For years, Nigeria has grappled with the challenge of inadequate power supply, hindering its economic growth. To address this issue, the Nigerian government took a significant step by passing the Electricity Bill in July 2022, amending the Electricity and Power Sector Reform Act of 2005. Now known as the Electricity Act, the legislation has been signed into law by President Tinubu.
Provisions of the Electricity Act
The Act introduces several important provisions, including:
- Elimination of Tenured Licenses Constraints: This aims to encourage more players to enter the electricity market, promoting competition.
- Business Continuity and Intervention Powers: The Act ensures uninterrupted services even in cases of license revocation, distress, non-performance, and managerial failure.
- Power Consumer Assistance Fund (PCAF): The Act operationalizes the PCAF to support consumers in need and gradually eliminate cross-subsidies for fair pricing.
- Rural Electrification Funding: The Act seeks improved funding for rural electrification projects, expanding electricity access to underserved communities.
- Consumer Protection and Electricity Theft: The Act protects consumers from unfair practices and imposes severe punishment for electricity theft and related offenses.
- Renewable Energy Promotion: The Act encourages the contribution of renewable energy to Nigeria’s energy mix, providing opportunities for investors in the growing renewable energy market.
Implications of the Electricity Act
The enactment of the Electricity Act is expected to bring about several implications for Nigeria’s power sector and broader economy:
- De-Monopolization and Competitive Market: This will de-monopolize electricity generation, transmission, and distribution at the national level, fostering a more competitive electricity market.
- Infrastructure Improvement: Existing distribution companies can enter franchise arrangements to improve infrastructure and establish subsidiaries for intra-state electricity distribution businesses.
- Tariff Increase and Economic Impact: The overall performance of the economy may be impacted as higher electricity costs, removal of fuel subsidies, unification of foreign exchange rates, and increased VAT on diesel collectively affect economic activities.
- Rising Operational Costs: Businesses and manufacturers heavily reliant on electricity would face rising operational costs due to the tariff increase and higher VAT on diesel, potentially leading to higher costs of goods and services.
- Investment Opportunities in Renewable Energy: The Act’s focus on renewable energy will create a new market with high demand, presenting significant investment opportunities for capital-intensive energy projects.
- Decentralization of Electricity Regulation: State Governments now have the power to regulate mini-grids, embedded power, and independent electricity distribution and transmission networks.
Impact of the New Act
- Consumers may shift from electric-powered appliances to renewable energy sources due to rising fuel and electricity prices.
- The Act empowers communities and individuals to build their power plants and mini grids, increasing energy self-sufficiency.
- The planned increase in electricity tariffs could lead to a decline in consumers’ purchasing power, further impacting the cost of living.
- Electricity metered consumers may experience reduced electricity units from distribution companies as electricity becomes a premium product.
On the Environment:
- The Act’s mandate for power generation from renewable energy sources will lead to reduced greenhouse gas emissions, benefiting the environment and climate.
- A shift from fossil fuel-based power generation to wind, solar, biofuel, and geothermal sources will promote economic and climate benefits.
On Businesses and Manufacturers:
- The Act will create opportunities for new businesses in the energy sector, fostering innovation and attracting investments.
- Manufacturing industries will need to supplement increased electricity costs with alternative energy sources, leading to changes in operational strategies.
- Increased electricity tariffs could result in decreased business activities and revenues due to higher production costs and increased goods prices.
- As individuals and companies are empowered to generate their power, the demand for generators may decline, given their cost-effectiveness in the absence of fuel subsidies.
On the Government:
- Full deregulation and the removal of energy subsidies could lead to cost savings for the government, which can be redirected to other economic development projects.
- State governments may compete to develop their power market legal frameworks, encouraging investment and economic growth.
- State governments can partner with local and foreign investors in developing the electricity sector, leading to more internally generated revenues.
The Electricity Act represents a significant step towards transforming Nigeria’s power sector, promoting renewable energy, and expanding access to electricity. While it poses its own challenges, adapting to the changes brought by the Act will be crucial to harnessing the benefits and achieving a more robust and sustainable power sector in Nigeria.