From Centralization To State Power: Fueling Industrialization Through Localized Energy Generation
Electricity is the lifeblood of any modern economy, and in Nigeria, it has been a symbol of both progress and challenge. This article explores the recent developments in Nigeria’s electricity sector, with a focus on the transformative Electricity Act of 2023. It discusses the historical context, the shift from centralization to state-led power generation, and the implications of this new legislation on energy accessibility and industrialization. The article delves into the key provisions of the Electricity Act, highlighting its goals of creating a competitive electricity market, expanding power transmission networks, and promoting access to electricity in various regions, including rural areas. It also examines the role of states in establishing their own electricity markets, granting them unprecedented independence in governing electricity activities within their boundaries. Furthermore, the impact of the Act on rural electrification was explored, emphasizing the establishment of the Rural Electrification Agency and its pivotal role in reshaping Nigeria’s energy landscape. It underscores the potential for rapid industrialization driven by localized energy generation and the empowerment of local communities and states. In conclusion, this article provides a comprehensive overview of how the Electricity Act 2023 is revolutionizing Nigeria’s electricity sector, empowering states, attracting investments, and setting the stage for a brighter energy future in the nation.
Electricity remains an essential factor and economic tool in any nation. It’s importance not just for individual use, virtually no sector of the economy or business can thrive without electricity. In Nigeria, “UP NEPA” is a widely recognized phrase that resonates throughout the country, primarily symbolizing the availability of electricity.
According to the National Bureau of Statistics, In the June 2023 First Quarter Electricity Report; there were 11.27 million customers, compared to 11.06 million in the previous quarter (Q4 2022). On a year-on-year basis (comparing Q1 2023 to Q1 2022), there was a growth of 5.99% in customer numbers. The 5.99% increase in total customer numbers from Q1 2022 to Q1 2023 corresponds to approximately 636,570 new customers. This calculation is derived from the comparison of customer counts in Q1 2022 (10.63 million) and Q1 2023 (11.27 million), reflecting the percentage growth. These growth percentages offer insights into changes across various time periods, indicating an overall positive trend in the expansion of the customer base and a concurrent increase in energy consumption. This increase is driven by the growing number of citizens connecting electricity to their homes, businesses, and communities.
According to World Bank, electricity access rate in Nigeria stood at 59.5% in 2021 with a big gap between urban and rural areas (89.2% vs. 26.5%) while Businessday reported that, 79% of Nigerian households and businesses get less than 10 hours of electricity supply daily, with the worst-hit regions being the North-East and South-East (93 percent each), and South-South (81 percent). They are followed by the North-Central (78 percent), South-West (77 percent), and the North-West (66 percent) geopolitical zones.
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The survey was conducted about the time Kano, Benin, Ibadan, Port Harcourt and Kaduna distribution companies have their assets taken over by Fidelity Bank and Afreximbank in conjunction with the Bureau of Public Enterprises (BPE) following their inability to repay the loans they obtained to acquire these assets during the 2013 privatisation exercise.
In light of these challenges and opportunities, the Nigerian Government has embarked on a transformative journey with the enactment of the Electricity Act 2023. This legislation not only marks a pivotal shift from centralized power generation to a more decentralized approach but also underscores the nation’s commitment to fostering industrialization, promoting equitable access to electricity, and attracting much-needed investments in the energy sector.
THE NEW ACT & ITS OBJECTIVES
On June 9, 2023, the Nigerian Government took a significant step by signing the Electricity Bill 2022 into law, officially naming it “The Electricity Act 2023.” This Act replaces the previously enforced Electricity and Power Sector Reform Act (EPSRA) of 2005, along with several other related acts. The new legislation introduces various critical provisions, including the liberalization of Nigeria’s electricity generation, transmission, and distribution at the national level, granting states, companies, and individuals the authority to generate, transmit, and distribute electricity.
Eighteen years after the passage of EPSRA 2005 and thirteen years since the privatization of the power sector, Nigeria continues to grapple with persistent challenges in the electricity supply, necessitating the development of a new legal framework to guide the post-privatization phase. Hence, the introduction of the Electricity Act 2023.
The primary goal of the Act is to establish a comprehensive integrated resource plan and policy that encompasses various electricity sources, including renewable energy, in Nigeria’s energy generation, transmission, and distribution. Additionally, the Act aims to attract investments into the sector.
The Act outlined various objectives, including the creation of a robust legal and institutional framework to build upon the gains from privatization, promoting the use of efficient technology to enhance power generation, and revitalizing existing power plants. Furthermore, it seeks to advance policies and regulations to expand power transmission networks, address infrastructure imbalances, and improve power generation, transmission, and distribution capabilities. These efforts are aligned with national electricity access targets and the goal of increasing per capita power consumption in Africa.
The Act also establishes a foundation for the development of Nigeria’s electricity supply industry post-privatization. It supports the creation of a competitive electricity market, encourages investments across the electricity value chain to stimulate economic growth and job creation, and improves living conditions for Nigerians. Moreover, the Act promotes access to electricity in various regions, including rural, unserved, underserved, peri-urban, and urban areas, using both conventional and renewable energy off-grid and mini-grid solutions. Additionally, the Act provides an integrated resource plan that mandates the utilization of both renewable and non-renewable energy sources for power supply in the country, attracting investments into the sector, and strengthening the relationship between federal and state electricity markets.
STATE POWER TO GENERATE ELECTRICITY
Pirior to the enactment of the Electricity Act 2023, the Electricity Power Sector Reform Act 2005 (EPSRA) was the Act in use in Nigeria which aimed to revamp the power sector, enabling private companies to participate in electricity generation, transmission, and distribution, same Act divided the Power Holding Company of Nigeria (PHCN) into 18 successor companies, including 6 generation companies (GENCOs), 11 distribution companies (DISCOs) and a transmission company (TCN). The Nigerian Electricity Regulatory Commission (NERC) was also established as an independent regulator for electricity across the nation.
Despite these efforts, the power sector faced challenges such as: generation deficits, transmission issues, illegal connections, and poor distribution networks. Only 53% of available capacity was utilized due to gas supply, transmission constraints, and commercial issues, resulting in inadequate power supply.
This led to discussions about decentralizing the Nigerian Electricity Supply Industry (NESI) to empower states in addressing electricity gaps. However, constitutional and legal questions arose about whether states could establish independent electricity markets, given the Constitution’s division of legislative powers between the Federal and State governments; wherein the states are empowered by the Concurrent List to generate and transmit electricity in places within their state not covered by the National Grid; which is a huge limitation to their full independence as a state.
To address this, in March 2023, former President Muhammadu Buhari signed the Constitution Amendment Bill, clarifying that state House of Assemblies could make laws for generating, transmitting, and distributing electricity within their respective states, without being restricted by the national grid system. This move aimed to improve efficiency, service delivery, and private sector investments in state-focused electricity markets, benefiting states like Lagos, Edo, and Kaduna.
The amendment according to the former president’s spokeman was a huge step into a genuine, realistic restructuring mechanism for the nation. Although this constitutional amendment resolved the issue, it conflicted with the Electric Power Sector Reform Act (EPSRA) of 2005, which only recognized a national electricity market. This discrepancy highlighted the need to review the EPSRA for uniformity in the laws governing the sector.
The Nigeria power sector has experienced substantial changes; thanks to the EPSRA and subsequent constitutional revisions. The most recent development is the Electricity Act of 2023, which grants states the authority to establish their own independent electricity markets.
The Electricity Act 2023 have granted the federating states of Nigeria the authority to establish their own electricity markets and regulatory boards. Previously, the Nigerian Electricity Supply Industry (NESI) functioned under centralized federal control, with the national government overseeing electricity nationwide and states having limited involvement beyond the national grid.
The Electricity Act 2023 marks a pivotal shift by decentralizing the power sector, enabling states to independently govern electricity activities within their boundaries. This transformation promises numerous benefits, including enhanced energy accessibility, better delivery, and improved electricity
However, individuals/private organisations who intend to be part of the electricity market requires a license from the government, if not they can’t build, own, or operate businesses related to electricity, like generating power, sending it through wires, delivering it to homes, selling it, or trading it.This may include constructing and operating mini grids and distribution networks under a law enacted by State authorities.
Before now, mini-grid operations were supervised by the Nigerian Electricity Regulatory Commission. In a revolutionary move, the Electricity Act 2023 donated regulatory power over mini-grid operations, Independent Electricity Distribution Network Operations, and Independent Electricity Transmission Network Operations to the states.
It is also worthy of note that anyone who contravenes the licensing provisions may be penalized with a fine of at least 10 times the application and license fees for the relevant license contravened, imprisonment not exceeding five years, or both. They might also face permanent forfeiture of their facilities to the Commission.
EXCEPTION UNDER THE ACT:
The Act permit individuals to establish small-scale electricity projects without requiring a government-issued license, provided that their power generation does not surpass 1 megawatt (MW) at a single location or enterprise for electricity distribution, with a maximum capacity of 100 kilowatts. Additionally, the Act gives power to states to provide licenses to private investors to establish mini-grids and power plants or other undertakings inside their borders, for the generation, transmission, distribution, supply, or sale of electricity. It however forbids interstate and international electricity transmission.
WHAT CAN 1 MEGAWATT OF ELECTRICITY ACTUALLY POWER?
A proper understanding of this is important, to grasp the effect of this provision. Electricity is measured in watts. One thousand watts equals one kilowatt and one thousand kilowatts equals 1 megawatt. 1 megawatt is therefore 1 million watts. That’s a lot of power!
According to the Northwest Power and Conservation Council, one average megawatt is enough to power 796 homes for a year. A megawatt of capacity, for conventional power generators, like a coal plant, will generate roughly the same amount of electricity used by 400–900 houses annually.
From the above we can rightfully deduce that the 1-megawatt generation cap, without a license is sufficient enough to do some good. Communities within a state could raise funds, secure loans and enter into development agreements with investors and generation companies in the electricity sector, to construct power plants in their respective communities which could serve their electricity demand. Other sub-companies could then transmit and distribute to different homes and establishments within the community which will boast the economic viability of rural communities.
Evidently, in situations where such a community’s use of the 1Megawatt (MW)or 100 Kilowatts (KW) aggregate is insufficient, the local generation, transmission, or distribution companies could obtain a license from the state electricity agency in order to supply electricity beyond that cap.
In our today’s Nigerian system, national/state assembly members donate upto 500KVA (Kilovolt-ampere) Transformers as constituency projects to enhance power transmission to underserved areas. This is a key power transmission mechanism to ameliorate the hardship of constituents in underserved areas.
How practicable is the construction of independent power plants in each community?
Constructing an independent power plant is a challenging endeavor, but it has been accomplished in the past;
- In November 2021, the Gbangba community in Gbako Local Government Area, Niger state, experienced a transformative change when they received a complimentary 90KW mini-grid, offering continuous and free electricity to around 305 households in the region.This mini-grid was generously provided by Engie Energy Access, a private company specializing in solar energy solutions in Africa. Prior to this initiative, the Gbangba community had been without access to power, as they were not connected to the national grid.
In a state as rich in natural beauty as Niger, boasting numerous game reserves, waterfalls, parks, lush vegetation, and even railways, the significance of sustainable electricity cannot be overstated. A consistent power supply has the potential to catalyze substantial industrialization and make a substantial contribution to the state’s GDP and overall development. By implementing multiple mini-grids across various communities, Niger state could effectively meet the electricity demands of both households and businesses, ushering in a brighter future.
- Similarly in Lagos state, as of February 2023, the Lagos state government commenced a project to build an interconnected solar mini-grid being developed by A4&T Power Solutions Limited, in partnership with Ikeja Electric PLC. An estimated 12,500 people living in five settlements along the Epe axis in Lagos State would benefit from this solar grid.It is an initiative of the Lagos State Off-Grid Electrification Strategy and Action Plan.
- The Victoria Island Power Plant Project, initiated in July 2023 in Lagos State, is a significant development. This project, led by Elektron Energy Development Strategies Limited in collaboration with Eko Electricity Distribution Plc, is a 30MW embedded natural gas-fired plant. Its primary goal is to provide uninterrupted 24/7 power supply to customers in Victoria Island once completed.During the commencement ceremony, Deen Solebo, the Principal and Chief Financial Officer of Elektron Energy, mentioned that the project has a budget of $50 million and an estimated construction timeline of 18 months.The project is financially supported by entities like FBN Quest, Bank of Industry (BOI), and Infra Credit as debt providers, with Wartsila as the technical partner.
These recent developments align well with the support and backing provided by the New Electricity Act. They represent a significant step forward for Lagos, the country’s business hub, given its abundance of industries, companies, and investors. According to the NERC 1st quarter report, Nigeria’s national grid generates an average of 4,605.72MW of electricity daily, with Lagos receiving approximately 1000MW. However, due to its large size and being the hub for Micro, Small, and Medium Enterprises (MSMEs) in the country, Lagos requires about 9,000MW of daily electricity supply to achieve a continuous 24-hour power supply. Clearly, the task of ensuring an adequate electricity supply in Nigeria is monumental and cannot be solely shouldered by the Federal government.
Sustainable electricity in Lagos State through the successful construction of power grids and plants serves as a commendable example. If other states replicate these efforts, it would reduce operational costs for industries. States with reliable electricity supply would attract more businesses and residents, eliminating the need for costly alternatives like diesel generators. Ultimately, this leads to increased state revenue, contributing to higher national revenue in the long term.
Certainly, given the current state of electricity market independence in various states, potential investors who may not have the capital for full engagement in the power generation sector can choose to operate as wholesalers, similar to the activities of Nigerian Bulk Electricity Trading PLC (NBET) during transactional electricity. In this capacity, they would buy electricity generated by Generating Companies (GENCOs) and Independent Power Producers (IPPs) at agreed-upon prices outlined in Power Purchase Agreements (PPAs) and subsequently resell this electricity to Distribution Companies (DISCOs) responsible for delivering power to end consumers. This approach has the potential to streamline the electricity transaction process and make a significant contribution to the nation’s economy by facilitating more efficient electricity transmission.
Empowering States to Transform Their Electricity Markets
States in Nigeria have the authority to establish their own electricity markets by enacting legislation. This legislation allows them to create a State electricity regulatory authority, appoint its staff, and request the central Commission, NERC, to transfer regulatory authority over electricity operations to the State regulator. This involves notifying both the Commission and the relevant successor electricity distribution company. The successor company must then create an additional subsidiary electricity distribution company and transfer its assets, liabilities, employees, and contractual rights according to fair agreements.
Once these transfers are completed, the Commission relinquishes its regulatory responsibility for electricity market activities within that State. The additional successor company, incorporated and licensed by the State regulator, falls under the regulatory oversight of the State regulator without the need to pay license fees to the Commission. NERC will continue to control the generation and transmission of power in areas without such legislation. Furthermore, the Commission and State electricity regulatory authorities are required to maintain a cooperative relationship and establish an intergovernmental body to coordinate the development of rules for reducing regulatory risks in both federal and State electricity markets.
It’s worth noting that Enugu state, following Edo, Lagos, and Kaduna, passed legislation to establish its electricity market. This announcement was made by the Secretary to the State Government, Prof. Chidiebere Onyia, during the Enugu State Investment Roundtable on September 1, 2023, aiming to boost economic growth through attracting investments in the electricity industry. Other states in the federation are encouraged to follow suit.
The establishment of the Rural Electrification Agency, represents a significant step towards reshaping Nigeria’s energy landscape. This transformative move aims to shift the focus from centralized power generation to decentralized, state-based initiatives. Empowered by the Act, the Rural Electrification Agency is entrusted with a pivotal role in spearheading electrification services in rural and underserved regions.
By coordinating efforts between corporate entities and various stakeholders, the agency aims to ensure efficient and economically viable electricity supply that aligns with societal, industrial, and agricultural needs. The Act’s provisions align with the vision of “From Centralization to State Power,” emphasizing the paradigm shift towards state-level electricity generation to drive industrialization. By empowering local communities and states with the authority and resources to lead electrification projects, the potential for rapid industrialization becomes tangible.
The Agency’s multifaceted functions encompass not only fostering renewable energy utilization and promoting low-cost options but also supporting economic growth. This convergence of policy and execution sets a promising trajectory, leveraging localized energy generation to catalyze industrialization and uplift rural economies across Nigeria.
To effectively execute, coordinate, and monitor rural electrification projects nationwide, the Agency is expected to collaborate with State Rural Electrification Boards or related state agencies. The Agency encourages states to establish Local Government Rural Electrification Implementation Committees to execute components of the Rural Electrification Strategy and Implementation Plans. The State Houses of Assembly play a crucial role in defining the structure, operation, and functions of these bodies. By maintaining liaison with these entities, the Agency assesses the progress of rural electrification, reviews pertinent matters, implements awareness programs on renewable energy opportunities, and builds alliances to resolve disputes. Additionally, the Agency offers technical assistance and encourages State Governments to provide support, contributing to the realization of national targets on rural electrification.
In conclusion, the Electricity Act of 2023 represents a transformative shift in Nigeria’s energy landscape, heralding a transition from centralized power generation to state-led initiatives. By granting states the authority to establish their own electricity markets, fostering rural electrification, and promoting diversified energy sources, this legislation paves the way for unprecedented progress. To fully harness the potential of localized energy generation, it is imperative for states to seize this opportunity, attract investments, and prioritize the development of robust electricity infrastructure. Additionally, ongoing collaboration between state and federal authorities, as well as private sector participation, will be essential in realizing the Act’s objectives and propelling Nigeria towards a brighter and more energy-efficient future. It is our recommendation that all stakeholders work together diligently to ensure the successful implementation of this visionary legislation, thereby unlocking the full potential of decentralized energy generation for the benefit of all Nigerians.
1) Electricity Act 2023
13) 1999 Constitution (Second Schedule)
14)World development indicators 2021, https://data.worldbank.org/country/nigeria