The Making and Evolution of an Electricity Market: Unpacking the Nigerian Electricity Bill, 2021
Part 1: State participation in Electricity Value Chain activities in areas covered by the National Grid and Review of National Electricity Policies and Plans
The Electricity Bill, 2021 which seeks to repeal the Electric Power Sector Reform Act, 2005, was recently the subject of discussion(s) at a two day public hearing organised by the Senate Committee on Power with industry stakeholders actively present. The Bill is a commendable development, as it seeks to provide a comprehensive legal and institutional framework for the post privatization phase of the power sector, to be governed via a contract and rule-based competitive electricity market in Nigeria. The Bill also seeks to attract private sector investments in the entire power value chain through transformative policy and regulatory measures.
How far does the Bill achieve the intended objective of attracting private sector investment based on its provisions? Will the electricity sector witness a new wave of investments in the Nigerian Electricity Supply Industry (NESI) if the Bill is enacted into law?
This Policy Brief as one of a multi-part series will showcase the viability of the Bill in attracting the much needed investments into NESI or otherwise, in a bid to educate readers on the process, evolution and dynamics of electricity markets.[1]
In this first part, the key provisions of the Electricity Bill will be highlighted, and the issue of National Electricity Policies and Plans will be expounded, alongside the scope for States to participate in value chain activities in areas covered by the national grid.
Notable highlights of the Electricity Bill include:
Provision of a clear guide and legal basis for a phase-wide development of NESI post-privatisation
Provision for the formulation and adoption of a National Integrated Electricity Policy and Implementation Plan to eliminate policy overlaps and duplication of efforts and entrench policy and regulatory harmony
Provision of a framework to support the development and utilization of renewable energy sources and to attract investment in renewable energy sources for the purpose of increasing the contribution of renewable energy to the overall energy mix
Provision of a framework for improved off-grid electrification through renewable off-grid and mini-grid solutions
Provision of a framework for the building of indigenous capacity in technology for renewable energy sources
Clarification of the constitutional role of States and Local Governments in electricity generation, transmission, and distribution vis-à-vis the role of the Federal Government in rural electrification
Provision for the supervisory power of the Minister of Power and attendant functions
Provision for oversight responsibility of the Nigerian Electricity Supply Industry by the National Assembly
Establishment of the Rural Electrification and Renewable Energy Agency to take on the dual function of rural electrification and renewable energy development in the country
Provision for electricity supply as a licensed activity in NESI
Provision of Renewable Purchase Obligations and Feed-in-Tariffs to promote consumption of energy produced from renewable energy sources
Provision for Net-Metering
Provision for Incentives and Standards for renewable sourced electricity
Provision for the integration of renewable energy into the grid and grant of Third Party Access to renewable energy generators
Provision for private sector investment in the transmission network
Recognition of eligible customers in the various market stages
Provision for the incorporation and licensing of the Independent System Operator
Establishment of the Hydroelectric Power Producing Areas Development Commission
Provision for Supply and Electricity Distribution Franchising subject to tariff regulation
Provision for electricity subsidy by the Federal or State Governments
Provision restricting the abuse of market power within the framework of the Federal Competition and Consumer Protection Act, 2019
Provisions recognising the Nigerian Electricity Management Services Agency
Provision of a clear framework for cross-border electricity trading in the interest if national security and energy self-sufficiency
Provision of a framework for electricity theft and other measures necessary for the security of electricity infrastructure
Provision for the quick and speedy resolution of disputes via the establishment of the Electricity Disputes Appeal Tribunal
Increased scope and charges for offences and penalties
Establishment of the Federal Power Task Force, etc.
Applicability of the Electricity Bill 2021- Expanding the scope for State participation in Value Chain activities in areas covered by the National Grid and review of National Electricity Policies
Based on the provision of Section 2(2)(a) of the Bill, the applicability of the Bill in line with the provisions of Section 4 and Paragraph 13 and 14, Part II, Second Schedule to the Constitution does not invalidate any laws passed by the House of Assembly of a State with respect to generation, transmission, and distribution of electricity to areas not covered by a national grid system within that State. However, the limitations of grid coverage based on the powers of the State to generate, transmit and distribute power has recently been somewhat laid to rest, based on the recent passage of the Constitutional Amendment Bill seeking to amend relevant provisions of the Constitution to allow states generate, transmit and distribute electricity to areas covered by the national grid.
The successful Presidential assent of the Constitutional Amendment Bill into law (if achieved) will override the provision of Section 2(2)(a) of the Electricity Bill that seeks to restrict/ limit States to participate in value chain activities, in so far as those activities are outside the purview of the national grid, essentially restricting states to off-grid activities. By extension, this will also apply to the provisions in Sections 2(2)(b), (c) and 2(3) dealing with the establishment of state electricity power stations, establishment of State Electricity Boards or other authorities to manage electric power stations in areas not covered by the national grid and also the sanctioning of joint collaboration between the Federal and State Governments and the organized private sector to facilitate electrification of areas not covered by a national grid system, particularly through the exploitation of renewable energy sources. Section 2(3) defines power stations as the assembling of any plant or equipment set up by any State Government to generate electricity to areas not covered by a national grid system within the State.
There are however possible concerns that may emanate based on the expanded scope of participation by States in areas covered by the national grid, ranging from demarcating areas of operation(s), multiplicity of licensing framework(s), duplicity of regulatory and institutional structures, contract renegotiations (particularly industry and transaction documents that formed the basis of the privatisation of the sector), harmonizing the regulatory powers of the Nigerian Electricity Regulatory Commission (NERC) and the State established electricity regulatory authorities to avoid excessive regulatory hurdles for operators or what is popularly termed as ‘overregulation’, etc.
With States getting involved in the full spectrum of value chain activities including electricity distribution, a well-designed market structure will need to be mapped out, the starting point being an effective National Integrated Electricity Policy and Implementation Plan factoring involvement by the States within the value chain dynamics, to build an efficient energy system that addresses security, environment, economic efficiency, and safety within the nation’s energy resource mix.
Although the Bill in Section 3(1) requires the Federal Government through the Ministry in charge of Power to develop and publish in the Federal Gazette, an Integrated National Integrated Electricity Policy and Strategy Implementation Plan in consultation with relevant ‘Government Authorities’ and other stakeholders; which can be inferred by general definition to include State Governments, to avoid any form of ambiguity, the definition of ‘Government Authorities’ should be categorically defined to include State Governments and attendant State Ministries, Departments and Agencies (where applicable).
A cooperative and harmonised approach will allow for the speedy attainment of improved energy access across States and by extension, the entire economy. This is hinged on the objectives of national electricity policies and plans that provide a roadmap of the future energy landscape in a given country, which will in effect guide short and long term infrastructure investments and policy development, while addressing energy demand requirements, particularly the energy needs of vulnerable households often pegged as ‘lifeline’ consumers. Energy plans also analyse current energy consumption trends within different sectors of the economy, and the results of such trends are usually used to forecast/project future energy requirements under different scenarios.
In India, the National Electricity Policy recognised in the Electricity Act of 2003, requires the Central Government to formulate the Policy in consultation with the Central Electricity Authority (CEA) and State Governments. Section 3(1) of the Electricity Act 2003 provides:
"The Central Government shall, from time to time, prepare the National Electricity Policy and tariff policy, in consultation with the State Governments and the Authority for development of the power system based on optimal utilization of resources such as coal, natural gas, nuclear substances or materials, hydro and renewable sources of energy".
The National Electricity Policy in India has evolved in consultation with and considering the views of the State Governments, Central Electricity Authority (CEA), Central Electricity Regulatory Commission (CERC) and other stakeholders. The National Electricity Plan envisaged in Section 3 (4) of the Indian Electricity Act 2003, stems from the National Electricity Policy as enshrined within the Electricity Act 2003.
The proposed National Integrated Electricity Policy and Implementation Plan in addition to the areas listed in Section 3(2) of the Electricity Bill, should also address key areas such as: Generation, Transmission, Distribution, Cost recovery, Financing power sector programmes including Private Sector Participation, Energy Conservation, Environmental issues, Cogeneration and Non-Conventional Energy Sources, Protection of Consumer Interests and Quality Standards, Competition, Technology Development and Research and Development, etc.
The Electricity Policy of a nation is key, as it sets the tone of how the sector will function and it also dictates the framework of any attendant integrated resource plan(s). This has however not been the case in South Africa, where although a 1998 White Paper on Energy Policy exists, the planning that has taken place over time has recently been criticised as being done in the absence of a published National Integrated Energy Plan which is a requirement enshrined in Section 6 (1) of the National Energy Act, Act 34, 2008, stipulating that the Minister of Energy should develop, review, and publish annually an Integrated Energy Plan. There is however a published integrated resource plan for electricity covering the period from 2010 to 2030, as published in 2011.
Efforts in developing a National Integrated Electricity Policy and Implementation Plan in Nigeria cannot be undertaken effectively without the involvement of the States considering the individual sectoral activities that take place in the States within the wider sub-sectors of the national economy. A cooperative approach will result in effective short and long term demand forecast, identification of locations for capacity additions, adequate integration of possible identified locations with the transmission system, efficient deployment of technologies available to undertake value chain activities, fuel choice allocation based on energy security and environmental considerations. Furthermore, any attempt to isolate key stakeholders in the process will only result in intermittent, uncoordinated, and incoherent integrated resource planning.
Key Takeaways
Ø A well designed market structure will need to be mapped out and developed to accommodate the involvement of States.
Ø The National Electricity Policy and Strategic Implementation Plan should categorically factor and define State involvement, to build an efficient energy system.
Ø An Integrated Energy Plan is key for adequate resource planning via trend forecasting, scenario analysis, etc.
Ø A cooperative and harmonised approach in developing Energy Policies and Plans will allow for the speedy attainment of improved energy access across States and by and large the entire economy.
[1] Electricity markets in the context of this brief speaks to the sector view as a whole, as opposed to the trading of electricity which exists as an activity within the sector.