company of Nigeria (TCN) & Creation Of  Independent  System Operator (ISO)

Originally established under the EPSRA 2005, the Transmission Company of Nigeria PLC (TCN) was assigned the roles of transmission services, market oversight, and system operations within the NESI.  TCN unfortunately, struggled to handle these responsibilities effectively and efficiently. In response, the   Act has outlined a process for TCN to unbundle, with the National Electricity Regulatory Commission (NERC) overseeing the transition. The newly formed Independent System Operator (ISO) would take over market and systems operations, while TCN would focus on transmission services. The ISO, operating as a corporate entity, will now handle tasks like creating market rules, and managing systems operations. This shift aims to attract private engagement and investments to the transmission sub-sector, ultimately enhancing NESI’s performance and revitalizing the industry[5]

D.  State Licensing/Regulation of Mini-Grids, Independent Electricity Distribution Network (IEDNs) And Independent Electricity Transmission Network (IETNs)

In the past, mini-grid operations were under NERC’s oversight. However, the Act brought about a significant change, transferring regulatory authority over mini-grid operations, Independent Electricity Distribution Network Operations, and Independent Electricity Transmission Network Operations to the states. This shift empowers states to establish the legal and institutional framework for governing these activities and encourages investment in their local electric sector.

Given the substantial expenses tied to grid-powered electricity, this change provides states with several business opportunities. For instance, they can explore smaller-scale power projects, such as embedded generation and mini grids. These models require less capital compared to larger utility-scale projects connected to the grid, which often have lengthy timelines.

Through this shift, states can increase energy accessibility and supply across their regions, even reaching remote and underserved areas[6].

E.  Renewable Generation, Purchase and Distribution Obligations

Within Nigeria’s intricate energy fabric lies a dynamic interplay between renewable and non-renewable resources, coursing through both on-grid and off-grid conduits. This symphony of energy encompasses a diverse spectrum, spanning thermal sources, predominantly gas, coal, and oil-fueled plants, as well as the potent embrace of hydropower and other renewables such as wind, solar, and biomass.

Yet, amidst this diversity, thermal and hydro generation stand as towering giants within the on-grid energy panorama. As of 2022/Q4, thermal generation produced 69.02% of energy while hydro generation performed at 30.98% ^[7]. Nigeria’s renewable energy power generation reached 2,154MW in 2021[8]. Regrettably, Nigeria’s renewable energy potential remains largely untapped, languishing despite the wealth of resources that beckon.

The Act further imposes renewable energy generation, purchase, and distribution obligations on Generation Companies (GENCOs) and Distribution Companies (DISCOs) in the NESI[9]. This will ensure an integrated utility of all energy generation sources available in Nigeria. This provision will primarily help realize Nigeria’s target of increasing its renewable energy share to 30% of the generation mix by 2030,[10]and also help fulfill its carbon net-zero emission targets.

F. Criminalization Of Electricity Theft, Illegal Meter Tampering/Bypass, And Willful Damage To Electricity Infrastructure

The  Act  addresses the lack of penalties for offenses in the power sector, which caused issues like electricity theft and revenue losses. Previous attempts through different regulations were insufficient.

Consequently, the Act introduced penalties for various offenses in Part XX, aiming to deter misconduct. Electricity theft carries a penalty of six months to three years imprisonment, while stealing electricity lines has a penalty of three to five years. Receiving stolen electricity can lead to 14 years in prison. Tampering with meters or licensee equipment is punishable by three years, while obstructing licensee staff results in six years’ imprisonment and a fine.

The Act also includes penalties for aiding or abetting these offenses. Federal and State High Courts share jurisdiction for these cases.

Stamping out these offenses is vital, as their impact is widespread. Addressing them promises efficient energy provision, strengthened audits, and a secure power sector value chain. These changes can positively affect the nation’s economic progress. The meticulous provisions of the Electricity Act aim to act as a strong deterrent against such misconduct in the power sector.

CONCLUSION

The Electricity Act 2023 marks a significant departure from its predecessor, EPSRA 2005, aiming to address complexities in the electricity market and strengthen the Nigeria Electricity Supply Industry (NESI).

While the Act has the potential to enhance the efficiency of Nigeria’s electricity market, its success relies on aligned political determination to drive the envisioned changes.

Sections 95(2)(c) and (e) of the Act introduce ambiguity regarding the levy by the National Hydroelectric Power Producing Areas Development Commission (N-HYPPDEC) for community development in hydroelectricity-generating areas. While one section imposes a 5% levy on Generation Companies (GenCos) in affected communities, another exempts hydroelectric GenCos from this levy. This contradiction, especially for hydroelectric power areas, calls for amendments to ensure consistent application.

Stakeholders, investors, and industry participants should familiarize themselves with the Act’s provisions, collaborate with regulatory bodies, and seize the opportunities it presents. A partnership between the public and private sectors is vital for the successful execution of the Act and its vision for a reliable and sustainable power sector.

[1] The Electricity Act 2023

[2] Section 230(2-9) of the Electricity Act 2023

[3] Section 3(1) of the Electricity Act 2023

[4] Section 4(1) of the Electricity Act 2023

[5]Ayo Adu and Samuel Olawepo; Nigeria: Unveiling The Electricity Act 2023; Changes In The Power Sector, Opportunities And The Next Step.

 Available at: : https://www.mondaq.com/nigeria/renewables/1336450/unveiling-the-electricity-act-2023-changes-in-the-power-sector-opportunities-and-the-next-steps  (Accessed: 10 August 2023)

[6] Ibid

[7] NERC 2022/Q4 Report. Available at: https://www.ngx.com.ng/2023/06/27/no-national-grid-collapses-recorded-in-q4-2022-nerc/

[8] International Renewable Energy Agency, 2021 Report. Available at https://businessday.ng/energy/article/nigerias-renewable-energy-capacity-hits-2154mw-in-2021/#google_vignette (Accessed 18^th of August 2023)

[9] Section 80, 81 and 113(1) of the Electricity Act 2023

[10] NERC Consultation Paper on Proposed Review of Regulations of Mini-Grid, 2016, page 1. ….. Available at https://www.mondaq.com/nigeria/renewables/1243152/a-commentary-on-nercs-consultation-paper-on-the-proposed-review-of-regulation-for-mini-grids-2016 (Accessed 18^th of August 2023)

-WRITTEN BY ELELE ANGELA TOCHUKWU FOR A&E LAW PARTNERSHIP, ABUJA.