Nigeria's power sector is currently undergoing a significant transformation, moving from a centrally managed system to a more decentralized, multi-layered electricity market structure, as mandated by the Electricity Act 2023.
This key observation comes from a new analysis by PwC, titled “Priority actions for the successful evolution of Nigeria’s multi-tier electricity market.” The report highlights the critical juncture the reform has reached.
The findings are based on discussions at PwC's annual power and utilities roundtable, which convened various stakeholders, including government representatives from federal and state levels, electricity distribution companies (DisCos), off-grid energy providers, and financial institutions.
Key figures present included former Minister of Power, Adebayo Adelabu; Lagos State Commissioner for Energy and Mineral Resources, Biodun Ogunleye; Eko Electricity Distribution Company Plc CEO, Rekhiat Momoh; Rural Electrification Agency (REA) Managing Director, Abba Aliyu; and Afreximbank senior executive, Peter Olowononi.
The 26-page report details how the sector is evolving under the new legislation, with notable shifts in project development, inter-agency collaboration, and investor risk assessment.
The Electricity Act, signed into law in June 2023, replaced the previous 2005 act. It ended the federal government's exclusive control over electricity generation, transmission, and distribution, granting these powers to states, private companies, and individuals. The legislation aims to encourage private investment, promote renewable energy sources, and address infrastructure deficits.
PwC's assessment suggests that the sector is in a transitional period, characterized by increased involvement from state governments, a cautious approach from investors, and underlying structural weaknesses that will significantly influence the reform's overall success.
States are now taking a more prominent role, with regulatory authority transferred to them to license operators, set tariffs, and oversee electricity markets within their borders.
The report indicates that over 15 states are actively developing their electricity markets, with some having already established regulatory bodies and incorporated power planning into their broader economic strategies.
However, the pace of progress is not uniform across all states.
While some states, like Lagos, are implementing structured, step-by-step plans, others are experiencing delays due to limitations in regulatory capacity, technical skills, and financial preparedness. This disparity raises concerns about the potential for market fragmentation and inconsistencies in standards and outcomes.
Industry experts caution that without improved coordination between federal and state authorities, issues like conflicting policies on tariffs, subsidies, and technical specifications could lead to uncertainty and hinder overall advancement.
Despite the policy reforms, electricity distribution companies (DisCos) continue to face significant financial and operational hurdles, posing a threat to the reform's long-term viability.
Losses within the industry, attributed to technical inefficiencies, energy theft, and challenges in revenue collection, remain high, averaging between 34% and 35%, with only approximately 70% of billed revenue being recovered.
Accumulated debts, including outstanding payments from government agencies and consumers, have further strained the financial health of DisCos, while existing loans and high interest rates impede their ability to secure new funding.
Outdated infrastructure, overloaded equipment, weak distribution networks, and obsolete machinery continue to impact the quality of electricity services provided.
A significant and persistent gap in metering also contributes to revenue loss and erodes public trust, as a large number of consumers are still subjected to estimated billing.
Although initiatives like the Presidential Metering Initiative are in place to address this metering deficit, progress has been slow.
Recent adjustments to electricity tariffs have led to improved revenues and reduced subsidy requirements. However, the tariffs are still not fully cost- reflective, which perpetuates liquidity issues and raises concerns about affordability for consumers.
The sector has seen some positive developments, such as increased revenue generation and a reduction in grid collapses. Furthermore, Nigeria's integration into the West African Power Pool has opened avenues for regional electricity trade.
Nevertheless, these improvements mask deeper underlying issues.
Despite an installed electricity generation capacity that surpasses 13,000 megawatts, the actual power available for distribution remains considerably lower due to limitations in gas supply, bottlenecks in the transmission system, and inefficiencies in distribution networks.
Consequently, the current electricity supply is insufficient to meet demand, limiting the broader economic benefits expected from the reform.
The report notes a growing trend in renewable energy and off-grid electrification projects, with state governments playing an increasingly active role.
States are now incorporating electricity access into their development plans and budgets. Projects are also becoming more commercially focused, often directly linking power provision to essential services like healthcare and water supply.
This evolving approach is enhancing accountability and ensuring greater sustainability, particularly in areas that are underserved, though the level of progress varies significantly among states.
According to REA's Abba Aliyu, states are demonstrating greater proactivity by providing demand data, identifying priority projects, and proposing tailored delivery strategies.
"A clear indicator of this shift is the integration of electrification targets into state planning and budgeting processes," the report stated.
This represents a notable departure from previous, centrally managed initiatives that often lacked sustained support and ownership at the state level.
The report suggests that, contrary to common assumptions, capital is available for the power sector, but investors are adopting a cautious stance.
The decentralization of the market is creating smaller, more focused investment opportunities, often connected to specific customer bases, which has enhanced investor confidence in certain instances.
However, persistent concerns regarding regulatory clarity, tariff predictability, and revenue assurance remain, especially given the precarious financial state of the DisCos.
Without dependable cash flows, enforceable contractual agreements, and transparent governance structures, investment decisions are frequently postponed or subject to higher risk premiums.
In addition to financial and infrastructure challenges, the sector is also experiencing a shortage of skilled professionals, including engineers, technicians, and certified installers.
This skills gap is impeding the progress of critical projects such as meter installations and network upgrades.
While training programs are being implemented, PwC cautions that without substantial and continuous investment in human capital development, the intended outcomes of the reforms may not materialize.
In summary, the report portrays a power sector at a pivotal moment.
Although the Electricity Act 2023 has established a framework for decentralization, attracting private investment, and expanding the market, the ultimate success now depends heavily on effective implementation.
Critical priorities include resolving regulatory conflicts, building state- level capacity, stabilizing the distribution segment, bridging the metering gap, and improving the bankability of projects.
The report concludes that Nigeria's progress towards a multi-tier electricity market will ultimately be measured by its capacity to provide reliable power, attract sustained investment, and foster economic growth, rather than solely by the design of its policies.
Currently, the outlook for the sector is mixed, indicating a promising direction but an uncertain final outcome.
Comments (0)
You must be logged in to comment.
Be the first to comment on this article!