Introduction
The electricity sector in Nigeria is undergoing a pivotal transformation. With the enactment of the Electricity Act, 2023, Nigerian states are now empowered to independently regulate electricity generation, transmission, and distribution within their geographical boundaries. This landmark legislation marks a break from the previously centralized framework under the now-repealed Electric Power Sector Reform Act, 2005. As a result, states now bear the responsibility of creating enabling legal and institutional structures that support decentralization, drive investment, and enhance energy access.
This article explores the necessary legal instruments, institutional mechanisms, and policy measures required to establish a viable and self-regulating electricity market at the state level.
The Constitutional and Legal Foundation
The legal groundwork for state-level electricity markets stems from two primary legislative developments:
1. The Fifth Constitutional Alteration (2023)
This amendment removed electricity from the Exclusive Legislative List. The Constitution now enables state governments to legislate on electricity generation, transmission, and distribution within their borders. This decentralization marks a historic break from the federal monopoly over electricity regulation.
2. The Electricity Act, 2023
Signed into law in June 2023, the Electricity Act repealed the Electric Power Sector Reform Act (EPSRA) of 2005 and introduced a new legal framework. Section 2 of the Act empowers states to:
a) Establish and regulate intrastate electricity markets;
b) Set up State Electricity Regulatory Commissions (SERCs);
c) Develop and enforce rules for licensing, tariffs, and dispute resolution;
d) Formally apply to the Nigerian Electricity Regulatory Commission (NERC) to devolve regulatory powers to the state.
This legal foundation enables each state to build its electricity market with a high degree of autonomy, subject to compliance with applicable federal and regional standards.
Key Steps for States to Set Up Electricity Markets
- Enactment of a State Electricity Law
The first and most critical step is for a state to pass its own electricity market legislation through the State House of Assembly. This law should define the scope and structure of the state electricity market and provide for the establishment of regulatory bodies, licensing procedures, and tariff mechanisms. It should also outline environmental safeguards, technical standards, and consumer protection measures.
The law must also address issues such as generation, transmission, and distribution licensing; approval of tariffs; market supervision; dispute resolution; and standards for embedded and off-grid generation. A well-drafted law creates clarity for investors, regulators, and consumers.
An example is the Lagos Electricity Market Law, 2023, which established the Lagos Electricity Regulatory Authority and marked Lagos State as the first to exercise this new autonomy.
Creation of a State Electricity Regulatory Commission (SERC)
Upon enactment of the state electricity law, the next step is to establish a State Electricity Regulatory Commission. This commission must be independent, transparent, and well-resourced. Its key functions include:
a) Issuing licenses to generation, transmission, and distribution operators within the state;
b) Setting and approving tariffs;
c) Enforcing regulatory compliance;
d) Protecting consumer interests;
e) Facilitating off-grid and renewable energy integration;
f) Monitoring service delivery and operational performance.
According to Section 230 (2) (c) of the Electricity Act, a state must formally notify the Nigerian Electricity Regulatory Commission (NERC) of its decision to regulate its own market. Once this is done, NERC is expected to cede authority over intra-state operations to the state’s regulatory body.
Formulation of an Electricity Development Policy and Master Plan
Laws and regulators alone cannot create a functional electricity market. A state must also develop a comprehensive electricity policy and master plan. This plan should provide a roadmap for how the state intends to meet current and future electricity needs.
Key components of such a plan include targets for energy generation, integration of renewable energy sources, plans for grid and mini-grid development, strategies for rural electrification, and approaches to attract private sector investment. The policy must align with the National Energy Transition Plan and support Nigeria’s broader climate and sustainability goals.
Building Supporting Institutions
Beyond the regulatory commission, states may need to establish or strengthen additional institutions to implement their electricity market goals. These may include a dedicated State Ministry or Department of Energy to oversee policy direction, a Rural Electrification Agency as we have at the federal level to coordinate off-grid efforts, and potentially state-owned distribution companies for infrastructure development in underserved areas.
Clear delineation of roles is important to avoid duplication of efforts or institutional conflicts. The focus must be on coordination, accountability, and results.
Collaboration with Federal Institutions
Although states are now empowered to regulate electricity within their borders, coordination with federal institutions remains essential. NERC retains oversight of inter-state transmission and bulk trading activities. The Transmission Company of Nigeria (TCN) still manages the national grid, which some state systems may remain connected to. In some cases, existing Power Purchase Agreements (PPAs) with NBET may still apply.
States must establish protocols for interfacing with NERC, TCN, NBET, and the Rural Electrification Agency (REA), particularly where electricity value chains intersect federal and state jurisdictions. Clear legal instruments and Memorandum of Understanding (MoUs) can help define responsibilities and prevent regulatory overla
Creating a Conducive Environment for Investment
A major aim of electricity market decentralization is to unlock private sector investment. However, investors will only commit capital where the legal and institutional environment inspires confidence. To attract investment, states must ensure that their electricity law is clear and consistent, that their regulatory commission is credible and independent, and that tariff methodologies are cost-reflective.
They must also provide for transparent licensing procedures, reliable dispute resolution mechanisms, and enforceable power purchase agreements. Special attention should be given to de-risking investment through public-private partnerships, sovereign guarantees, or blended finance tools, especially for large-scale generation or rural electrification projects.
Challenges States May Face
Several challenges may arise during the process of setting up a state electricity market. These include lack of technical expertise within new regulatory bodies, insufficient infrastructure, political interference, and funding constraints.
There may also be resistance from incumbent operators or tension between state and federal authorities. To overcome these challenges, states should invest in capacity-building, develop partnerships with development agencies, and ensure that their regulatory institutions are independent and free from political capture. Long-term success will depend on consistency, transparency, and accountability in governance.
Conclusion
The Electricity Act, 2023 presents an unprecedented opportunity for Nigerian states to take control of their energy futures. However, decentralization brings with it significant responsibility. States that wish to set up functional electricity markets must begin with a clear and comprehensive legal framework, build competent regulatory and policy institutions, and create an environment that welcomes private sector participation. Legal practitioners, policy consultants, and energy experts all have a role to play in guiding states through this transition. With the right frameworks in place, subnational electricity markets can drive development, enhance service delivery, and bring power to millions currently without access.