LEGAL AND REGULATORY FACTSHEET
NIGERIA[1]
| Country Population[2] | Actual Generation Capacity[3] | Deficit (in MW)[4] | Energy’s contribution to GDP[5] | Ease of doing Business (Ranking)[6] |
| 218,541,212 | 4,605.72 MW | 213,935.5 MW | 1.39% (Q2 of 2022) | 131st |
ENERGY MIX OVERVIEW
| Fuel Mix | Non-renewable thermal (natural gas)- 74.65% and 23.35% Renewable (hydropower)[7] |
| Installed and Actual Generation Capacity | Installed: 12,522 MW[8]
Actual: 4,605.72 MW[9] (As of August 2023) |
| Transmission Capacity (Wheeling Capacity)[10] | Estimated at 8100MW (as of January 2023)[11] |
| Electricity Access Rate[12] | 59.5% (as of 2021, based on World Bank data) |
| Electricity Demand | 19,798MW (as of January 2022)[13] |
| Off-Grid/Renewable Energy Capacity and Framework | A framework exists for the provision of mini-grids, solar home systems and solar photovoltaic systems to serve homes and, Commercial and Industrial (C&I) customers. |
| Alternative Off-take Arrangements | Independent Power Producers (IPPs) are permitted to sell power to off-takers of power which include the Distribution Companies (DisCos) and Eligible Customers. |
ELECTRICITY SECTOR MODEL
| Power Sector Model | Single-Buyer Model and Bilateral Power Market Model |
| Utility Type Structure | Vertically Integrated Utilities |
| Market Staging | Transitional Electricity Market (TEM) stage |
ELECTRICITY MARKET DYNAMICS
KEY LEGAL AND REGULATORY AGENCIES
| Office of the Vice President (OVP) | Responsible for coordinating power sector reforms and providing relevant power sector statistics to stakeholders. |
| Federal Ministry of Power (FMoP) | Tasked with the responsibility of providing policy guidance for the attainment of adequate and reliable power supply in Nigeria |
| Bureau of Public Enterprises (BPE) | A state-owned organization responsible for promoting and implementing the reform and privatization policies of the National Council of Privatization (NCP) for the power sector. |
| Nigerian Electricity Regulatory Commission (NERC) | Independent body established pursuant to the Electric Power Sector Reform Act (2005) repealed and replaced by the Electricity Act, 2023 to serve as the primary regulator for the Nigerian power sector |
| Nigerian Bulk Electricity Trader (NBET) | Government owned body, established as a credible off-taker in the Nigerian electricity market |
| Rural Electrification Agency (REA) | Responsible for promoting, supporting, and providing electricity access to rural areas in Nigeria. |
| Nigerian Electricity Market Services Authority (NEMSA) | Established to supervise the conformity of equipment and facilities utilized in electricity supply to the average technical codes and standards in the sector. |
| National Hydroelectric Power Producing Areas Development Commission | Section 82 of the Electricity Act (2023) establishes the National Hydroelectric Power Producing Areas Development Commission (N-HYPPADEC) which shall be responsible for formulating policies and guidelines for the development of hydroelectric power producing areas, without prejudice to the powers of the Minister to issue policy directives and the NERC’s power to regulate the NESI. Section 89 of the Act outlines the other functions of the N-HYPPADEC.
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LEGAL, REGULATORY, POLICY AND CONTRACTUAL FRAMEWORK
| POLICIES | |
| National Energy Policy, 2003 | Establishes the framework required for development of the energy sector and emphasizes the utilization of renewable energy resources. |
| National Renewable Energy and Energy Efficiency Policy, 2015 | Serves as a guide on renewable energy utilization in the power sector |
| PRIMARY LEGISLATION | |
| Constitution of the Federal Republic of Nigeria, 1999 (as amended) | Vests the National Assembly and States House of Assembly with the authority to legislate and enact laws regarding the Nigeria Electricity Supply Industry for the Federal and State Electricity Market respectively. |
| Electricity Act 2023 | The Act seeks to consolidate the laws relating to the Nigerian electricity supply industry, provide a comprehensive legal and institutional framework for the power sector in Nigeria in the areas of electricity generation, transmission, system operation, distribution, supply, trading, enforcement of consumer rights and obligations, provide for a holistic integrated resource plan and policy that recognises all sources for the generation, transmission and distribution of electricity, including the integration of renewable energy to Nigeria’s energy mix, and attract investments.
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| SECONDARY LEGISLATION | |
| Market Rules, 2009 | Establishes the trading system for the Nigerian Electricity Supply Industry (NESI) and stipulates the requirements within the various market stages for the market to effectively transition to a wholesale electricity market. |
| NERC Licence and Operating Fee Regulation, 2010 | Stipulates the procedure to obtain licences to participate in generation, transmission, or distribution of electricity in NESI and the criteria for renewal, suspension, cancellation, or withdrawal of licences. |
| Independent Electricity Distribution Regulations, 2012 | Provides standard rules for the issuance of distribution licences to investors seeking to engage in electricity distribution, independent of the existing distribution network operated by the Distribution Companies (DisCos) |
| Embedded Generation Regulations, 2012 | Provides standard rules and the framework for the issuance of licences to investors seeking to participate as embedded generators. |
| NERC Regulation for the Procurement of Generation Capacity, 2014 | Provides for the establishment of a systematic, transparent, and competitive process that provides reasonable assurance to Buyers in procuring additional electricity generation capacity in NESI at least cost to consumers. |
| NERC Investment in Electricity Networks Regulation, 2015 | Stipulates the procedure for investing in electricity networks in Nigeria |
| NERC Mini-Grid regulation, 2016
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Establishes a framework to accelerate electrification in areas with or without an existing distribution grid or underserved areas. |
| Eligible Customer regulation, 2017
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Facilitates competition in the supply of electricity and promotes the rapid expansion of generation capacity following the declaration of eligibility in 2017 by the then Minister of Power |
| Meter Asset Provider Regulation, 2018 | Stipulates the terms for meter asset provision by third party providers to the DisCos and/or end-use customers directly. Currently under review based on the recent National Mass Metering Programme (NMMP) initiated by the Federal Government |
| Customer Protection Regulations 2023
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The Consumer Protection Regulations seek to safeguard consumers from the activities of electricity distribution companies (DisCos) in Nigeria. These regulations consolidate existing consumer protection measures, reinforce frameworks for consumer protection, promote access to electricity, align service standards with international best practices, and establish minimum standards for service delivery. |
| Guidelines for Secondary Escrow Account Management for Bilateral Transactions by Electricity Distribution Licensees (the Guidelines) 2023 | NERC issued the Guidelines for Secondary Escrow Account Management for Bilateral Transactions by Electricity Distribution Licensees (the Guidelines). The Guidelines aim to provide an arrangement by which DisCos may directly enter bilateral transactions with trading partners and specially dedicated Secondary DisCo Account Escrow Arrangements (SDAs) set up to administer the funds received by DisCos from the market with respect to these transactions. |
| CONTRACTUAL FRAMEWORK | |
| INDUSTRY DOCUMENTS AND COMMERCIAL AGREEMENTS | |
| Grid Connection Agreement | Stipulates the terms and conditions for connecting to the transmission network system operated by the Transmission Company of Nigeria (TCN) |
| Vesting Contract | Governs the purchase of electricity by a DisCo from the NBET |
| Generation/Distribution Licence | Issued in line with the provisions of the Electricity Act, 2023 and authorizes the holders to engage in generation or distribution activities based on the licence terms and conditions |
| Use of transmission Network System Agreement (TUoS) | Governs the right of a DisCo or related entity to use the transmission network system |
| Power Purchase Agreement | Governs the sale and purchase of electricity between a buyer (off-taker) and a seller |
| Distribution Use of System Agreement (DUoS) | Governs the right of an entity to use the distribution network system controlled and operated by the DisCos |
| Gas Sale and Supply Agreement
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Natural gas supply contracts between generation companies and natural gas suppliers |
| Bilateral Contracts
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Contracts between two parties for the sale and purchase of electricity on a ‘willing-buyer, willing-seller’ basis |
LICENSING AND PERMITTING PROCESS
Applications for licenses must be in accordance with the provisions of Section 63 of the Electricity Act, 2023 and Chapter II of the Regulations for the Application for License (Generation, Transmission, System Operations, Distribution & Trading) 2010. Permits can be secured to undertake captive power generation or to operate a mini-grid in a specified area based on the provisions in the respective regulations.
LAND ACQUISITION AND OWNERSHIP RIGHTS
The Electricity Act, 2023 sets out the principles regarding land acquisition and ownership rights. The legislative provision primarily dictates that licensees who require land in connections with their obligations can apply to the Commission to prescribe such land as being required for public purposes (generation, transmission, or distribution).
INCENTIVES AND FISCAL POLICIES
There is no specific fiscal policy guiding participants in the Nigerian Electricity Supply Industry on taxation and business incentives; however, there are legislative provisions which govern the payment of taxes within the sector.
COMMERCIAL FRAMEWORK
Tariffs are determined by NERC, based on the Electricity Act 2023 which spells out activities which are subject to tariff regulation and otherwise, and elements which must be taken into consideration in the formulation of tariff methodologies which form the basis for the determination of tariff rates. Currently, the power sector utilizes the Service Reflective Tariff (SRT) methodology in the determination of tariff rates; this is a methodology that focuses on pricing consumers based on the level and quality of electricity supply received over a period, depending on the applicable customer categorization band.
In 2021, NERC issued the MYTO–2021 Extraordinary Tariff Order based on the repealed EPSRA which took effect from 1st July 2021 for all 11 Electricity Distribution Companies (DisCos). The Order reviewed the tariffs of the DisCos in consideration of each DisCo’s CAPEX proposal over a 5-year plan in line with approved Performance Improvement Plans.
INVESTMENT BENCHMARKS
The basis of private sector investment in the on-grid segment of the Nigerian power sector is premised on Metering, Aggregate Technical, Commercial ad Collection (ATC&C) loss reduction and other capital investments such as network capacity enhancement, information management, etc.
FINANCING FRAMEWORK
Development projects in the Nigerian power sector are often financed through public-private partnerships, which involve co-venturing developers from the public and private sectors agreeing to pool their resources and share the risks associated with the development of a project. Other sources for funding include equity capital, short term commercial loans, subordinated debt/mezzanine capital, amongst others. Domestic funding through local commercial banks is readily available for small scale off-grid projects.
Sterling Bank in 2017 developed a Sustainability Investment Strategy targeted at impacting businesses within socially and environmentally conscious sectors which is well-aligned with the United Nations Sustainable Development Goals.[14]
One of the beneficiary sectors is the Renewable Energy Sector. Sterling Bank’s approach includes trading through the creation of a platform that enables the sale of renewable energy solutions between electricity generators, distributors, and users; financing large projects that provide electricity to communities and businesses and creation of partnerships to encourage the flow of foreign investments into the renewable space and bridging the service gaps that currently exist with the solutions.
In a demonstration of commitment to sustainability, First City Monument Bank (FCMB) scaled up its clean energy financing in 2021. FCMB has adopted a three-prong approach, namely capacity building, providing access to funding and providing opportunity to connect renewable energy developers with end-users. FCMB’s financing framework covers finance of energy efficiency projects, mini-grid renewable energy projects, off-grid (commercial and industrial) solutions and solar stand-alone solutions.[15]
All On provides debt and equity matched to the needs of energy enterprises at varying size ranges. The focus is on enterprises with proven off-grid energy technology solutions and businesses that are ready to scale. In 2021 All-On launched a global aggregated procurement program termed as the DART Program for renewable energy companies, supported by a $10 million Financing Facility, in Nigeria in collaboration with Global Energy Alliance for People and Planet (The Alliance), Odyssey Energy Solutions, and Global Energy Alliance for People and Planet (The Alliance).[16]
InfraCredit’s Climate Finance Blending Facility (the “Facility”)- A catalytic first loss multi-donor facility seeded with £10 million concessional funding by the UK Foreign, Commonwealth & Development Office in 2019/2020 (“FCDO”) to mobilise additional funding from development partners to co-finance off-grid clean energy investments alongside InfraCredit’s local currency guarantees in Nigeria.[17]
In September of 2022, Nigeria published an Integrated Financing Framework (INFF) to map out a sustainable financing plan for Nigeria to deliver on Nigeria’s Sustainable Development Commitments.
PROJECTS AND TENDERS
Projects and tenders in the Nigerian power sector are majorly supervised by the Federal Ministry of Power. The Ministry of Power publishes projects up for implementation, inviting indications of interests and tenders regarding any of the stated projects. In other cases, agencies such as the NBET, the REA, and petroleum agencies such as the Nigerian National Petroleum Corporation (NNPC) can invite expressions of interest to any projects, depending on the project requirements and dynamics. The process of procurement in the Nigerian power sector is conducted by open competitive bidding, as provided for in Section 24(1) of the Public Procurement Act of 2007. The Act also provides for the necessary examination of bids by the procuring entity. The NBET notably has its process for competitive procurement.
RECENT COMPLETED PROJECTS
Nigeria started operating the new Zungeru Hydro Electric Power Project constructed in Niger State by the federal government at $1.2 billion with capacity to generate 700 megawatts of electricity in 2023.[18] The hydropower project was built by a Chinese consortium comprising China National Electric Engineering Company (CNEEC) and Sinohydro.
Transcorp, a Nigerian conglomerate, also commissioned a 240 MW gas-fired plant in Afam, Rivers State (Niger delta region) in 2023. The project, named Afam Three Fast Power, was developed in collaboration with General Electric and the Federal Government of Nigeria. With an already existing power plant in Afam, this brought the cumulative generating capacity of the plant to 966 MW.[19]
ONGOING PROJECTS
In March 2023, President Muhammadu Buhari inaugurated the Kashimbila Multipurpose Dam, 40MW Hydropower Station, and Associated 132KV Switchyard, Transmission Line, and Distribution Substation Phase I Project, located at the Kashimbila Dam site in Taraba State.[20]
In August 2023, President Bola Ahmed Tinubu flagged off the Nigerian National Petroleum Corporation Limited’s 350 megawatts Gwagwalada Integrated Power Plant Project to boost electricity supply. The project would help increase Nigeria’s generation capacity beyond 12,000MW. The project would sit on an already acquired 54.7hectares of land in Gwagwalada, Abuja, and is one of the critical power generation projects along the Ajaokuta-Kaduna-Kano (AKK) gas pipeline corridor, which is at 70% completion.[21]
INVESTMENT LAWS, FOREIGN PARTICIPATION AND LOCAL CONTENT
Two key pieces of legislation which serve as investment laws for the Nigerian power sector are the Nigerian Investment Promotion Commission Act of 2004 and the Foreign Exchange (Monitoring and Miscellaneous) Provisions Act of 1995. The Nigerian power sector has its domestic premise governing the involvement of indigenous participation in the sector as contained in the NERC’s Regulations on National Content Development for the Power Sector, 2014.
CHALLENGES AND OPPORTUNITIES IN THE ELECTRICITY SECTOR
| Challenges | Opportunities |
| Infrastructural degradation in generation, transmission, and distribution subsectors | Infrastructural Upgrade |
| Insufficient investments into the sector’s growth because of insufficient incentives | Fiscal Incentives for investors |
| Low rural electrification | Off-Grid Electrification |
| Absence of diversity in generation mix | Solar Power Generation |
| Poor revenue collection by distribution companies | Cost Reflective Tariffs and Smart metering |
| Low creditworthiness in development projects | Credit Support |
| Insufficient Gas Supply | Reformation of the Gas to Power market |
| Nigeria’s new foreign exchange policy and importation of renewable energy equipment
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Local manufacturing of renewable energy equipment |
REFORM INITIATIVES
- Economic Recovery and Growth Plan (2017)
- Power Sector Recovery Programme (2017)
- Presidential Power Initiative in collaboration with Siemens AG (2019)
- National Mass Metering Programme (2020)
- Electricity Act (2023)
- Customer Protection Regulations (2023)
- Guidelines for Secondary Escrow Account Management for Bilateral Transactions by Electricity Distribution Licensees (the Guidelines), 2023
- The Constitution of the Federal Republic of Nigeria, 1999 Amendment of 2023
- Arbitration and Mediation Act (2023)
DISPUTE RESOLUTION AND JUDICIAL STRUCTURES
Disputes in the power sector are resolved through various means depending on the parties involved and the applicable legislative or regulatory instrument to the resolution of the dispute, e.g., Electricity Act 2023, Customer Protection Regulations 2023, NERC Business Rules (2006), Market Rules, Arbitration and Mediation Act (2023), etc.
Customer Protection Regulations 2023: A distribution company is required to establish customer complaint units (CCU) across its operational area to ensure ease of access to all customers. The CCUs are headed by senior officers of the distribution company. Complaints can be lodged through phone call, SMS, email or any other medium established by the distribution company. Such complaints are to be resolved no later than 15 days except where it concerns meter accuracy and reconciliation of bills, in which case it shall be resolved within a billing cycle of one month. Where a complaint is not resolved within the first 15 days, the distribution company shall notify the customer in writing with reasons and request for no more than another 15 days to resolve same, except the resolution takes a longer period by nature, like is the situation with cases involving construction projects.
DISCLAIMER
This document titled the “Legal and Regulatory Factsheet” of the referenced country is not expected to form the basis of, or be construed as standard legal advice; nor should any of its contents and representations be strictly relied upon for any activities. Electricity Lawyer (EL) will not be liable for decisions whatsoever that are made based on the contents of the document.
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[1] All source referencing is contained in our Legal and Regulatory Briefs per Country. The Glossary of Terms referenced in this factsheet can be found in our Glossary of Industry Terms.
[1] The general rule of thumb based on Word Bank Estimates, is that approximately every 1,000,000 people require 1000 MW of electricity. Available at World Bank. (2014). World Development Indicators. Available at: http://data.worldbank.org/products/wdi
[1] Where available transmission capacity data is not stated in MVA, it is converted using a power factor of 0.85.