New electricity act game-changer for renewable energy

The new Electricity Act 2003 signed into law by President Bola Tinubu, will for the first time allow providers of energy from renewable sources, such as solar, wind or water, to receive a price for what they produce based on the generation costs, a development experts say will boost the sector.

The new Electricity Act mandates the Nigerian Electricity Regulatory Commission (NERC) to prepare and provide feed-in tariff rates for electricity generated from renewable energy sources as a way of encouraging investment in renewable energy power generation.

According to the Act, the tariff rate will be guaranteed for a period of 10-15 years and subsequently be subject to review every two years.

In determining the tariff, NERC is required to factor the price differential between the purchase price of electricity generated from renewable energy sources and the price of electricity purchased from other sources.

Under the new law, electricity generation licensees are obligated to meet renewable generation obligations as may be prescribed by the NERC.

This implies that electricity-generating companies will be mandated to generate power from renewable energy sources, purchase power generated from renewable energy, or procure any instrument representing renewable energy generation thus opening the sector for significant investments.

Fundamentally, the aim of the act is to create a market for renewable energy, thereby stimulating investments in the sector, analysts at Brickstone Africa, an infrastructure advisory service noted in their analysis.

The new law also mandates the imposition of renewable purchase obligations on distribution or supply licensees.

“The aim of imposing renewable purchase obligations on distribution licensees, supply licensees, and bulk customers is to foster the consumption of energy produced from renewable energy sources and thereby stimulate the growth of the renewable energy market in Nigeria,” said Chinedu Kema, energy lawyer and partner at Dentons ACAS-Law practice.

Another important provision in the new act is bringing in private investment into the sector. “Anyone may construct, own or operate an undertaking for generating electricity not exceeding one megawatt (MW) in aggregate at a site or an undertaking for distribution for electricity with a capacity not exceeding 100 kilowatts (kW) in aggregate at a site, or such other capacity as the NERC may determine from time to time, without a licence,” the act states.

The new act of the National Assembly now signed by President Tinubu was passed in July 2022. It seeks to repeal the Electricity and Power Sector Reform Act, of 2005.

The Electricity Act now consolidates all legislations dealing with the electricity supply industry to provide an omnibus and ideal institutional framework to guide the post-privatisation phase of the Nigerian electricity supply industry and encourage private sector investments in the sector.

The primary aim of the bill, as stated in its very first section, is to create a comprehensive legal and institutional framework to guide the Nigerian electricity supply industry (NESI).

It de-monopolises the generation, transmission, and distribution of electricity at the national level, to empower states, companies and individuals to generate, transmit and distribute electricity.

States would also be able to issue licences to private investors who have the ability to operate mini-grids and power plants within the state, but such state licences are not to extend to inter-state or transnational distribution of electricity.

Renewable energy provides an opportunity to quickly ramp up energy access, especially in underserved areas. In 2022, the Rural Electrification Agency officially hit and crossed the one million connections milestone through the deployment of Standalone Solar Home Systems (SHS) for improved energy access across Nigeria.

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Some states that have created their own electricity market have upheld renewable energy as a critical component of energy generation. In 2021, the Lagos State Ministry of Energy and Mineral Resources issued the Lagos State Electricity Policy to create a regulatory framework for and license all electricity market entities in the state.

Through the law, the state seeks to significantly reduce off-grid generator emissions and foster a natural gas market in Lagos State through the implementation of a programme to transit from distillate fuels to natural gas and renewable energy sources.

“To have a viable state electricity market, the importance of regulatory synergy between the NERC and the regulatory agencies that will be established by states to oversee state-focused electricity matters cannot be overstated,” said Kema.

This means there is a need for an organised and orderly transition of responsibility for electricity operations from the NERC to the Lagos State-established electricity regulator.