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What the Electricity Act 2023 Means for the Electricity Market and Stakeholders in Nigeria

posted 4 months ago

On 9th June 2023, President Bola Ahmed Tinubu signed the Electricity Act 2023 into law. Notwithstanding all the steps taken by previous governments and administrations, the Nigerian power sector continues to be plagued with a myriad of challenges that ultimately decelerate progress and improvements in power generation, transmission, supply, and distribution. The most recent attempt prior to this Act, was the Fifth Alteration (No. 33) Bill 2022 (The Electricity Constitutional Amendment), which was signed in the last days of the previous administration and altered the Constitution of the Federal Republic of Nigeria to empower states to enact laws with respect to the generation, transmission, and distribution of electricity in areas covered by the national grid system within their state. Overview The Electricity Act 2023 repeals the Electric Sector Reform Act, 2005. The primary objective of the Act is  to provide a comprehensive legal and institutional framework to guide the operation of a privatized, contract and rule-based competitive electricity market in Nigeria, and to attract private sector investments in the entire power value chain of the Nigerian Electricity Supply Industry (NESI). Applicability of the Act: The Act applies throughout the country with respect to all aspects and segments of the power sector value chain in Nigeria, but nothing in the Act invalidates any law passed by the House of Assembly of any state with respect to all aspects of generation, transmission, system operation, distribution, supply, and retail of electricity within the state. What this means is that states still have the liberty to enact laws through their state Houses of Assembly to regulate state electricity market, create power stations for generation of electricity for supply, transmission and distribution to rural unserved and underserved areas. Creation of Integrated National Electricity Policy and Strategic Implementation Plan: To further guide the overall development of the electric power sector in Nigeria for optimal utilization of resources like coal, natural gas, nuclear substance, and materials, as well as renewable energy sources for the generation, transmission and distribution of electricity, the Act mandates the Federal Government to create an Integrated National Electricity Policy and Strategic Implementation Plan. This new strategic policy implementation plan is to be initiated through the ministry in charge of power, within one year of the commencement of the Act upon approval of the Federal Executive Council (FEC) and may be reviewed periodically but not later than every five years. Validity of the pre-privatization and post-privatization of the Nigerian Electricity Supply Industry (NESI): The Act recognizes the validity of the pre-privatization and post-privatization of the Nigerian Electricity Supply Industry (NESI) which resulted in the unbundling of the defunct National Electric Power Authority (NEPA), into 18 distinct Power generation, transmission, and distribution companies, which emerged from the Power Holding Company of Nigeria (PHCN) which was the initial holding company. The Act also provides for the regulation and supervision of competition in the substantially privatized electricity market, by ensuring that the federal minister in charge of power exercise supervisory powers and functions. Creation of the Nigerian Electricity Regulatory Commission (NERC): The Act creates the Nigerian Electricity Regulatory Commission (NERC) as the apex regulator of the NESI. It empowers NERC to among other things, license and regulate persons engaged in the generation, transmission, system operation, distribution, supply and trading of electricity, create market rules and grid codes, safety, security, reliability and quality standards, establish consumer rights and obligations regarding the provision of electricity services, monitor the general operation of the electricity markets, and place sanctions as necessary in deserving circumstances. Any grievance with the decisions or actions of the NERC by any person with respect to the cancellation of a licence, refusal to issue or renew a licence, etc.  is subject to a review first by NERC upon an application made to it and it may give a final decision rescinding or varying its earlier decision. Any further grievance with the final decision given by NERC pursuant to its review is subject to an appeal at the Federal High Court. The Act further states that a person shall not institute and maintain a suit against NERC without first initiating and exhausting the internal dispute resolution with NERC. Compulsory installation of meters for distribution of electricity to consumers. The Act makes it mandatory for electricity distribution licensees to install meters for distribution of electricity to consumers. There is also a corresponding mandatory obligation on all consumers of electricity to allow the installation of meters in their premises and pay bills chargeable to the electricity distribution licensees. The Act provides that where a consumer fails to pay bills, the electricity distribution licensee may cut off the consumer’s connection to power after giving notice in the manner prescribed by the NERC. Establishment of the Power Consumer Assistance Fund: The Act establishes a Power Consumer Assistance Fund (PCAF), which shall be used to subsidize electricity supply to underprivileged power consumers. This category of underprivileged power consumers shall be determined by the Minister in charge of power in consultation with the NERC. Creation of the Rural Electrification Agency: The Act creates the Rural Electrification Agency with the objectives of coordinating corporate bodies, private investors using renewable energy sources for rural electrification in the rural, unserved, underserved areas, thereby promoting universal access to affordable and sustainable electricity, and improving the quality of life and economic opportunities of rural, unserved, and underserved communities in Nigeria. Key Highlights

    • The Electricity Act, 2023 repeals the Electric Power Sector Reform Act, 2005, the Nigerian Electricity Management Services Agency Act, 2015, the Hydroelectric Power Producing Areas Development Commission (Establishment Act, Etc.) and its various amendment Acts
    • Under the Act, the Federal Government shall support the development and utilization of renewable energy sources for the generation, transmission, system operation and distribution of electricity.
    • The Transmission Company of Nigeria (TCN) is obliged to incorporate a company to be known as Independent System Operator (ISO) upon a written directive of NERC which is to be licensed by NERC to carry out the market and system operation functions such as generation scheduling, commitment and dispatch, transmission congestion management, administration of wholesale electricity market, etc. which were hitherto being exercised by TCN.
    • A licence is required for electricity generation (excluding captive generation), transmission, distribution, supply trading and system operation.
    • The construction, ownership and operation of an undertaking for generating electricity not exceeding 1 megawatt (MW) or an undertaking for distribution for electricity with a capacity not exceeding 100 kilowatts (KW) does not require a licence.
    • The Act encourages private sector investments in the generation, transmission, distribution, and supply of electricity from renewable sources such as solar, wind or water.
    • The Act provides for the introduction of tax incentives as are necessary to incentivize, promote and facilitate the generation and consumption of electric power from renewable energy sources.
    • The Act recognizes the power of federating states to regulate their electricity markets by issuing licenses to private investors to operate mini-grids and power plants within the state. Interstate and international electricity delivery from such mini grids is however prohibited to state as it is within the remit of the Federal Government.
    • The NERC maintains its status as the apex regulator of electricity sector in Nigeria, and until the federating states pass their own electricity laws, the NERC shall continue to regulate electricity business and markets within the federating states.
    • The Act creates a Power Consumer Assistance Fund (PCAF), which shall be used to subsidize electricity supply to underprivileged power consumers.
    • The Act creates the Rural Electrification Agency with the objectives of coordinating the use of renewable energy sources for rural electrification and promoting universal access to affordable and sustainable electricity, which improve the quality of life and economic opportunities.
    • The Act creates offences and imposes penalties. Offences such as theft of electricity, theft of electric lines and materials, receiving stolen electricity, interference with meters or works of licensees, negligently breaking or damaging, intentionally disrupting power supply, damage to public street lightings, obstruction and impersonation, general contravention of orders and regulations and their penalties are specifically provided for under the Act.
Conclusion The deficiency in power transmission in Nigeria has been attributed to inadequate power transmission infrastructure. The decentralization of power generation and distribution under the Electricity Act 2023, which gives states the power to develop legislations to create local markets for generation and transmission of power to all areas within their boundaries is anticipated to enhance affordable and sustainable electric power to all areas. Indeed, with the introduction of a parallel electricity market in the states, customers within the states can decide to remain connected to the national grid or opt for a mini-grid operator licensed by the state within which they reside in. The shift from fossil-based systems of energy production and consumption to renewable energy sources will create a market for renewable energy and stimulate private sector investments. Please note that the contents of this article are for general guidance on the Subject Matter. It is NOT legal advice. For further information or to see our other service offerings, please visit www.goldsmithsllp.com  or contact: Colin Egemonye                              Shola Adekunle                       Ada Izuchukwu Partner                                                Associate                              Associate +234-1-291-7913                           +234-1-291-7913                         +234-1-291-7913 [email protected]       [email protected]            [email protected]

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