The enactment of the Nigerian Electricity Act of 2023 represents a watershed in Nigeria’s pursuit of reliable supply of electricity to her teeming population. The Act which repealed the Electricity Sector Reform Act of 2005, came after ten years of a privatized electricity supply industry. It is a bold attempt to reshape the industry with a new framework for states and more private sector participation in the electricity sector.
The primary goal of the Act is liberalisation of the electricity supply industry by allowing state electricity markets. This will allow for generation, transmission and distribution of electricity within a state with state level regulation. While some have criticised the Act and opined that states are not capable of regulating the sector, others have described the move as extending inefficiency from the federal level to the state levels. While their opinions may have some basis, there are very compelling reasons why the liberalisation and state level markets are a better option than the current single market that has delivered little or no gains in the last decade of its existence.
The current single market superintended by the federal regulator has delivered a value chain characterised by operators burdened by debt; players incapacitated by unmet obligations and consumers frustrated by unfulfilled demand; in summary a society with unrealised aspirations. To continue with the same arrangement and expect different outcomes will amount to living in dreamland. There was an absolute need for tweaking the system and allowing for a change. State electricity markets doubtless come with challenges, opportunities and prospects.
Challenges
The foremost challenge state markets will face is effective regulation. Markets are generally imperfect. Electricity markets, due to their significant vertical and structural integration, usually include supply-side monopolies and oligopolies. This makes regulation crucial.
Two critical factors for effective and efficient regulation are the regulatory framework and the regulatory agency. These will determine the incidence or otherwise of regulatory capture.
Another key challenge is tariffs. This has always been a challenge since privatisation in 2013 and will continue to be in the coming years for state markets more so in view of the widening gap between costs reflective tariffs and consumers’ ability to pay.
The burden of legacy debts and other obligations to be inherited from the national electricity market would also be challenging. Allied to this is dispute resolution around inter-state markets, market boundaries and regulatory overlaps. Significant as these challenges are, states are in position to address and surmount them. What is crucial is the combination of will and determination.
Opportunities
With the possibility of thirty-six state level electricity markets, the opportunities are immense. The supply-side opportunities for generation, transmission and distribution will create huge investment opportunities and greater plays for the private sector. State governments and their regulatory agencies will need to adapt the regulatory environment to the needs of their states in order to incentivise investments. There will be opportunities for innovation, diversifying the energy mix and achieving energy security at the state levels. It is an opportunity for each state to chart a path and determine her future as far as electricity supply is concerned.
Prospects
While looking daunting initially, the state level electricity markets have great prospects for economic development. Each state will be uniquely positioned to meet its needs within available resources. It will be possible for states in some regions to invest in renewable energy sources while states in other regions can harness other resources to meet their electricity needs and achieve key sustainability goals.
The state electricity regulatory commissions will have the onerous responsibility of being pathfinders that will chart the way forward, by enabling critical investments and a win-win for all stakeholders.
Any attempt to scuttle the state electricity markets will be retrogressive, such can only be championed by elements benefitting unjustly from the status quo.
Onoakpoma Ohimor, an energy and financial analyst, is a seasoned finance and business development expert with over 16 years of experience, particularly within the energy industry. He can be reached via oohimor@gmail.com
