Of state participation in the new Nigerian electricity markets- the how, why and what

There have been ongoing debates around whether states (component Nigerian states like Lagos, Ogun, and Edo, as opposed to Nigeria as a State) should participate in owning electricity assets such as plants and distribution assets and whether, indeed, each state should have its own electricity market or just regulate the entire value chain or an aspects thereof. The question also, is what the new federal electricity law, which would replace the Electric Power Sector Reform Act (EPSRA), should stipulate. Can states, indeed have their own electricity markets or whether the states should only regulate the retain end and deal with matters around distribution, metering and marketing?

The big debate
The big debate is whether a Constitutional amendment that now allows states to make laws in relation to the generation, transmission, and distribution of electricity in areas covered by the grid could be the silver bullet to the power sector woes of the Federal Republic of Nigeria. I had initially thought same was a step in the right direction; provided that the same issues which plagued the system, as currently is, do not also render, of no real effect, the Constitutional amendments. However, upon acquiring more knowledge and understanding more about power markets and systems, I think it may not solve the problems.

Of generation and transmission
Transmission is an inter-state and inter-regional affair. Thus, naturally, it should lend itself to a federal regulator such as the Nigerian Electricity Regulatory Commission, which already regulates the same. To move that to state legislation is to invite chaos. There may be debates around regional grid systems which would just be like distribution networks on a larger scale and one could argue that where this is the case, states and the federal legislatures may cooperate to legislate on these.

Transmission is an inter-state and inter-regional affair…to move that to state legislation is to invite chaos.

The question is whether states in Nigeria do scheduling and proper planning even with our challenges around basic issues such as water supply or even road traffic regulations. It is doubtful that any state (maybe one or two) is really ready for a wholesale electricity market or indeed regional grid systems.
Investments of huge dimensions will also be required and with many states even struggling to bring power generation investments into them, it means that having a regional grid or indeed a wholesale market will be a pipe dream. The wholesale electricity market is connected to the transmission grid. Hence, it may be more efficient, technically and otherwise, to have NERC, the federal regulator continue to regulate same.

Of distribution
Distribution and marketing (choices to the last mile), may be regulated by states in cooperation with each other with some uniformity in certain standards. Like elsewhere in the world where final consumers can choose their ultimate sources, states can be creative such that there are investments by private sector participants in distribution infrastructure and equipment, such that there are marketers and franchisees of networks and consumers can choose which franchisee or marketers they get electricity from but there must be free access with distribution companies taking a distribution use of network tariff (“DUOS Tariffs”).
Each state can then determine the energy sources, especially as the world transitions from heavy dirty fuel to gas and renewables. Issues around DUOS Tariffs and other sorts of tariffs, authorizations, etc. will be determined by each state and as I suggested above, there may be areas of uniformity.

Conclusion
States should not own and or operate power generation, transmission or distribution assets, but should make policies to ensure the efficiency of marketing and distribution of electricity, to the last mile, working with the federal regulator and the state rural electrification agencies. It would appear that the draft law, in the National Assembly, to replace the current primary legislation in the electric power sector requires substantial modifications. The Lagos state market policy document too, will not appear to make a clear distinction between electric power systems and electricity markets. My conclusion is that both the Bill in the National Assembly as well as the Lagos State arrangements, require a substantial overhaul to ensure that an excellent job is done of moving the power sector forward. I am also of the view that states should only regulate arrangements, around the last mile, with a strong infrastructural backbone.

Ayodele Oni, a solicitor, specializes in international energy (oil & gas) investment law & policy. He advises on energy law, transactions & policy.