July 4, 2023/Coronation Research
Today we turn our attention to Nigeria’s power sector which remains a front burner topic given its direct correlation to the country’s much-awaited industrial take-off. According to the latest World Bank Tracking SDG7, 42% of the population (c.86 million ) lacked access to electricity as at 2021. Based on data from the Nigeria Electricity Regulatory Commission (NERC), actual generation stood at an average of 4231.9MW, which is a decline of -1.5% y/y from an average of 4294.0MW recorded in Q4 ’21.
The Electricity Act 2023 was signed into law by President Tinubu in June 2023 to promote a competitive electricity market across generation, transmission, and distribution segments.
Principally, the new Act repeals the Power Sector Reform Act of 2005 by granting states with enacted laws on electricity full autonomy from NERC. Previously, the Electricity Power Reform Act (2005) operated under the premise that there is only one industry regulator (NERC).
However, with the new electricity Act, states now have the authority to pass legislation and establish their regulatory commissions. Presently, only Lagos, Edo, and Kaduna states have enacted specific electricity laws.
The new electricity Act also authorizes states, companies, and individuals to generate, transmit and distribute electricity. This development aligns with the constitutional amendment approved by President Buhari in March ’23 which granted states the authority to undertake generation, transmission and distribution of electricity.
It also mandates NERC to promote a mix of power generation from both fossil and renewable sources by offering incentives such as waivers, subsidies, and feed-in tariffs to independent power producers. These measures are intended to increase investments in renewable energy sources (such as – solar, wind and hydro).
Furthermore, in a bid to encourage public-private partnerships, the new Electricity Act stipulates private investors willing to own and operate mini-grids within states must obtain appropriate licenses before operations commence. Note that the license does not permit the licensee to distribute electricity interstate. However, without licenses, private investors can construct a facility that generates and distributes a total electricity capacity of 1MW and 100KW respectively at a specific location unless stated otherwise by NERC.
We expect some states to develop power plants. However, majority are likely to partner with private companies to build and operate power plants under specific regulations as well as, enter into power purchase agreements with the generating companies.
The Act also mandated tariff methodologies geared at ensuring reasonable electricity tariffs. This is expected to balance the need for revenue growth with consumer affordability. Meanwhile, in July ’23, DISCOs are expected to review the electricity tariff in line with the Multi-year Tariff Order. An upward review is expected, given current macroeconomic trends (inflation, fx, and interest rate).
Based on our estimates, if “full power” is attained and made routinely available to businesses
and households, it could add at least two percentage points to annual GDP growth.
For the full economic note, please click here
