Nigeria’s new electricity act and the wave of sustainability in the Nigerian power sector
Given the growing recognition of climate change and the imperative to shift away from fossil fuels, the energy sector faces a significant challenge in achieving sustainability. Nigeria, as a member of the global community, is equally dedicated to contributing its quota in lowering emissions and implementing sustainable energy sources to meet its climate objectives.
In 2021, Nigeria formulated its energy transition plan to attain carbon neutrality by 2060. To achieve this goal, the plan set out to reduce emissions in five sectors of the Nigerian economy, the power sector included. The Nigerian power sector is presently dominated by thermal power generation, which constitutes 80 percent of the energy source and utilizes natural gas as its primary feedstock, while the remaining 20 percent comprises hydro energy sources. Additionally, with an average largely insufficient operational capacity of 4300MW for a population of 200 million, only about 60 percent has access, although often intermittent, to electricity. This significant energy deficit fosters a heavy dependence on expensive fuel-powered backup generators and other unclean alternative sources. Cumulatively, the off-grid diesel and petrol generators and on-grid electricity generation, which characterize the Nigerian power sector, are fossil fuel dominant and responsible for a high emission sector.
What is the way forward?
Renewable energy sources are often applauded for satisfying the energy markers of affordability, accessibility, and sustainability. This marker of affordability can be evinced in the Nigerian power sector, where hydro energy, a renewable energy source, constitutes 20 percent of the on-grid generation. Owing to how cheap it is, the Nigerian Electricity Regulatory Commission (NERC) issued a mandatory and priority dispatch order in 2019 for hydropower plants to be dispatched with priority to reduce wholesale energy costs for consumers.
More so, the energy transition plan proposes the elimination of the large energy deficit in Nigeria as a critical decarbonization strategy and, by extension, the utilization of diesel/petrol generators by expanding the generation capacity via renewable sources. In the past, various policies with the same objective of expanding energy access through renewable energy have been implemented. These include the Renewable Energy Master Plan, National Energy Policy, Renewable Energy Policy Guidelines, and National Renewable Energy Efficiency Policy, among others. However, the issue with plans and policies is that they, at best, are advisory and merely serve as guidelines but do not have the binding force of law. But this has changed with the enactment of the Electricity Act of 2023, now the governing law for electricity in Nigeria, replacing the Electric Power Sector Recovery Act of 2005. This law builds upon the Climate Change Act of 2021 and serves as an essential step toward legalizing the integration of renewable energy sources in Nigeria's energy sector.
Innovative provisions contained in the Act
Section 3(1) of the Electricity Act (subsequently referred to as ‘the Act’) stipulates that within one year from its commencement, the Ministry of Power, on behalf of the Federal Government, shall initiate the process for the preparation and publication of an Integrated National Electricity Policy and Strategic Implementation Plan, in consultation with relevant government authorities and stakeholders.
Why is this plan essential? The answer to that question is contained in Section 3(2) of the Act, which highlights that, amongst other things, the plan shall spearhead the development of the power sector based on optimal utilization of resources such as coal, natural gas, nuclear substances, and material as well as renewable energy sources such as solar, wind, hydro, hydrogen and other renewable energy sources of energy.
While the inclusion of these other fossil fuel sources leaves a lot to be desired sustainably, it reflects the sentiment of Nigeria and other African countries, where they draw parallels between the industrialization of developed countries and the use of fossil fuels. To that effect, the continued use of fossil fuels in Nigeria’s energy system signifies an attempt to carry out its energy transition in a way that considers its economic and developmental goals. The positive here, however, is the broad inclusion of several renewable energy sources.
For Nigeria, the projected potential for renewable energy sources is noteworthy; small hydro (735 MW), solar CSP (36,683 MW), solar PV (492,471 MW), biomass (7,291 MW) and Wind (44,024 MW). The maximization and inclusion of these renewable energy sources will lead to a decrease in energy costs, thereby making it more affordable for all. However, to actualize these potentials and translate them into accessible energy, critical regulatory and infrastructural steps need to be taken. From a regulatory standpoint, the Act contains further laudable provisions that, if effectively implemented, can incentivize the development of renewable energy in Nigeria.
The Act contains general guidelines for the technical standards that must be followed to smoothly integrate renewable energy sources into the country's energy supply. Specifically, section 164(1)(l) of the Act provides for the introduction of feed-in-tariffs for all small hydro schemes, biomass co-generation power plants, and solar and wind-based plants within the terms of the tariffs for a period of 20 years, to guarantee buyers under standard power purchase agreements and provide a return on investments. In Nigeria, electricity tariffs are constantly a bone of contention between the industry players: generation companies (GENCOs), distribution companies (DISCOs), and consumers. This is because, over the years, the government has subsidized the cost of electricity. However, the amount allocated by the government for the subsidy has significantly reduced, with further plans to eliminate it. To that effect, the need for tariffs to be cost reflective is now imminent, as the DISCOs claim that this will help them improve their infrastructure and efficiency and, at large, solve the liquidity crisis in the sector. The consumers, on the other hand, having enjoyed subsidies for so long, are not reacting positively to the idea of paying cost-reflective tariffs, particularly in light of the poor energy supply from the DISCOs. As a policy tool, the implication feed-in- tariffs have for renewable energy is that producers of renewable energy in Nigeria will enjoy above market tariffs for their energy to allow maximization of energy investments. This provision will highly incentivize the needed investments from the private sector.
In section 164 (1)(t), the Act also enjoins the National Electricity Regulatory Commission (NERC) to issue guidelines on net metering for roof-top solar PV systems and small wind power. Net-metering allows Nigerians to become prosumers in that those who use the aforementioned renewable energy sources will be able to send any surplus energy generated to the grid for some benefit. This benefit could be in the form of energy credits against electricity consumed when electricity use exceeds system output. In other words, the benefit of exporting power to the grid is the reduction of future energy bills. If implemented, this could incentivize the use of solar by Nigerians as an alternative to diesel/fuel-powered generators.
Additionally, the Act in section 166 (1) empowers the Federal Ministry responsible for Finance to introduce tax incentives necessary to promote and facilitate the generation and consumption of energy from renewable energy sources.
Infrastructural approaches that need to be taken
Having discussed some of the regulatory measures adopted by the Act to facilitate the development and utilization of renewable energy in Nigeria, the infrastructural perspective would also be looked at. It goes without saying that increasing generation capacity alone will not cut it. The transmission and distribution sub sectors also have to be equipped to handle this increased generation capacity. For instance, the current capacities of the transmission and distribution sub sectors are below the 12,500 MW installed generation capacity. This means that even if the current energy mix and capacities are increased with the integration of renewable energy, the transmission and distribution sub sectors are not equipped to handle it. Other issues in the transmission segment include obsolete transmission lines and equipment, mismanagement of available infrastructure and ineffective grid design. DISCOS experiences high Aggregate Technical, Commercial and Collection (ATC&C) in the distribution segment. In a recent NERC report, these ATC&C losses stand at a high percentage of 44.15%, of energy received. Furthermore, in breaking down these ATC&C losses - from a technical perspective, the transmission and distribution sub sectors are implicated and account for lost energy resulting from load flow in electrical lines and transformation loss in transformers. From a collection and commercial perspective, for which the distribution subsector is responsible, these losses arise from discrepancies in meter readings, erroneous billing, unmetered consumers, energy theft and unpaid bills.
From the foregoing, we can agree that the present infrastructure in Nigeria’s power sector is not optimized to efficiently maximize the utilization and integration of renewable energy in Nigeria. The implication is that renewable energy sources injected into the grid will likely suffer the same fate as thermal power plants regarding ATC&C losses occasioned by poor infrastructure in the transmission and distribution subsectors. To that effect, what measures can be taken to improve the infrastructure of the Nigerian power sector?
Automation of the grid and sector at large
Automating the national grid will be integral to achieving Nigeria’s energy transition goals as it enables the efficient integration of renewable energy sources into the grid. In the NERC report cited earlier, the System Operator (SO) was shown to have been impeded from achieving optimal load factor owing to a lack of automated grid operation at the transmission and distribution levels. An automated real-time grid management system such as the Supervisory Control and Data Acquisition (SCADA) must be integrated. Due to its absence in the sector, the SO and the dispatch operators from the DISCOs engage in manual grid management, significantly limiting the ability to match demand and supply in real-time. Additionally, SCADA can efficiently strategize electricity generation operations, oversee infrastructure status, and expedite the identification and resolution of faults across the power supply chain.
Furthermore, the Act contemplates a decentralized renewable energy generation from multiple sources, including mini-girds, Independent Power Producers (IPPs) and prosumers from their solar PVs and Wind system. Incorporating the Internet of Things (IoT) will be instrumental in efficiently coordinating this wide array of distributed energy resources. This is because IoT devices are equipped with critical functionalities such as digitalization, data collection, and computational algorithms that effectively handle the network established by interconnected assets. Overall, its implementation will engender an efficient electricity supply industry and potentially provide numerous advantages. These include a significant improvement in the reliability of power quality and transmission, a boost in power distribution efficiency, and a reduction in the overall costs incurred by electric utilities. Such developments promise to revolutionize how we generate and distribute electricity, leading to a more sustainable and cost-effective energy system.
Utilization of smart metering
Billing inefficiency is one of the issues that has sustained the liquidity crisis in Nigeria. With a 42.25% metering rate, which represents 5,134,871 of the 12,152,106 registered customers in Nigeria, commercial losses stemming from an inability to efficiently bill energy a customer uses are rife. Efficient energy billing will increase investor confidence in financing renewable energy sources embedded into the distribution supply chain. Furthermore, smart meters must be deployed to activate net metering benefits. Under net energy metering, billing calculations are done based on the net energy consumption, which marks the difference between energy generated by the solar power system and the total energy usage. The meter here differs from a standard meter that measures the energy used from the grid. In contrast, a net meter operates bidirectionally to measure surplus energy sent to the grid to determine solar power net metering credits.
Conclusively, in order to bring into fruition the Act's innovative provisions for integrating renewable energy into the power sector for long-term sustainability, it is necessary that the innovations of the law are not impeded by infrastructural obstacles to make the aforementioned infrastructural changes. From a regulatory perspective, the relevant ministries should work to expand guidelines and policies within reasonable timeframes to provide support and direction to stakeholders in the renewable energy sector.
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About the author
Chidera Okeke graduated with a Law degree from the University of Nigeria Nsukka and has a strong passion for improving energy accessibility in Nigeria. He has gained valuable experience working with top energy-focused law firms in West Africa and is currently employed as a Research Analyst at Electricity Lawyer (EL). EL is an intelligence energy company that provides comprehensive data on energy throughout Sub-Saharan Africa.