ELECTRICITY ACT 2023: What stakeholders must do now
By Idowu Oyebanjo
The assent of President Bola Ahmed Tinubu on Thursday, 8th June, 2023, of the Electricity Act, has the potential to transform the Nigerian Electricity Supply Industry (NESI) into a decentralized power system for better performance. This obviously depends on the implementation of the act and the people saddled with the assignment.
The Minister of Power
The Ministry of Power, under the stewardship of the Honourable Minister of Power, is responsible for ensuring the successful implementation of the Electricity Act.
In particular, section 3(1) of the Act requires the Minister to initiate the process for the preparation and publication in the Federal Government Gazette, an Integrated National Electricity Policy and Strategic Implementation Plan (NIEP&SIP), within one year from the commencement of this Act.
A committee is therefore urgently required as we approach the end of the third of the twelve-month deadline stipulated for it in the law. The committee has to be strategic and futuristic to ensure that the electricity policy and implementation plan reflects the goals and aspirations of power sector reform in Nigeria in the short-to-medium-to-long term. Need I say that a successful implementation of the Electricity Act is only possible through harmonization of ideas and collaboration of stakeholders in the electricity sector space.
The Minister of Power will therefore need to direct the Nigerian Electricity Regulatory Commission (NERC), the Federal Electricity Regulator, to among other requirements, ensure the smooth and efficient transition to the decentralized power system envisioned by the Act. Some of the key requirements include the unbundling of the Transmission Company of Nigeria (TCN) into Transmission System Provider (TSP) and the Independent System Operator (ISO). The ISO will have a dual function of being the Market Operator (MO) and the System Operator (SO). In the future, it is my expectation that these two functions will be separately handled by different institutions or entities. Additionally, the Act sets a “sunset date” for the Nigerian Bulk Electricity Trader (NBET) and NERC will have to gauge the right steps to take to ensure the electricity market is not negatively impacted or distorted.
In view of the investments of the Federal Government in the power sector since privatization in November, 2013, it is imperative to determine the ownership structure of distribution companies vis-a-vis shareholding structure between private investors on the one hand, and Federal, State and Local Governments on the other.
The Nigerian Electricity Regulatory Commission (NERC)
The success or failure of the implementation of the electricity act will depend greatly on how NERC sees it being the regulator of the national electricity market with the obvious advantage of having a “bird’s eye view” of the various factors (technical, commercial, legal, or regulatory) limiting the effective transition of the NESI into a vibrant electricity sector to date. Having said that, NERC has to fulfill the law of the Federal Republic of Nigeria by working harmoniously with all relevant stakeholders to move the electricity sector into the Medium-Term & Long-term Electricity Market stages envisioned by the Act. NERC will be required to organize several stakeholder engagement sessions to achieve the desired outcomes.
Sections 7(3) and 15 mandate NERC to unbundle TCN while section 7(2) requires NERC to wind down the operation of NBET at a time to be determined by it.
A key requirement for the existence of an electricity market is knowledge of technical and economic regulation of the market which is currently domiciled in NERC. This has to be transferred to State Regulators who should also seek assistance from various regulatory agencies in the world of power systems, especially from the USA, Canada, Australia, and India. An effective partnership between NERC and State Regulators will bode well for the decentralized Nigerian Power System. To ensure this is the case, there will be need to harmonize regulations, policies, operations, etc so that the implementation of the electricity act is not chaotic in any way.
The Electricity Act makes provision for States that are yet to establish their electricity markets to be administered by the NERC-governed Federal Electricity Market in section 231(9). Even so, inter-state, and/or by extension, regional transmission of electricity will still remain under the purview of NERC {section 63(2)}.
Once a State establishes her electricity market, section 231 of the Act is very specific of the requirements for NERC. For a start, once notified by the state of such established market, NERC will take steps to transfer regulatory functions to the State Regulator within a maximum period of six (6) months (section 231, sub-section 3). This itself requires that NERC be proactive in preparing ahead of any such notification by a State, the detailed guideline documents for the seamless transition.
State Governments
To realize a state-owned electricity market envisioned by the Electricity Act, there is no gain saying that State Governments have to take advantage by ensuring that the State House of Assembly passes a bill establishing the State Electricity Market (section 231, sub-section 2a&b). Next, the State will have to notify the National/Federal Regulator, NERC, who will within 45 days, take steps to fulfill the requirements of section 231, sub-section 3 highlighted earlier. Simultaneously, the State will notify the successor electricity distribution licensee(s) and the Bureau of Public Enterprises (BPE) acting on behalf of the National Council on Privatization (NCP) & Federal Government (FG). This step is what allows both of them to fulfill the requirements of section 231, sub-section 4 of the electricity act.
The Distribution Companies (DisCos)
The distribution licensee(s) operating in a State that has declared her electricity market will upon formal notification of same, incorporate a subsidiary electricity distribution company under the Company & Allied Matters Act (CAMA) and transfer thereto, assets, liabilities, employees, and obligations of the successor company in that State (section 231, sub-section 4). This requires DisCos to be proactive in engaging State Governments within their network franchise area as to their intention and preparedness for the establishment of own electricity market. This has to be seen as a partnership of mutual benefit. Subsequent to the fulfillment of sub-sections 3 and 4 of section 231 of the Act, and whichever occurs later in time, the National Electricity Regulator, NERC, will cease to have any further regulatory responsibility over the State Electricity Market (section 231, sub-section 7). From this point onward, the incorporated subsidiary distribution company will be issued a separate licence, subject to the oversight of the State Electricity Regulator (section 231, sub-section 8).
To re-emphasize the need for collaboration and cooperation, section 231, sub-section 10 requires that NERC and “all State Electricity Regulatory Authorities shall have a continuing obligation to foster and maintain a beneficial inter-institutional relationship between themselves and accordingly they shall establish an inter-governmental body to promote harmonious relationships with each other individually and as a group and for coordinating the development of principles, standards, and rules for the reduction of regulatory risks in the Federal and State Electricity Markets in the country”.
Other Market Players
The Electricity Act should excite investors in the on-grid, and especially, the off-grid sector as a lot of emphasis is placed on improving the electricity access per capita in Nigeria by deploying significant levels of renewable and off-grid systems. Apart from the work already being done by the Rural Electrification Agency (REA), all states will now include renewables and mini-grids in their portfolio of energy sources to be utilized for electricity generation in their domain. Also, Generating Companies (GenCos) and individual suppliers/traders have to ensure that a certain percentage of their supply is from renewable energy resources. The introduction of feed-in tariffs will make consumers to become active players in the market as “prosumers who can sell excess electricity to the distribution network given the right pricing signals.
Conclusion
The birth of a decentralized power system in Nigeria is here. Citizens should shift focus to their State Governments with respect to the provision of electricity and demand the establishment of electricity markets, regional integration and effective integrated resource/power system planning. Only then can Nigeria grow its electricity access and witness economic development/industrialization.
Idowu is a power system professional with a PhD in Power Systems from the University of Manchester, UK
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