By Ibukun Konu , Osefan Anegbe and Nweze Hallel-Tobiel
Introduction
The repeal and re-enactment of the Electric Power Sector Reform Act, 2005 (the ESPRA) as the Electricity Act 2023 (the Act) is a major game changer in the Nigerian Electricity Supply Industry (NESI). On Thursday 8th June 2023, His Excellency, President Bola Tinubu GCFR, assented to the Act. The Act introduces amongst other things, a comprehensive legal and institutional framework to guide the operation of a privatised, contract, and rule-based competitive electricity market in Nigeria and attract private sector investments in the NESI through transformative policy and regulatory measures.
The Act harmonises the Senate Bill1 which sought to repeal the ESPRA and the House of Assembly Bill2 which sought to amend the ESPRA. The Act has 234 sections classified into chapters under Parts I to XXIII, and 5 Schedules.
The key modifications introduced by the Act are categorized as follows:
1. Recognition of States’ Rights
The Act explicitly recognizes States’ rights to make laws for electricity generation, transmission, distribution, system operation and establishment of power stations3 within its territory, in line with the Constitution of the Federal Republic of Nigeria 1999 as amended (the Constitution)4. This unequivocally grants State governments the authority to regulate their own electricity markets, grant licenses to private investors to build power plants, establish transmission networks, operate mini-grids, and distribute power in a state, thereby creating a State Electricity Market (SEM) independent of the Nigerian Electricity Regulatory Commission (NERC).
It is important to note that until a State has enacted its electricity legislation and established its electricity market, NERC will continue to regulate electricity businesses in such States5. Lagos6, Edo and Kaduna States are in the process of passing their electricity laws which will enable them to regulate their electricity markets through State electricity regulatory authorities or commissions.
NERC retains the power to regulate trans-national and inter-state electricity businesses to ensure coordination within the Federal Electricity Market.
2. National Integrated Electricity Policy and Strategic Implementation Plan (the Policy)
Within a year from the commencement of the Act, the Ministry of Power (the “Ministry”) to initiate the preparation and publication of the Policy in consultation with MDAs7 and other stakeholders that are relevant to the NESI’s development. Upon adoption, the Policy must be approved by the Federal Executive Council before publication in a Federal Gazette. The Policy may be reviewed as required, but not later than every five (5) years.
This Policy will cover:
- development of the power sector by optimal utilization of coal, natural gas, nuclear and renewable sources;
- providing rural electrification through captive generation, stand-alone system generation, non-conventional energy systems, bulk purchase of power and management of local distribution;
- public-private partnerships for rural electricity through rural electricity infrastructure;
- power-source specific policies including waivers and subsidies to stimulate renewable energy development; and
- development of the electricity value chain by aligning expansion in generation, transmission, distribution, and supply infrastructure for reliable supply and to minimizes losses.
The Ministry is also responsible for recommending exemptions (such as exemption from customs, levies, and duties) and financial incentives to develop, produce and utilize renewable energy.
We believe that involving relevant MDAs and stakeholders in formulating the Policy will ensure that the Policy is comprehensive and effective in achieving its goals, and periodic reviews will ensure that it remains relevant with changes in the NESI.
Overall, the Policy is a critical document that will outline the government’s strategy for developing and maintaining a reliable and efficient electricity sector in Nigeria. It will prioritize rural electrification and promote renewable energy, thereby improving access to electricity and reducing the country’s reliance on fossil fuels.
3. Re-establishment of NERC and Continuous Role Post Privatization
The Act re-establishes NERC, but its focus is on regulating and overseeing the development of the sector except the SEM. NERC is tasked with ensuring that the market progresses from its transitional stage to the medium-term and long-term stages, in accordance with any prescribed terms, preconditions or features laid out in the market rules or amendments approved by NERC.
NERC therefore has a crucial role in guiding the progression of the Nigerian electricity market and ensuring that it operates efficiently and effectively.
Under the Act, NERC continues to ensure that the market is competitive as it evolves, benefiting both consumers and industry stakeholders.
NERC has new powers to intervene when a licensee is failing. This means that NERC can step in and take action to prevent the licensee company from collapsing, to prevent serious market problems in the NESI. This allows NERC to take a more proactive role in regulating the sector and ensuring that companies are operating effectively and sustainably. NERC has the powers to8:
- approve amendments to the Market Rules;
- monitor the operation of the electricity markets and sanction licensees in deserving circumstances;
- enter and seal the premises of persons operating without a license or suspected to have committed an offence under the Act; and
- conduct examination, inquiry and inspect all books, records, accounts, and documents required to be kept by a licensee.
4. Promotion of Renewable Energy
NERC is responsible for promoting the development and use of renewable energy from solar energy, wind, small hydro, and biomass, by issuing licenses for embedded generation, hybridised generation, co-generation, and the generation of electricity from renewable sources, thereby increasing their contribution to Nigeria’s energy mix. In addition, NERC, together with the Independent System Operator (ISO), has a continuing obligation to encourage generation, distribution, sales, and installation of electricity from renewable sources.
NERC’s measures to support the growth of renewable energy sources in Nigeria under the Act, include:
- simplifying licensing and fees,
- setting technical standards and certification procedures,
- providing regulations for power purchase agreements,
- monitoring compliance with renewable purchase obligations,
- developing guidelines for energy storage and net metering,
- promoting local content development,
- supporting the Rural Electrification Agency, and
- monitoring the installation, decommissioning, and disposal of renewable energy accessories.
The Act introduces renewable purchase obligations and renewable generation obligations, and states that NERC must consider factors such as technology, financial viability, and impact on tariffs to ensure a balanced and sustainable approach9.
The Act recognizes the importance of promoting the development and use of renewable energy sources while balancing potential costs passed on to end-users, and therefore mandates the Federal Ministry of Finance to introduce tax incentives to promote and facilitate the use of renewable energy sources.
These obligations are necessary for realising Nigeria’s sustainable energy goals, attracting investment in clean energy, and transitioning towards a low-carbon future. Furthermore, these will help ensure the long-term sustainability of the environment by reducing the country’s dependence on fossil fuels and promoting the use of renewable energy sources.
The Act highlights the importance of local content in the renewable energy subsector. It provides that licensees, contractors, sub-contractors, or any other entity executing renewable energy-related activities must ensure that they incorporate local content as a significant component in their operations.10
5. Protection of Investment in the Power Sector11
This new provision gives several guarantees related to asset protection such as the right to sell or transfer a licensee’s undertaking and compensation where there is any forceful takeover in the interest of national security. This means licensees can sell or transfer their undertakings even in the event of a revocation of their license.
In addition, anyone who suffers a forceful takeover is to be compensated. This will ensure that businesses in the electricity market continue to operate even in uncertain situations, and that their assets are protected against any adverse action or expropriation, thereby providing safeguards against arbitrary actions of the government.
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Footnotes
1. Electricity Bill (SB. 511)
2. Electric Power Sector Reform Act, 2005 (Amendment) Bill (HBs. 287, 657, 681 & 1528)
3. Electricity Act 2023, s.2(2)(b)
4. Electricity Act 2023, s.13(b) and 14 (b), Second Schedule
5. Electricity Act 2023, s.230 (9)
6. Lagos State Electric Power Sector Reform Law 2018
7. Government Ministries, Departments and Agencies.
8. Electricity Act 2023, s.34(2)
9. Electricity Act 2023, s.167(1)
10. Electricity Act 2023, s.171(5)
11. Electricity Act 2023, s.228
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Credits: Mondaq.com
