Concerns have been raised about the ability of state governments in Nigeria to effectively manage their electricity markets following the transfer of regulatory powers from the federal government.
The Nigerian Electricity Regulatory Commission (NERC) recently announced that four states—Enugu, Ekiti, Ondo, and Imo—are prepared to assume responsibility for electricity generation, transmission, and distribution within their territories. This follows the provisions of the Electricity Act 2023, signed into law by President Bola Ahmed Tinubu in February 2024, which empowers states and private entities to participate in electricity management at the intrastate level.
Under the Act, states intending to regulate their electricity markets must formally notify NERC of their plans and processes. While regulatory oversight has been handed over to several states, including Lagos, Kogi, Oyo, Edo, Niger, and Ogun, only four states have been deemed ready to commence operations.
Challenges Ahead
Experts have voiced concerns over the readiness of states to handle these responsibilities. Muda Yusuf, CEO of the Centre for the Promotion of Private Enterprise, highlighted the complexities involved in this transition. According to him, many states lack the infrastructure, expertise, and financial capacity to manage the regulatory and operational aspects of their electricity markets.
“The shift to a decentralised electricity market presents challenges,” Yusuf explained. “The fragile state of the economy complicates the possibility of a fully deregulated market, and existing infrastructure, particularly in transmission, requires massive investments that states may struggle to fund.”
He warned that the sector faces significant risks in 2025, as many states are ill-equipped to manage the transition effectively, potentially leading to instability in the electricity market.
Potential Impact on Consumers
Lanre Elatuyi, a power sector analyst, pointed out that state-level regulation could result in higher electricity tariffs for consumers. He noted that the removal of federal subsidies would leave states solely responsible for determining end-user tariffs.
“It’s too early to expect significant improvements in electricity supply,” Elatuyi said, adding that developing state-managed power systems and markets will take time. “States will need to attract investments and provide guarantees to ensure cost recovery for investors, but this could be a tall order given their current capacity limitations.”
He also raised concerns about whether states can offer the necessary financial interventions or subsidies when required, and whether they can recruit and retain skilled professionals such as engineers, regulatory experts, and market analysts to effectively manage the new system.
Broader Implications
As Nigeria moves towards a decentralised electricity market, the success of these reforms will hinge on states’ ability to address key challenges, including infrastructure upgrades, investment attraction, and the development of skilled regulatory teams. Without significant progress in these areas, the anticipated benefits of improved electricity supply and market efficiency may remain out of reach for many Nigerians.
