ARTICLE
19 December 2024

Regulatory Update: Review Of The Lagos State Electricity Law (2024)

PL
Pavestones Legal

Contributor

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.
In furtherance of the provisions of the Electricity Act, 2023, on December 3, 2024, the Lagos State Government passed the Lagos State Electricity Bill, 2024 into law (the "Law"). This new Law repeals the Electric.
Nigeria Energy and Natural Resources

Introduction

In furtherance of the provisions of the Electricity Act, 2023, on December 3, 2024, the Lagos State Government passed the Lagos State Electricity Bill, 2024 into law (the "Law"). This new Law repeals the Electric Power Sector Reform Law (2018) and establishes a comprehensive regulatory framework for the Lagos Electricity Market (the "Market").

In this newsletter, we identify some of the key provisions of the Law and their possible impact on the Market.

1. What is the main objective of the Law?

The Law seeks to create a regulated electricity market in Lagos State, ensuring the availability of reliable and universal electricity access to residents. The Law also aims to promote the use of renewable energy and sustainability; facilitate investment and innovation in the Market, etc.

2. How is the Market regulated?

Under the provisions of the Law, the Lagos State Ministry of Energy and Mineral Resources (the "Ministry") is responsible for several key functions related to the Market established by the Law. The Ministry's responsibilities include (i) supporting the sustainable development of the electricity sector in Lagos State, (ii) ensuring the growth and viability of the Market, (iii) securing the State's electricity infrastructure, (iv) promoting investment and development in the electricity sector, and (v) safeguarding the independence of the Commission, among others.

Additionally, the Ministry, in collaboration with the Commission and other relevant stakeholders, is tasked with developing and publishing the first edition of the Lagos State Integrated Electricity Policy and Strategic Implementation Plan (the "Plan") within six (6) months of the Law's commencement. Each edition of the Plan will have a duration of ten (10) years and will be subject to a review every five (5) years.

3. Who regulates the Market?

The Law establishes the Lagos State Electricity Regulatory Commission (the "Commission"), which is composed of three (3) executive members and two (2) non-executive members. The Commission is tasked with issuing directives on matters related to the electricity sector in Lagos State, provided that these directives align with the provisions of the Plan. The Commission is also responsible for regulating the conduct of market participants, overseeing all operations within the Market, issuing licenses, and preventing the abuse of market power, amongst other duties.

Additionally, the Commission is required to prepare a detailed Electricity Market Report including but not limited to – the activities of the licensees and other market participants, the implementation of renewable energy and energy efficiency, and the extent to which the Market has operated and developed. Further to this, licensees are required to deliver to the Commission relevant data and information that they are obliged to keep for confidentiality purposes.

4. What are the licensing requirements under the Law?

Entities wishing to engage in electricity-related activities must obtain a license from the Commission. Such activities include, (but are not limited to), generation, transmission, distribution, supply, and system operation. However, activities with a production or carrying capacity below 1MW are exempt from the licensing requirement.

In addition, the Law mandates that licensed activities must adhere to approved tariff methodologies, which are subject to periodic reviews to account for changes in the Market. This ensures that tariffs remain consistent with evolving market conditions and regulatory needs. The Commission is authorized to approve negotiated agreements between licensees and specific consumer groups, provided these transactions align with the overall tariff framework. This flexibility allows for customized solutions while maintaining regulatory control.

The Law also enforces penalties for non-compliance, including fines starting at N1,000,000 and custodial sentences of up to six months. In cases of continued non-compliance, an additional fine of N20,000 per day of default may be imposed. Furthermore, it specifies that holding a license from any other body for the relevant regulated activity will not serve as a valid defense for non-compliance.

5.What are the types of licenses under the Law?

Under the Law, several types of licenses are outlined, each governing specific activities within the electricity sector. Some of these licenses are set out below.

Generation License: A generation license is required for entities generating electricity within the State. It authorizes the holder to construct, operate, and maintain power generation plants with a capacity exceeding 1 MW, sell electricity, and connect to transmission or distribution systems. However, a license is not necessary for establishing a captive generation plant. Generation licensees must ensure operational efficiency, promote renewable energy, and comply with safety and environmental regulations.

Transmission License: The transmission license allows entities to construct, operate, and maintain transmission systems. Transmission licensees are prohibited from engaging in electricity trading. The Law also stipulates that any ancillary revenue generated from non-transmission activities must be used to reduce wheeling charges, ultimately benefiting consumers.

Trading License: Trading licenses are introduced for entities involved in the bulk purchase of electricity. The licensees can purchase electricity from generation entities, including those outside the State, and resell it to distribution companies or bulk consumers. This flexibility improves the security and stability of electricity supply.

Conclusion

The Law establishes a comprehensive regulatory framework aimed at fostering a reliable, sustainable, and innovative electricity market in the State. Stakeholders, including electricity providers, investors, and consumers, must adapt to the new licensing requirements, adhere to tariff regulations, and prioritize renewable energy initiatives. By ensuring compliance with these provisions and staying informed about regulatory updates, stakeholders can contribute to the growth and stability of the electricity market while minimizing risks and taking advantage of new opportunities.

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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