The Nigerian Electricity Regulatory Commission (NERC) in a tweet on Tuesday, August 27, 2024, disclosed that it has granted autonomy to six additional states, Enugu, Ekiti, Ondo, Imo, Oyo, and Edo, to regulate the electricity markets in their states.
Last week, the NERC transferred its regulatory function to the Edo State Electricity Regulatory Commission (ESERC).
This authorisation was granted after confirming that these states have established their electricity regulatory agencies, which will now regulate the electricity markets within their borders. The NERC’s tweet read:
“The following six states are now authorised to regulate electricity markets after the transfer of regulatory authority from the NERC: Enugu, Ekiti, Ondo, Imo, Oyo, and Edo. They have set up electricity regulatory agencies and will be regulating the electricity market in their respective states.”
The move by the electricity regulatory body complied with the amended Constitution of the Federal Republic of Nigeria (CFRN) and the Electricity Act 2023 (Amended).
According to the EA 2023, the NERC maintained control as the central regulator with oversight on the inter-state/international generation, transmission, supply, trading, and system operations.
States intending to establish and regulate intrastate electricity markets are required to deliver a formal notification of its processes and request the NERC to transfer regulatory authority over electricity operations in the state to the State Regulator.
While this shift from federal to state control is widely considered a positive development, it brings up important questions: this authorisation will affect How? Will the electricity supply improve? Could electricity bills decrease or increase?
Nigeria’s Power Challenge
As of May 2024, Nigeria generates approximately 5,000 MW of electricity for a population of over 200 million people.
A recent survey revealed that 68% of Nigerians receive only 1 to 9 hours of power supply out of 24 hours. Meanwhile, 15% receive 10 to 15 hours, 4% have 15 to 20 hours, and another 4% enjoy between 20 to 23 hours of electricity daily.
Interestingly, only 1% of electricity consumers claimed to have 24 hours of power supply, while 3% reported receiving less than 1 hour of power, and 5% experienced a total blackout.
This shows on average, Nigerians have access to about 7 hours of electricity per day, with some areas faring much worse. The heavy reliance on off-grid power sources like generators and solar energy costs households and businesses an estimated N17.05 trillion annually.
These longstanding challenges, which have persisted for years without a clear solution, might now be addressed with the recent authorization allowing states to directly regulate and manage their electricity markets.
How State Control Could Improve Power Supply
According to Energypedia, Nigeria’s transmission and distribution infrastructure can only handle about 7,500 MW, despite the country’s power generation potential being over 14,120 MW, capable of producing 50,832 GW annually. The potential for small hydropower is estimated at 3,500 MW, of which only 60.58 MW (about 1.7%) has been developed.
One of the significant issues has been that centralized control has not effectively addressed regional power challenges. With autonomy, states can now provide tailored solutions to meet their specific electricity needs.
For instance, Oyo state with a population of over 7.9 million, 1.8 million micro-enterprises and an average of only 9 hours of electricity per day depending on the location and band assigned to each community, Oyo could explore other ways of improving the electricity in the state. Either by investing in alternative energy sources mostly off-grid like solar or wind to increase supply.
Similarly, despite having the Azura-Edo Independent Power Plant, which generates 461 MW, Edo State struggles with power distribution. With this autonomy, Edo can address these distribution bottlenecks and boost productivity.
If these states effectively harness their electricity generation and distribution potential, they could increase the hours of electricity available to residents, potentially adding 4 to 6 extra hours of power daily in the short term.
With state autonomy over electricity markets, residents naturally wonder whether this will lead to lower electricity rates. Currently, Nigerians pay as much as N225 per kWh depending on their location and the assigned electricity band, a significant increase from the previous rate of 68 naira.
Will Electricity Bills Go Down?
With state autonomy over electricity markets, residents naturally wonder whether this will lead to lower electricity rates.
Currently, Nigerians pay as much as N225 per kWh depending on their location and the assigned electricity band, a significant increase from the previous rate of 68 naira.
Now that states have the authority to set electricity tariffs, several factors will determine future rates:
If states invest in upgrading or reviving their grid infrastructure, residents may face higher electricity tariffs. For example, after Lagos State improved its grid, tariffs increased by nearly 20% before stabilising.
States prioritizing efficiency could reduce electricity costs. For instance, if Enugu State reduces transmission losses, it could lower tariffs for consumers.
Economic Impact of State Regulation
In Q3 2023, Nigeria’s power sector recorded a year-on-year growth of 36.01%, a significant improvement from the -3.07% growth in the same quarter of 2022. However, the sector experienced a quarter-on-quarter decline of 42.36%.
The contribution of Electricity, Gas, Steam, and Air Conditioning Supply to Nominal GDP in Q3 2023 was 0.84%, up from 0.72% in Q3 2022 but lower than the 1.70% in the previous quarter.
In real terms, the sector grew by 1.91% in Q3 2023, up from -3.56% in Q3 2022. However, this growth rate decreased from 6.10% in the previous quarter. The sector’s contribution to real GDP in Q3 2023 was 0.37%, slightly lower than the 0.38% in Q3 2022.
These inefficiencies in generation and distribution present an opportunity for states to boost local power generation and ensure consistent supply. This could lead to a significant economic boost for industries reliant on stable electricity.
For example, improving electricity in Oyo State, where over 6,131 small and medium-sized enterprises (SMEs) depend on steady power, could save businesses significant operational costs annually.
Potential Risks
While state regulation of electricity offers promising opportunities, it also introduces potential risks. One concern is the possibility of inconsistencies in electricity policies and tariffs nationwide. For instance, if Ondo introduces higher tariffs than neighboring Ekiti, it could create confusion for businesses operating in multiple states.
Additionally, without adequate funding, states may struggle to maintain or upgrade their electricity infrastructure, leading to blackouts or higher costs for consumers.
However, with the right approach and investment, residents in these states could see an increase in electricity supply, potentially up to 18 hours per day and a reduced dependence on costly alternatives like generators.
It’s important to note that the pathway to stable, affordable power is a long one, and these states will need to carefully manage the transition to ensure that it benefits everyone.