Key Reform Features of the Electricity Act, 2023

INTRODUCTION

Electricity in any modern society cannot be underrated. It is a necessity that cannot be ignored. Electricity is a necessity for any thriving economy. Nigeria, as a country has been plagued for several years with the issues of recurrent epileptic electricity supply. Several factors such as inefficient legal/regulatory frameworks,inadequate infrastructure and limited private sector participation have impeded the availability of reliable and affordable electricity to millions of Nigerians across the country.

In response to the plight of the Nigerian citizens, the Federal Government to tackle these challenges embarked on a comprehensive reform journey. The Electric Power Sector Reform Act, 2005 (EPSRA) was repealed and re-enacted as the Electricity Act 2023 (the “Act”). This is indeed a great move and a major game changer in the Nigerian Electricity Supply Industry (NESI) and it has definitely set the stage for a brighter and more sustainable future in the Nigerian power sector.

His Excellency, President Bola Tinubu GCFR, on Thursday, 8th June 2023, assented to the Electricity Act2023. The Act has a total of 234 sections which are classified into chapters under Parts I to XXIII, and with 5 Schedules. The Act is quite impressive in that it introduces a comprehensive institutional and legal framework to guide the operations of a privatized and regulated competitive electricity market in Nigeria, promote renewable energy deployment, expand access to electricity, ensure fair and transparent regulations that protect consumer interests and attract private sector investments in the Nigerian Electricity Supply Industry through regulatory measures and transformative policies.

KEY REFORM FEATURES OF THE ELECTRICITY ACT 2023

The repeal and re-enactment of the The Electric Power Sector Reform Act, 2005 is the beginning of a revolution in the Nigerian power sector. The key modification/features of the Electricity Act 2023 (the “Act”) are as follows:

1. Tariff Regulations and Transparency[1]

The Act introduces a transparent tariff-setting process, ensuring that electricity tariffs are reasonable, cost-reflective, and based on efficient cost structures. The Act mandates the publication of tariff methodologies, thus allowing consumers and stakeholders to understand the basis for tariff calculations. Tariff regulations aim to balance the financial viability of power providers with the affordability of electricity for consumers.[2]

2. States’ Right

The Act recognizes States’ rights to make laws for electricity generation, distribution, transmission system and establishment of power stations[3] within its territory. This is in line with the provisions of the Constitution[4]. This grants State governments the power and 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) which is independent of the Nigerian Electricity Regulatory Commission (NERC). This is indeed a great innovation. To ensure transparency and accountability, the Act established clear guidelines for the licensing, monitoring, and supervision of market participants. These guidelines will provide a framework that prevents anti-competitive practices and ensures a level playing field for all players in the industry.

However, it is worthy to note that until a State has enacted its own electricity legislation and has established its electricity market, the Nigerian Electricity Regulatory Commission (NERC) will continue to regulate electricity businesses in such States[5]. Among all other states in the country, Lagos[6], 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. Irrespective of the above, the Nigerian Electricity Regulatory Commission (NERC)  retains the power to regulate trans-national and inter-state electricity businesses to ensure coordination within the Federal Electricity Market.

3. The Establishment of the Rural Electrification Fund (REF)

The Act recognizes the importance of extending electricity access to the rural and underserved areas of Nigeria. This is very crucial as there are several rural areas in Nigeria living through the plight of no electricity supply. The Act re-establishes the REF to promote and provide sustainable and renewable rural electrification projects for unserved and underserved communities through public and private sector involvement.  The Act established the Rural Electrification Agency (the “Agency”) and tasks it with the responsibility of implementing rural electrification initiatives and bridging the electricity gap in remote and marginalized communities.

4. Establishment of Subsidiary Regulators of the Nigerian Electricity Regulatory Commission (NERC)[7]

The Act repealed several laws that established some agencies and re-establishes the agencies and other agencies that existed under the The Electric Power Sector Reform Act.

5. National Integrated Electricity Policy and Strategic Implementation Plan [8]

The Ministry of Power within a year of the commencement of the Act, is to initiate the preparation and publication of the Policy in consultation with Government Ministries, Departments and Agencies and other stakeholders that are relevant to the Nigerian Electricity Supply Industry (NESI) 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 the following:

1. The development of the power sector by optimal utilization of coal, natural gas, nuclear and renewable sources;
2. 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;

1. Power-source specific policies including waivers and subsidies to stimulate renewable energy development; and
2. The development of the electricity value chain by aligning expansion in generation, transmission, distribution, and supply infrastructure for reliable supply and to minimize losses.

The Ministry is also responsible for recommending exemptions, that is, exemption from customs, levies, and duties, and financial incentives to develop, produce and utilize renewable energy. The Policy is very important in that it will outline the government’s strategy for developing and maintaining a reliable and efficient electricity sector in Nigeria. This will also prioritize rural electrification and promote renewable energy, thereby improving access to electricity and reducing the country’s reliance on fossil fuels.

6. The re-establishment of the Nigerian Electricity Regulatory Commission (NERC)and its Post Privatization Role[9]

The Act re-established the Nigerian Electricity Regulatory Commission (NERC), but the focus is on regulating and overseeing the development of the sector except the State Electricity Market (SEM). The Nigerian Electricity Regulatory Commission (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 Nigerian Electricity Regulatory Commission (NERC).

The Nigerian Electricity Regulatory Commission (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. The Nigerian Electricity Regulatory Commission (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 or 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.[10]

7. The Promotion of Renewable Energy[11]

The Nigerian Electricity Regulatory Commission (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.

However, the Act introduces renewable purchase obligations and generation obligations. It further states that the Nigerian Electricity Regulatory Commission (NERC) must consider factors such as technology, financial viability, and impact on tariffs to ensure a balanced and sustainable approach.[12] The Act 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 also highlight 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.[13]

8. The Protection of Investments in the Nigerian Power Sector[14]

The Act introduces a new provision which 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 now sell or transfer their undertakings even in the event of a revocation of their license.[15]

Also, anyone who suffers a forceful takeover is to be compensated. This will ensure that businesses in the Nigerian electricity market continues 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.

CONCLUSION

The Act creates a comprehensive legislative framework that codifies various electricity laws and provides a legal structure for the generation, transmission, and distribution of electricity. The Act marks a significant milestone in Nigeria’s power sector reform. With its comprehensive reforms, the Act sets the stage for a brighter and more sustainable future of electricity generation, supply, transmission and consumption. It addresses the challenges of inadequate infrastructure, inefficient frameworks, and limited private sector participation, paving the way for improved electricity provision to millions of Nigerians.

Unlike the Electric Power Sector Reform Act, 2005, the Electricity Act 2023 gives more attention to renewable energy by having explicit provisions on generating power from renewable energy sources and creating obligations to purchase same. The Act is a major step towards achieving a well structured and functioning power sector that meets the needs of consumers and promotes sustainable economic growth.

FOOTNOTES:

[1] Electricity Act 2023, PART XI

[2] Electricity Act 2023, Section 116 and 117

[3] Electricity Act 2023, Section 2(2)(b)

[4] Electricity Act 2023, Section 13 (b) & 14 (b), Second Schedule

[5] Electricity Act 2023, Section 230(9)

[6] Lagos State has an existing Electricity Supply, Power Generation Distribution Law 2018

[7] Electricity Act 2023, PART VIII and XVI

[8] Electricity Act 2023, PART II

[9] Electricity Act 2023, Part V

[10] Electricity Act 2023, section 34 (2)

[11] Electricity Act 2023, ART XVII

[12] Electricity Act 2023, section 167 (1)

[13] Electricity Act 2023, section 171 (5)

[14] Electricity Act 2023, Part IV and VI

[15] Electricity Act 2023, sections 75 and 77