Powering Nigeria's Future: Introducing The Electricity Act 2023

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Pavestones Legal

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Pavestones is a modern, full service, female led law practice with a particular focus on technology and innovation. The practice was borne out of a desire to meet the legal requirements of businesses by adopting a modern, cost effective and less archaic approach. Our key practice areas are Corporate and Commercial, Technology and Innovation, Data Protection and Compliance Services, Energy and Natural Resources and Banking and Finance.
Electricity is a necessity for any thriving economy. For several years, however, factors such as inadequate infrastructure, inefficient legal/regulatory frameworks, and limited private sector participation...
Nigeria Energy and Natural Resources
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Introduction

Electricity is a necessity for any thriving economy. For several years, however, factors such as inadequate infrastructure, inefficient legal/regulatory frameworks, and limited private sector participation have impeded the availability of reliable and affordable electricity to millions of Nigerians. To tackle these challenges, the Nigerian government embarked on a comprehensive reform journey, starting with the amendment of the Constitution of the Federal Republic of Nigeria (as amended) ("Constitution") to address key issues related to the generation, transmission, and distribution of electricity. These issues were discussed in our previous newsletter. Following the constitutional amendments, the enactment of the Electricity Act, 2023 (the "Act"), which repeals the Electricity and Power Sector Reform Act of 2005, marks the completion of the second phase of the reform process and sets the stage for a brighter and more sustainable future in the Nigerian power sector.

The development of the Act was driven by the overarching goal of transforming Nigeria's power sector into a modern, efficient, and competitive industry. By doing so, the Government seeks to attract significant private sector investments, promote renewable energy deployment, expand access to electricity, and ensure fair and transparent regulations that protect consumer interests.

In this newsletter, we explore the key provisions and implications of the Act, highlighting the reforms aimed at promoting competition, attracting investment, and expanding access to reliable electricity across Nigeria. Additionally, we examine the investment opportunities, which local and foreign investors may explore within the sector.

WHAT ARE THE KEY FEATURES OF THE ACT AND THEIR IMPLICATIONS

The Act introduces a range of key features that aim to revolutionize Nigeria's power sector. Some of these features are as follows:

  1. De-Monopolization of the Power Sector: The Act ensures the de-monopolization of Nigeria's electricity generation, transmission, and distribution at the National level and empowers states, companies and individuals to generate, transmit and distribute electricity. These efforts allow for increased private sector participation, attracting new investors and promoting innovation in the sector. Under the Act, states can issue licenses to private investors who may operate mini-grids and power plants within the state. The Act however, precludes interstate and transnational electricity distribution. The licenses obtainable by private investors under the Act, include (i) generation licenses, (ii) transmission licenses, (iii) system operations licenses, (iv) trading licenses, and (v) distribution and supply licenses. These licenses enable private entities to participate in different aspects of the electricity value chain, promoting competition, and encouraging innovative solutions to meet the growing energy needs of Nigeria. It is noteworthy that any individual may construct, own, or operate an undertaking for generating electricity of a maximum of one megawatt in aggregate at a site, or an undertaking for distribution of electricity with a capacity not exceeding 100 kilowatts in aggregate at a site, without obtaining a licence.
  2. Focus on Renewable Energy and Sustainability: Recognizing the importance of clean energy sources and in pursuance of Nigeria's commitment under the Paris Agreement, the Act prioritizes the development and utilization of renewable energy. The Act encourages the integration of renewable energy technologies into the existing grid system. Under the Act, electricity generation licensees are obligated to meet renewable energy generation obligations as may be prescribed by the Nigerian Electricity Regulatory Commission ( the "Commission"). The Act also introduces mechanisms to incentivize investment in renewable energy projects, such as feed-in tariffs -a policy that guarantees a fixed price for renewable electricity fed into the grid-and tax incentives. The focus on renewable energy and sustainability within the Act aligns with global efforts to mitigate climate change, reduce greenhouse gas emissions, and promote a sustainable energy sector.
  3. Strengthened Regulatory Bodies: The Act enhances the powers and independence of regulatory bodies overseeing the power sector. The Act not only strengthens the Commission's authority to enforce compliance, regulate tariffs, and effectively resolve disputes within the sector but also provides for the delegation of regulatory authority to state regulators once they are constituted. As of date, Lagos, Edo, and Kaduna States have established their own power market regulations and it is expected that they will begin regulating their respective markets. However, in states where such regulations do not exist, the Commission will continue to fulfill its regulatory responsibilities. To ensure transparency and accountability, the Act establishes clear guidelines for the licensing, monitoring, and supervision of market participants. These guidelines provide a framework that prevents anti-competitive practices and ensures a level playing field for all players in the industry. In addition to empowering the Commission, the Act also establishes other specific bodies with distinct mandates. These bodies include the National Hydroelectric Power Producing Area Development Commission, the Rural Electrification Agency, the Nigerian Electricity Management Services Agency, and the National Power Training Institute of Nigeria.
  4. Rural Electrification: The Act recognizes the critical importance of extending electricity access to rural and underserved areas of Nigeria. To address this crucial aspect, the Act establishes 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.
  5. Consumer Protection Measures: The Act places a strong emphasis on consumer rights and protection. It mandates the establishment of mechanisms to ensure fair pricing, accurate billing, and quality service delivery. Consumer complaint resolution processes are streamlined, providing avenues for consumers to seek redress and voice their concerns. While the recent Customer Protection Regulation, 2023 (the "Regulation") by the Commission aligns with the consumer protection provisions of the Act, it is essential to modify the Regulation to ensure harmonization with the Act's specific provisions.
  6. Tariff Regulations and Transparency: The Act introduces a transparent tariff-setting process, ensuring that electricity tariffs are reasonable, cost-reflective, and based on efficient cost structures. It mandates the publication of tariff methodologies, 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.

WHICH INVESTMENT OPPORTUNITIES ARE AVAILABLE?

With the objective of attracting both domestic and foreign investments, the Act presents attractive investment opportunities within Nigeria's power sector, including:

  1. Renewable Energy Projects: Opportunities in solar, wind, hydroelectric, and biomass projects with incentives like feed-in tariffs and tax benefits.
  2. Power Generation: Private sector participation in conventional and renewable power generation through issuance of licenses.
  3. Transmission and Distribution Infrastructure: Investments in transmission lines, substations, distribution networks, and smart grid systems.
  4. Mini-grids and Off-grid Solutions: Establishing mini-grids and deploying off-grid solutions for remote areas.
  5. Manufacturing and Equipment Supply: Manufacturing and supplying electrical equipment, promoting local content and economic development.

To safeguard investors' interests in the power sector, the Act guarantees asset protection, the right to sell or transfer a licensee's undertaking in the event of revocation of licenses, or compensation in the event of any forceful takeover in the interest of national security. The Act also offers a range of incentives, like tax incentives, to investors in the power sector.

CONCLUSION

The Act marks a significant milestone in Nigeria's power sector reform journey. With its comprehensive reforms, the Act sets the stage for a brighter and more sustainable future. 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.

As the Act comes into effect, it is crucial for stakeholders, investors, and industry players to familiarize themselves with its provisions, engage with regulatory bodies, and seize the opportunities it presents. Collaboration between the public and private sectors will be vital in driving the successful implementation of the Act and realizing its vision for a more efficient, reliable, and sustainable power sector.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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