Nigeria’s Electricity Act 2023: A Game Changer for the Power Sector, Boosting Manufacturing and Economic Growth

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Over the past decades, Nigeria’s power sector has faced significant challenges, including poor policy enforcement, over-regulation, gas supply instability, and transmission network bottlenecks. These issues have resulted in erratic electricity supply, frequent power outages, and persistent collapses of the national grid, significantly hampering the country’s economic growth. Access to electricity has remained a hurdle for millions of Nigerians, with a staggering 86 million people reported to be without electricity, making Nigeria the country with the largest energy access deficit in the world, according to the 2021 report by the International Energy Agency.

 

In a significant move to address the longstanding challenges in the power sector, President Bola Ahmed Tinubu recently signed the Electricity Act 2023, signaling a potential game changer for the industry. The act, which replaces the Electricity and Power Sector Reforms Act 2005, aims to provide a comprehensive framework for the decentralization of the power sector, encouraging private investment and fostering a competitive electricity market. This milestone, achieved on June 9th, is a crucial step following the constitutional amendment signed during the previous administration, allowing states to generate, transmit, and distribute their own electricity.

 

Highlights of the Electricity Act 2023 include:

  1. Decentralization: States, private companies, and individuals are now legally permitted to generate, transmit, and distribute electricity.
  2. Renewable Energy Generation: Power generation licensees are obligated to meet prescribed renewable energy generation targets set by the Nigerian Electricity Regulatory Commission (NERC).
  3. Regulatory Responsibilities: NERC will only surrender regulatory responsibilities to states with established electricity market laws.
  4. Small-Scale Generation and Distribution: Private individuals or companies can generate up to 1MW of electricity and distribute up to 100 Kilowatts at a location without a license, but through an undertaking.
  5. Interstate Distribution Prohibition: The Act prohibits interstate or transnational electricity distribution.
  6. Renewable Energy Procurement: Generating companies are mandated to either generate or purchase electricity from renewable sources or procure instruments for generating renewable energy.
  7. Oversight Function: Legislative committees are empowered to carry out oversight functions over the Nigerian Electricity Supply Industry (NESI).

While Nigeria’s current power supply is inadequate to meet the energy requirements of the manufacturing sector and the population at large, the Electricity Act 2023 holds promising implications for the manufacturing sector, including:

  1. Reduced Cost of Alternative Energy: The new Act is expected to lead to a drastic reduction in the cost of alternative energy for manufacturers. Last year, MAN members spent a total of N144.47 billion on alternative energy, and this significant cost reduction is anticipated to boost profit margins.
  2. Competitive and Lower Electricity Tariffs: The Act aligns with the advocacy efforts of the Manufacturers Association of Nigeria (MAN) to establish cost-reflective electricity tariffs. The introduction of healthy price competition between states and private investors will help actualize this goal.
  3. Increased Foreign Direct Investment (FDI) and Manufacturing Performance: A reliable power supply is crucial for attracting foreign investment in the manufacturing sector. If the Act effectively addresses the challenges in the power sector, it is expected to encourage the inflow of manufacturing FDI, boost sector performance, and increase its contribution to the economy.
  4. Increased Internally Generated Revenue (IGR) and Improved Infrastructure: The decentralization of the power sector will enable state governments to accrue significant revenue. If properly utilized, this revenue can bridge infrastructure deficits without imposing additional tax burdens on manufacturers.
  5. Promoting Renewable Energy Investments: The Act opens greater investment opportunities in renewable energy, such as solar power. Investing in renewables will promote a cleaner environment and cost-efficient energy consumption, improving profit margins and encouraging further manufacturing investments.
  6. Enhancing Energy Security and Backward Integration: Empowering private manufacturing companies to generate their own electricity will spur massive investment in backward integration activities, ensuring energy security within the sector.
  7. Stable Power Supply and Operational Planning: The Act has the potential to stabilize the supply of electricity to infant manufacturers, allowing them to plan operations optimally and deliver products efficiently.

 

The signing of the Electricity Act 2023 marks a significant step toward diversifying and decentralizing Nigeria’s power sector. The empowerment of state governments and private investors, adoption of renewable energy, and reformation of the governance structure of the power sector are expected to drive investment, improve electricity access, and foster economic growth. However, to fully capitalize on the Act’s potential benefits, certain recommendations should be considered, including tightening security infrastructure, providing support to states without established electricity market laws, streamlining regulations, and addressing gas distribution disparities.

 

The successful implementation of the Act depends on effective execution and the appointment of a committed and experienced Minister of Power. Additionally, reducing lending rates to encourage private investments in mini-grids and renewable energy, addressing fuel subsidy removal challenges transparently, and implementing measures to mitigate its impact on businesses and the masses are crucial steps.

 

In conclusion, the Electricity Act 2023 offers a ray of hope for Nigeria’s power sector and manufacturing industry. If effectively implemented, it has the potential to address long-standing challenges, stimulate economic growth, and pave the way for a more reliable and efficient electricity supply system.


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