The Electricity Act 2023: The Centralisation Of Power And The Rise Of State Electricity Markets

THE ELECTRICITY ACT 2023:

1. INTRODUCTION:

 Nigeria’s electricity sector has remained the subject of persistent debate, reform efforts, and unfulfilled promises. Successive administrations since the 1990s have pledged comprehensive transformation of the industry. While some achieved limited structural reforms, many produced little beyond policy papers and committees. The consequence has been a power sector that continues to underperform, with Nigeria generating less electricity per capita than several of its African counterparts. The 2013 privatisation exercise yielded only mixed results, while the existing regulatory framework often created uncertainty and institutional overlap rather than clarity and efficiency.

This article seeks to critically examine the transformative potential of the Electricity Act 2023 within the broader context of Nigeria’s longstanding electricity sector challenges. It explores the extent to which the Act departs from previous reform efforts by introducing a decentralised regulatory framework that redistributes authority between the Federal Government and the states. In doing so, the article evaluates whether the new legal regime is capable of addressing the structural inefficiencies, regulatory uncertainties, and infrastructural deficiencies that have historically undermined the sector. Ultimately, the article aims to assess whether the Electricity Act 2023 represents a genuine turning point in Nigeria’s electricity governance architecture or merely another ambitious reform whose success will depend largely on implementation.

2.  The Decentralization of Electricity Regulation Under the Electricity Act, 2023

 The Electricity Act 2023, signed into law by President Bola Ahmed Tinubu on 7 June 2023, represents a significant legislative turning point. The Act constitutes the most far-reaching reform of Nigeria’s electricity sector since the enactment of the Electric Power Sector Reform Act 2005 (EPSRA). More importantly, it addresses a fundamental issue that previous reforms struggled to resolve: the question of control, governance, and constitutional authority over electricity regulation and administration within Nigeria’s federal structure.

The response provided by the Act is both nuanced and intentional. Authority over electricity, in both the practical and constitutional sense, is no longer conceived as exclusively federal but as a shared responsibility between the Federal Government and the states. While the Federal Government retains regulatory oversight over interstate transmission infrastructure and the national grid, the Act, for the first time, expressly empowers states to establish and regulate their own electricity markets. States may now license operators, oversee intrastate electricity generation, transmission, distribution, and supply, and develop independent regulatory structures without requiring prior federal approval.

Whether this decentralised framework will produce meaningful transformation or remain largely aspirational will depend on several factors. Much will turn on the willingness and institutional capacity of states to utilise the powers now available to them, the effectiveness of the transitional regulatory arrangements, and the extent to which Nigeria is able to confront the longstanding infrastructure deficiencies that have constrained the electricity sector for decades.

3.  From EPSRA to the Electricity Act: What Changed and Why It Matters

The Electric Power Sector Reform Act 2005 (EPSRA) was, at the time of its enactment, regarded as a landmark reform within Nigeria’s electricity sector. It established the Nigerian Electricity Regulatory Commission (NERC), provided the legal foundation for the unbundling of the vertically integrated National Electric Power Authority (NEPA) monopoly into separate generation, transmission, and distribution entities, and introduced the framework for private sector participation in the industry. Its most significant and visible legacy was the privatisation of the successor companies to the Power Holding Company of Nigeria (PHCN), which was concluded in 2013. Notwithstanding these reforms, EPSRA suffered from a fundamental structural limitation rooted in its constitutional foundation. Although electricity falls within the Concurrent Legislative List under the Constitution of the Federal Republic of Nigeria 1999 (as amended), the sector continued in practice to operate as an overwhelmingly federal enterprise. States possessed limited theoretical authority over electricity matters, but there existed no coherent legal or regulatory framework through which such powers could effectively be exercised.

The Electricity Act 2023 seeks to address this longstanding imbalance. By expressly recognising and operationalising the constitutional authority of states to legislate on and regulate electricity supply within their respective territories, the Act gives practical effect to a constitutional arrangement that had long remained largely dormant under EPSRA. The legislation repeals EPSRA in its entirety and consolidates the federal electricity regime into a single comprehensive statutory framework. At the same time, it establishes a parallel regulatory pathway through which states may create, regulate, and develop independent intrastate electricity markets.

The Electricity Act 2023 further broadens the regulatory scope and responsibilities of the Nigerian Electricity Regulatory Commission (NERC), which continues to function as the principal federal regulator of the electricity sector. In addition to reinforcing existing regulatory functions, the Act introduces extensive provisions relating to renewable energy development, off-grid and decentralised electricity systems, consumer protection mechanisms, and dispute resolution processes within the industry. The Rural Electrification Agency (REA), originally established under EPSRA, is retained under the new regime with an expanded mandate aimed at improving electricity access in underserved and rural communities. Similarly, the Transmission Company of Nigeria (TCN) remains under federal ownership and control as a strategic national asset. The most significant shift introduced by the Act, however, lies not in the retention of these institutions but in the reconfiguration of the relationship between the federal regulatory framework and the states a development with potentially far-reaching and transformative implications for Nigeria’s electricity sector.

4.  The State Electricity Market: Architecture of a New Regime

One of the most consequential and widely discussed innovations introduced by the Electricity Act 2023 is the statutory framework for the establishment of State Electricity Markets (SEMs). Pursuant to sections 224 to 230 of the Act, a state government is empowered to create and regulate an intrastate electricity market governing the generation, transmission, distribution, trading, and supply of electricity within its territorial jurisdiction, provided that such operations do not utilise federal transmission infrastructure or otherwise implicate interstate electricity networks except pursuant to duly approved arrangements with the relevant federal authorities.

The operationalisation of this framework requires a state to enact its own electricity legislation, which may adopt, modify, or build upon the principles embodied in the federal regime. Such legislation must also establish a State Electricity Regulatory Commission (SERC) or a similarly constituted independent regulatory authority charged with oversight of the state electricity market. The SERC is expected to exercise regulatory functions including licensing of operators, tariff approval and regulation, consumer protection, compliance monitoring, and the enforcement of technical and operational standards within the state electricity sector.

Importantly, the Act prescribes minimum institutional and regulatory benchmarks which state electricity laws must satisfy. These include guarantees of regulatory independence, clearly defined licensing structures and categories, transparent market administration, and adequate mechanisms for the protection of consumer rights and investor interests. In this respect, the Electricity Act 2023 does not merely decentralise regulatory authority; it seeks to establish a coordinated federal-state electricity governance framework capable of supporting the development of viable and sustainable subnational electricity markets.

Lagos State has emerged as the leading jurisdiction in the implementation of the decentralised electricity framework introduced by the Electricity Act 2023. In April 2024, the state enacted the Lagos State Electricity Law 2024, which established the Lagos State Electricity Regulatory Commission (LASERC) and created a comprehensive legal and regulatory framework for the administration of the Lagos electricity market. Since its establishment, LASERC has commenced licensing and regulatory activities, with various market participants including embedded generation operators and electricity distribution service providers operating outside the franchise areas of Eko Electricity Distribution Company and Ikeja Electric beginning to transition into, and engage with, the new state regulatory regime. Other states, including Rivers State, Kano State, and Ogun State, have similarly indicated intentions to establish state electricity markets, albeit at different stages of legislative and institutional preparedness.

The State Electricity Market (SEM) framework established under the Act introduces a fundamentally different market architecture from the historically centralised federal model. Within a state that has validly established its own electricity market, operators may obtain licences directly from the relevant State Electricity Regulatory Commission (SERC) for the generation, transmission, distribution, trading, or supply of electricity to end users, without being subjected to the multiple layers of federal licensing that previously governed such activities. This development substantially lowers the regulatory and commercial entry barriers for embedded generation projects, mini-grid operators, and captive power arrangements, sectors that for many years functioned within an uncertain and fragmented regulatory environment.

For commercial and industrial consumers particularly those that have historically depended on self-generation through diesel-powered facilities due to unreliable grid supply the SEM framework presents the prospect of more affordable, environmentally sustainable, and legally secure electricity alternatives. If effectively implemented, the framework has the potential to stimulate private investment, improve energy access, and accelerate the diversification and decentralisation of electricity supply across Nigeria.

5.  The Constitutional Question: Concurrent Powers and Federal Supremacy

The enthusiasm around SEMs must be tempered by a constitutional reality. Electricity supply is on the Concurrent Legislative List in the Second Schedule to the 1999 Constitution, which means both the National Assembly and State Houses of Assembly can legislate on it. However, under section 4(5) of the Constitution, where there is an inconsistency between federal and state legislation on a concurrent matter, the federal law prevails to the extent of the inconsistency.

This creates a structural tension that the Electricity Act 2023 does not fully resolve. The Act attempts to carve out the SEM space by limiting state regulatory authority to intrastate activities and excluding federal infrastructure from state jurisdiction. But the boundary between intrastate and interstate electricity activity is not always obvious. The national grid, operated by TCN, is federal infrastructure and most electricity in Nigeria, even electricity that is ultimately consumed within a single state, passes through it at some point. A state-licensed operator that connects to the national grid at any point arguably enters federal regulatory territory.

This ambiguity will almost certainly generate litigation as SEMs mature. The more immediately practical question is whether the federal government through NERC or through administrative action will take positions that narrow or effectively override state market development. NERC’s regulations and orders continue to apply at the federal level, and the relationship between NERC and the emerging SERCs has not been comprehensively addressed in the Act or in any subsequent regulatory instrument. The risk of regulatory fragmentation where different licensing and technical standards apply in different states is real and requires coordinated attention from both levels of government.

6.  Renewable Energy, Off-Grid, and the Rural Electrification Push

One of the more forward-looking aspects of the Electricity Act 2023 is its treatment of renewable energy and off-grid systems. The Act places explicit obligations on NERC to promote renewable energy in licensing decisions and tariff-setting, and it imposes renewable energy obligations on distribution licensees. The Rural Electrification Fund, managed by the REA, is retained and expanded, with new provisions enabling the REA to directly procure off-grid solutions for underserved communities.

The off-grid and mini-grid sector in Nigeria has grown significantly over the past decade, driven largely by REA programmes, development finance institution support, and the commercial logic of serving consumers who have never been connected to the national grid. Under the EPSRA regime, mini-grid operators faced a regulatory patchwork, NERC had issued the Mini-Grid Regulations 2016, but these sat somewhat uneasily with the broader licensing framework. The Electricity Act 2023 provides clearer statutory backing for off-grid and mini-grid licensing, and the SEM framework means that state governments can actively facilitate mini-grid deployment within their territories without navigating federal licensing bureaucracy for intrastate systems.

For a country where approximately 80 million people remain without grid electricity, this is not a minor technical adjustment. It represents a structural shift in the regulatory logic from a framework premised on eventual grid extension to one that treats decentralised energy as a legitimate and permanent part of the solution. The practical challenge is financing. The Act does not resolve the capital requirements for the sector, and the tariff regime which has historically been unable to attract private capital at the distribution level remains a live and contested issue.

7.  Investor Considerations and the MYTO Question

No discussion of the Nigerian electricity sector is complete without addressing tariffs, and no tariff discussion is complete without confronting the Multi-Year Tariff Order (MYTO), NERC’s framework for setting electricity tariffs across the value chain. MYTO has been in place since 2008, and it has been consistently undermined by the gap between cost-reflective tariff levels and the politically palatable tariffs that successive administrations have been willing to enforce. Distribution companies have operated at a loss or close to it for years. The aggregated technical, commercial, and collection (ATC&C) losses across the distribution network remain dangerously high.

The Electricity Act 2023 does not wave a magic wand over this problem, but it introduces two provisions of significance to investors. First, it provides greater statutory clarity on NERC’s power to set and adjust tariffs, reducing the scope for executive interference that has historically destabilised the MYTO regime. Second, it introduces provisions requiring the government to pay for the cost of any tariff subsidy it chooses to apply, rather than simply directing NERC to hold tariffs below cost-reflective levels and leaving DisCos to absorb the difference. Whether this provision is honoured in practice remains to be seen, but its presence in the statute is a meaningful signal.

For foreign and domestic investors looking at generation, transmission, or distribution assets in Nigeria, the SEM framework also opens a new calculus. Rather than depending on the national grid and the federal DisCo framework with all the bankability questions that entails, an investor can now structure a project around a state market where the regulatory counterpart is the SERC, the off-take structure is defined at state level, and the political risk profile may differ from the federal framework. Lagos, in particular, presents a materially different investment proposition from the rest of the country, given the density of its commercial and industrial load and the sophistication of its state institutions.

8.  What Needs to Happen Next

The Electricity Act 2023 is a credible framework. It is more coherent, more ambitious, and more constitutionally honest than EPSRA. But frameworks do not generate electricity. The gap between what the Act authorises and what will actually happen in the market depends on several things that no legislation can guarantee.

NERC needs to issue comprehensive regulations implementing the Act’s new provisions on SEMs, on renewable energy obligations, on dispute resolution, and on the relationship between federal and state regulators. The Commission has been relatively active since the Act’s commencement, but the regulatory pipeline remains unfinished. States that wish to establish SEMs need to enact legislation, stand up competent regulatory bodies, and engage seriously with the operational complexity of running an electricity market. Most states lack the institutional capacity to do this quickly, and technical assistance from the federal government and development partners will be essential.

The TCN remains a significant bottleneck. As long as the national grid is unreliable and the transmission infrastructure is underinvested, the theoretical benefits of market liberalisation will be constrained by physical reality. The Act does not privatise the TCN, a decision that remains controversial but it does allow for private sector participation in transmission under a management contract or similar arrangement. Activating this provision meaningfully is perhaps the single most important implementation step that the federal government can take.

Finally, the gas supply problem which is the upstream constraint on most thermal generation in Nigeria remains outside the Electricity Act’s scope. The Petroleum Industry Act 2021 (PIA) governs gas commercialisation, and the interface between PIA implementation and electricity sector reform will determine whether any of the new generation capacity that the Act is meant to attract actually gets built. That intersection of laws, regulators, and commercial interests is where the real test of this reform will play out.

Conclusion

The Electricity Act 2023 represents perhaps the most ambitious and consequential legislative intervention in Nigeria’s electricity sector since the enactment of the Electric Power Sector Reform Act 2005. At its core, the Act reflects a deliberate shift away from the historically centralised regulatory model toward a more decentralised and commercially responsive framework that recognizes the constitutional role of states in electricity governance. In that respect, the decentralisation of regulatory authority to subnational governments is not only constitutionally defensible but also commercially pragmatic, particularly within a federation characterised by significant disparities in economic capacity, infrastructure development, and energy demand. Equally significant are the Act’s provisions relating to renewable energy development, off-grid electricity systems, and embedded generation, all of which demonstrate a more realistic appreciation of the direction in which Nigeria’s energy future is likely to evolve. Its strengthened investor protection mechanisms and clearer market structure also represent important advances, notwithstanding the continuing challenges surrounding tariff adequacy, market liquidity, and long-term bankability.

Notwithstanding its breadth and ambition, however, the Electricity Act 2023 remains fundamentally an enabling statute. It establishes the legal and institutional conditions necessary for the emergence of a functional and competitive electricity market, but it does not itself guarantee the creation of such a market. The ultimate success of the reform framework will depend largely on implementation. Critical questions remain as to whether states particularly Lagos State and other economically viable subnational governments will effectively utilise the powers now available to them, whether federal regulators and institutions will facilitate a coordinated and orderly transition to decentralised electricity governance, and whether the substantial infrastructure investments required to sustain the sector will materialise within the medium to long term. Ultimately, the Electricity Act 2023 should be viewed not as the conclusion of Nigeria’s electricity reform efforts, but as the beginning of a new and potentially defining phase in the evolution of the country’s power sector.

REFERENCES:

Legislation

1. Electricity Act 2023 (No. 29 of 2023) - the primary statute analysed in this article; signed into law on 7 June 2023. Sections 224–230 govern State Electricity Markets; Part V covers renewable energy and off-grid provisions; Part VI addresses consumer protection and dispute resolution; and Schedule 1 repeals the Electric Power Sector Reform Act 2005 in its entirety.
2. Electric Power Sector Reform Act 2005 (No. 6 of 2005) (repealed) - established the Nigerian Electricity Regulatory Commission (NERC), the Rural Electrification Agency (REA), and the legal basis for unbundling the Power Holding Company of Nigeria (PHCN). Repealed and replaced by the Electricity Act 2023.
3. Constitution of the Federal Republic of Nigeria 1999 (as amended by the Constitution of the Federal Republic of Nigeria (First Alteration) Act 2010, Second Alteration Act 2010, Third Alteration Act 2010, and Fourth Alteration Act 2017) section 4(5) (federal supremacy in concurrent matters) and the Second Schedule, Part II (Concurrent Legislative List, Item 13: Electricity) are directly relevant to the constitutional analysis in this article.
4. Petroleum Industry Act 2021 (No. 6 of 2021) - governs the entire petroleum industry value chain in Nigeria, including upstream gas commercialisation, midstream gas infrastructure, and gas supply obligations relevant to thermal generation; referenced in the context of the gas-electricity interface.

5. Lagos State Electricity Law 2024 (Lagos State Law No. 2 of 2024) - enacted by the Lagos State House of Assembly in April 2024 pursuant to section 224 of the Electricity Act 2023; established the Lagos State Electricity Regulatory Commission (LASERC) and created the legal framework for the Lagos State Electricity Market.

Subsidiary Legislation and Regulatory Instruments

6. Nigerian Electricity Regulatory Commission, Mini-Grid Regulations 2016 (NERC/R/016/2016) — provided the regulatory framework for mini-grid operators under the EPSRA regime; referenced in the context of the pre-2023 regulatory patchwork governing off-grid electricity supply.
7. Nigerian Electricity Regulatory Commission, Multi-Year Tariff Order (MYTO) - first issued in 2008 and periodically revised; NERC’s cost-reflective tariff methodology and order applicable to the generation, transmission, and distribution segments of the Nigerian Electricity Supply Industry (NESI). The most recent iteration is MYTO 2024, issued pursuant to section 76 of the Electricity Act 2023.
8. Nigerian Electricity Regulatory Commission, Order on the Methodology for the Determination of Electricity Tariffs (Minor Review of MYTO 2023) - NERC/OR/2023/001 — relevant to the discussion of cost-reflective tariff-setting and the investor bankability concerns addressed in this article.

Official Reports and Policy Documents

9. Federal Ministry of Power, Roadmap for Power Sector Reform (2010, updated 2013) - the policy document underpinning the 2013 privatisation of PHCN successor companies; provides context for the reform trajectory discussed in this
10. Nigerian Electricity Regulatory Commission, Annual Report 2022 - contains data on ATC&C losses, DisCo financial performance, and the state of the NESI prior to the enactment of the Electricity Act 2023.
11. Rural Electrification Agency, State of the Off-Grid Market Report 2023 - provides data on the number of Nigerians without grid electricity access and the growth of REA-supported off-grid and mini-grid projects; basis for the 80 million figure cited in this article.

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