Commentaries

on the Electricity
Act, 2023

June 2023

home.kpmg/ng
Content
Preface

Glossary

Chapter One – Objectives, Application, and 5

Scope of the Act

Chapter Two – Administration and 7

Governance

Chapter Three – Licensing 11

Chapter Four – Tariffs and subsidies 14

Chapter Five – R
 enewable Energy and 15
Efficiency

Chapter Six – Offences and Penalties 17

External Auditors Tenure in the Nigerian Electricity Supply Industry 2

Preface
Nigeria’s electricity sector has been plagued with The Act also consolidates laws relating to the
challenges across the various subsectors, despite Nigerian Electricity Supply Industry (NESI) with the
years of structural reforms and investments aimed aim of reforming the electricity sector, integrating
at addressing these recurrent issues. Power supply renewable energy into Nigeria’s energy mix, and
has been epileptic, with frequent national grid attracting the required investments to develop the
collapses and blackouts. The sector has also been industry.
plagued with liquidity, profitability challenges and
high indebtedness. A key objective of the Act, amongst other, is to
introduce new policies and regulatory measures
On 8 June 2023, His Excellency, President Bola that will address some of the current challenges and
Ahmed Tinubu, GCFR, signed the Electricity Bill attract private sector investments across the NESI
2023 into law as Electricity Act, 2023 (“the Act”). value chain to achieve a self-sustaining, profitable,
The Act provides a comprehensive legal and and sufficient industry.
institutional framework for the operation of a fully
privatized, cost and service reflective tariff, contract This publication highlights some of the key
and rule-based competitive electricity market in provisions of the Act and its impact on the Nigerian
Nigeria, and repeals the following Acts: electricity sector.

1. Electric Power Sector Reform Act, 2005.

2. Hydroelectric Power Producing Areas

Development Commission (Establishment, Etc.)
Act, No. 7, 2010.

3. Hydroelectric Power Producing Areas

Development Commission {Establishment, Etc.)
Act, 2010 (Amendment) Act, 2013.

4. Hydroelectric Power Producing Areas

Development Commission (Establishment, Etc.)
Act, 2010 (Amendment) Act, 2018.

5. The Nigerian Electricity Management Services

Agency (Establishment) Act, 2015.

External Auditors Tenure in the Nigerian Electricity Supply Industry 3

Glossary
ISO - Independent System Operator

NEMSA - Nigerian Electricity Management Services Agency

NERC - Nigerian Electricity Regulatory Commission

NIEPSIP - National Integrated Electricity Policy and Strategic Implementation Plan

NESI - Nigerian Electricity Supply Industry

N-HYPPADEC - National Hydroelectric Power Producing Areas Development Commission

NIEP - National Integrated Electricity Policy

NPPCC - National Power Policy Coordinating Council

NPTIN - National Power Training Institute of Nigeria

PCAF - Power Consumer Assistance Fund

PPA - Power Purchase Agreements

REA - Rural Electrification Agency

REF - Rural Electrification Fund

TCN - Transmission Company of Nigeria

Commentaries on the Electricity Act, 2023 4

 Chapter One

Objectives, Application, and Scope

of the Act
The principal objective of the Act is to consolidate energy sources and create an enabling
all laws in the power sector and provide a environment to attract investment in
comprehensive framework to guide the operations renewable energy sources;
of sector. The Act also aims to:
(viii). u
 sing policy and regulatory measures
(i). p
 rovide a suitable legal framework to accelerate to eliminate barriers to investments in
growth in power generation capacity and generation, transmission, distribution, and
improve utilization of generated power through related sub-sectors in the NESI;
increased investments in new and existing
resources for power generation; (ix). p
 rovide a framework to improve access to
electricity in rural, unserved, underserved,
(ii). p
 romote policy and regulatory measures peri-urban and urban areas using conventional
to ensure the expansion of efficient power sources and renewable energy off-grid and
generation, transmission, and distribution mini-grid solutions;
capabilities in Nigeria. This should address
the imbalance in the existing transmission (x). promote indigenous capacity in technology for
infrastructure and help to achieve Nigeria’s renewable energy sources through a framework
national electricity access targets and highest for local content in the NESI; and
per capita power consumption in Africa;
(xi). e
 nact laws for the security of electricity
(iii). p
 rovide clear guide and legal basis for a infrastructure, with effective punitive measures
phase-wide development of the NESI since against electricity theft and other offences
the conclusion of the privatization phase as peculiar to the NESI; and strengthen the
implemented pursuant to the provisions of the relationship between federal and state
repealed Electric Power Sector Reform Act; electricity markets.

(iv). s timulate policy measures that will eliminate (xii). S

 trengthen the relationship between the
barriers to, and attract, investments across the Federal and State electricity markets.
Nigerian electricity value chain while promoting
the development of a competitive electricity The Act shall apply throughout the Federal Republic
market; of Nigeria and covers all aspects and segments
of the power sector value chain in the country.
(v). provide a clear legal and institutional framework However, the provisions of the Act will not preclude
for the formulation and adoption of a NIEPSIP; States from enacting laws to address generation,
transmission and distribution of electricity within the
(vi). s timulate policies to attract sustainable States, sanction joint collaboration with the Federal
investments in new and efficient power Government, Local Government and organised
generation technology and revamping existing private sectors to facilitate electrification of areas
power plants to address technology limitation not covered by the national grid within the States, or
and outdated infrastructure that are responsible establish State Electricity Market, State Integrated
for value chain losses in the NESI; Electricity Policy and Strategic Implementation Plan
(SIEPSIP), and State Electricity Regulatory Authority
(vii). p
 rovide a framework to stimulate the with powers to regulate the State’s electricity
development and utilization of renewable markets.

Commentaries on the Electricity Act, 2023 5

Further, Section 3 of the Act provides that the of the Nigerian electricity market from its current
Federal Government (FG) through the Ministry transitional electricity market stage to the medium-
in charge of power shall prepare and publish the term and long-term electricity market stages or
NIEPSIP in the Federal Gazette within a year of such stages of the market in accordance with
commencement of the Act. This will be done such terms, preconditions or features as may be
in consultation with the relevant government prescribed in the market rules or amendment to
agencies and stakeholders and must be reviewed such rules as may be approved by NERC.
as required, but not later than every five years. The
NIEPSIP is expected to guide the development of The objectives set out in the Act are commendable
Nigeria’s electric of existing and potential energy as the NESI needs creative and innovative
sources, and provide guidance on key matters such solutions to address the country’s power supply
as rural electrification, public-private partnerships problem. The introduction of a consolidated power
for provision of electricity access to all areas in framework that includes cleaner renewable energy
the country, power-source specific policies, bulk sources in Nigeria’s energy mix should facilitate
purchase of power, management of local distribution the development and scaling of renewable energy
in rural areas and other aspects of the power sector solutions, introduce cutting-edge technology
that the FG may deem fit for guidance through to improve power distribution and monitoring
policy direction. and encourage private sector investment. The
proposed reforms are expected to improve the
Finally, the Act provides that the NERC will have the competitiveness, financial viability and service
continuing responsibility to ensure the development delivery in the sector.

Commentaries on the Electricity Act, 2023 6

 Chapter Two

Administration and
Governance
The Act proposes the re-establishment of the surplus funds following an audit of the NERC’s
following administrative bodies to oversee the accounts shall be paid directly to the Rural
efficient operation of the NESI: Electrification Fund.

2.1 Nigerian Electricity Regulatory Commission 2.2 Rural Electrification Agency

 he NERC (or “the Commission”) shall

T Section 127 of the Act establishes the Rural
independently function as the principal Electrification Agency (REA or “the Agency”),
regulator of the NESl. Section 34(2) of the which will have the principal objective of
Act empowers the Commission to license facilitating the electrification of rural, unserved,
and regulate persons engaged in the and under-served markets in an economical
generation, transmission, system operation, manner that would allow for reasonable returns
distribution, supply, and trading of electricity. on investment through appropriate tariffs that
The Commission will also be responsible for meets the social, industrial and agricultural
promoting competition and private sector needs of rural communities. The Agency shall
participation in the power sector, as well as also support the development of renewable
other related functions outlined in the Act, energy sources and provide public education
including intervention in the management for rural electrification and renewable energy
and control of the affairs of failing licensees production and consumption.
and permit holders to ensure continuity in the
provision of electricity services.  he Agency shall have a governing board
T
comprising seven members appointed by
 he NERC governing board shall consist
T the President on the recommendation of the
of seven full time commissioners, each Minister. Six of the members will be appointed
representing one of the six geo-political zones to represent the six geopolitical zones of
in Nigeria, and the chairman from any zone. Nigeria, while the final member will function
The commissioners shall be appointed by the as the Managing Director (MD) and Chief
President of the Federal Republic of Nigeria Executive Officer (CEO) of the Agency. The
(“the President”), from the public and private board members will hold office for a five-year
sectors, subject to confirmation by the Senate. tenure, after which each member may be re-
The chairman’s appointment shall last for five appointed for another five years and no more.
years, while the other six commissioners shall
serve a four-year tenure, after which they may 2.3 Directorates of the Agency
be re-appointed for a final four-year term.
Structurally, the REA will be divided into three
 he Commission will be funded by the fees,
T directorates, namely: the Rural Electrification
charges and other income accruing to it Fund (REF) division, the Engineering and
from licensees, excluding fines or penalties Technical Services (ETS) division, and the
recovered, which shall be payable to the Rural Corporate Services (CS) division.
Electrification Fund. Other sources of funds
include monies allocated to the Commission a. T
 he REF directorate, established under
by the National Assembly based on the NERC’s Section 140 of the Act, will oversee
request, and such other monies as may administration of the REF to provide capital
accrue to the Commission. However, where subsidies to qualified rural electrification
all budgeted expenditure has been met, any projects at federal, local and zonal levels,

Commentaries on the Electricity Act, 2023 7

 and implement the policies of the Agency investment in rural electrification. Further, the
in respect of the REF. The REF will also REA, for the purpose of effective coordination
support sustainable and renewable and monitoring of rural electrification projects
electrification projects for unserved and nationwide, will collaborate with State Rural
under-served communities through private Electrification Boards or related agencies to
and public sector participation. The sources establish Local Government Rural Electrification
of funding for the REF include; Implementation Committees to carry out any
component of the Rural Electrification Strategy
(i).  a ny surplus funds in the NERC and Implementation Plan in the respective
account following annual audits States of the Federation.

(ii).  f ines and penalties collected by the 2.4 Nigerian Electricity Management Services
Commission Agency

(iii).  donations, grants, gifts, and loans Section 172 of the Act provides for the
transfer of the operations of the Electricity
(iv).  s pecial intervention funds provided by Management Services Plc to the Nigerian
any of the three tiers of government Electricity Management Services Agency
(NEMSA). NEMSA shall retain its organizational
(v).  e
 ndowments, bequests, gifts of structure pursuant to the NEMSA Act, 2015.
money, movable, or immovable NEMSA will, amongst other functions, enforce
property all statutory technical electrical standards and
regulations published by the Commission, issue
(vi).  f unds appropriated by the National competency certificates to qualified electrical
Assembly for the operation of the personnel working in the NESI and carry out
Agency, and periodic inspection, monitoring and assessment
of existing power plants or stations,
(vii). 2%
 of funds accruable to the installations, extra high voltage and high voltage
Commission from the tariff structure transmission lines and associated transmitting
as operational cost. or switching stations and distribution networks
to ensure that they are fit for purpose.
Additionally, Section 145of the Act provides
that the NERC shall determine the rate  he ten members of the NEMSA governing
T
of any contribution payable by eligible board shall comprise a chairperson, six
customers and licensees into the REF members representing each geopolitical zone,
and allocate the resources from the REF the MD/CEO, and one representative each
based on transparent criteria established from the Federal Ministry of Power and Federal
in consultation with the Minister. All funds Ministry of Finance. The tenure of office shall
paid into the REF shall be exempt from be three years, after which each member may
income tax in line with Section 150 of the be re-appointed for a similar period on a part-
Act. time basis.

b
. T
 he ETS division will be responsible for The NEMSA shall be funded from:
providing technical support services for the
Agency’s projects. The division, through (i). fees, charges, and other income accruing
its project supports directorate, will also to it from certifications and other approved
supervise project implementation to ensure activities, excluding fines or penalties
compliance with existing standards. recovered under the Act;

c. T
 he CS division shall be tasked with creating (ii). grants of money or other property provided
awareness for rural electrification and on terms and conditions consistent with
managing the Agency’s internal finance and the objectives of the NEMSA;
administrative functions.
(iii). f unds allocated by the National Assembly;
 he REA, in addition to operating the REF, will
T and
be responsible for advocating for tax incentives
and low interest loans for local producers of (iv). o
 ther funds that may vest in or accrue to
renewable energy products to encourage the NEMSA whether during its operations
Commentaries on the Electricity Act, 2023 8
 its authority under the Act, Regulations that
will guide the internal and domestic matters
covered in its functions. The Regulations shall
be in writing and will become effective when
sealed with the seal of the NPTIN, unless
another commencement date is prescribed in
the Regulations. The Act also clarified that it is
not obligatory for the Council of the Institute
to publish its Regulations in the Federal
Government Gazette, once it bears the seal of
the NPTIN.

 he Act further empowers the NPTIN to receive

T
and manage the Power Training Funds and other
funds accruing to the Institute. The funds of
the institute, which will be used to offset its
expenditure, shall be derived from the following
sources:

(i). training fees

(ii). charges and dues recoverable by the

or otherwise. Institution

2.5 National Power Training Institute of Nigeria (iii). budgetary appropriation by the National
Assembly,
 ection 185 of the Act establishes the National
S
Power Training Institute of Nigeria (NPTIN (iv). fees earned from consultancy services,
or “the Institute”), which will be under the subvention, grants-in-aid, endowments,
supervision of the Minister, to serve as a and
focal point for human resources development
and workforce capacity building, as well as a (v). d
 onations and legacies that may accrue to
research centre for matters relating to electric the Institute.
power in Nigeria and Africa.
 he Power Training Fund, as established by
T
 he NPTIN will collaborate with local and
T Section 202 of the Act, shall receive 40% of the
foreign institutions to organize training and income listed above, while the remainder will
professional certificate programmes that will be paid into a bank approved by the governing
ensure proficiency and global recognition of council. Additionally, loans, grants, or voluntary
professionals in the power sector. Further, contributions from licensees, development
Section 186(2) of the Act empowers the partners, and other monies obtained from
Institute to utilize its database on manpower sources other than those listed above shall be
development to advise the FG and other paid into the Power Training Fund.
relevant stakeholders on matters relating to
manpower training in the NESI. 2.6 National Power Policy Coordinating Council

 he governing Council of the NPTIN (“Council

T Section 229 of the Act provides for the
of the institute”) shall be responsible for specific functions of the National Power Policy
the general management of the affairs of Coordinating Council (NPPCC or “the Power
the Institute and in particular, the control of Council”) to include coordinating and ensuring
the property and finances of the institute. policy harmony in the NESI by considering,
Meanwhile, the manpower training, adopting, and reviewing the NIEPSIP for
development, and certification functions of approval by the National Economic Council.
the NPTIN will be managed by the Institute’s The members of the NPPCC will be appointed
academic board. and inaugurated by the President following the
commencement of the Act. The Power Council
 ection 207 of the Act empowers the Council
S shall deliberate on challenges experienced by
of the Institute to make, within the scope of stakeholders within the NESI, with a view to
Commentaries on the Electricity Act, 2023 9
 developing adequate and practical solutions renewed for another four years and no more.
to the challenges and develop uniform In addition to the above, the N-HYPPADEC
and targeted incentives (whether fiscal or will consist of Directorates of Finance and
otherwise) to boost investment in the Nigerian Administration, Directorate of Operations,
electricity market. Further, the NPPCC will Directorate of Engineering and Technical
serve as a forum for collaboration between Services, Directorate of Community and Rural
Federal and State government agencies for the Development, Directorate of Legal Services and
formulation and review of the NIEPSIP. Directorate of Planning, Research and Statistics
to help drive the mandate of the N-HYPPADEC.
 he NPPCC will also publish annual
T
performance evaluation reports for the Section 95 of the Act provides for the
NESI indicating amongst other things, key establishment of the N-HYPPADEC Fund which
policy targets, achieved targets, challenges shall be financed from the following sources:
experienced by market operators, participants
and other stakeholders in the sector and (i). 1
 0% of total revenue generated by any
measures to address the identified challenges. company or authority from the operations
of any hydroelectric dams in any member
2.7 N
 ational Hydroelectric Power Producing State of the N-HYPPADEC.
Areas Development Commission
(ii). 5
 0% of money due to member States
 ection 82 of the Act establishes the National
S of the N-HYPPADEC from the Ecological
Hydroelectric Power Producing Areas Funds;
Development Commission (N-HYPPADEC)
which shall be responsible for formulating (iii). a ll money raised for the purpose of the
policies and guidelines for the development of functions of the N-HYPPADEC through
hydroelectric power producing areas, without gifts loans, grants-in-aid, testamentary
prejudice to the powers of the Minister disposition or otherwise; and
to issue policy directives and the NERC’s
power to regulate the NESI. Section 89 of (iv). p
 roceeds from all other assets that
the Act outlines the other functions of the may, from time to time, accrue to the
N-HYPPADEC. N-HYPPADEC.

 he N-HYPPADEC shall have a Governing

T (v). Contributions by the FG to the
Council to oversee its administration, a N-HYPPADEC Fund through appropriations
Management Committee which shall be by the National Assembly.
responsible for its general operations and
administration, and an Advisory Committee All administrative bodies, except the NPPCC, are
which shall be responsible for appraising and required to submit annual reports to the Minister
advising the President on the activities of within stipulated timelines for onward transmission
N-HYPPADEC at least once a year. to the President. This is expected to promote
transparency and accountability for the various
 he Governing Council will be presided by
T funds and expenditures of the bodies.
a Chairman, appointed on a part-time basis.
Other members of the Governing Council will The NESI has faced significant market cooperation
include one representative from the affected and governance problems over the years. In the
communities listed in Section 84(1)(b) of the past, experts have opined that the key to unlocking
Act, two persons to represent the other non- the issues in the sector for end-users to feel the
hydroelectric power producing areas or States, impact of the many reforms in the sector will
a representative from the Federal Ministries depend on what progress is made in governance
of Power, Environment, Water Resources and and accountability in the sector. Therefore, the
Finance and the Managing Director of the clarification of NERC as the principal regulator of the
N-HYPPADEC. sector and demarcation of the functions of other
regulatory bodies should help to address regulatory
 he Chairman and members of the Governing
T responsibilities, ensure clarity of statutory roles
Council, other than ex-officio members, shall for ease of compliance by operators, and improve
be appointed by the President, subject to sector governance and transparency required to
confirmation by the Senate, and shall hold drive sustained growth in the NESI.
office for a tenure of four years, which may be
Commentaries on the Electricity Act, 2023 10
 Chapter Three

Licensing
3.1 Licensing Requirements generation of electricity from renewable and
non-renewable sources.
 he Act regulates the issuance of licenses
T
for the business of electricity generation  Section 80 of the Act requires the NERC
(excluding captive generation), electricity and the Independent System Operator
transmission, distribution, supply, trading, and (ISO) to promote electricity generation from
system operation. Section 63(1) precludes the renewable energy sources. Therefore,
construction, ownership or operation of any of in granting generating licenses, the
the above undertakings without an appropriate Commission shall promote embedded
licence. However, Section 63(2) of the Act generation, hybridized generation,
allows a person to construct, own or operate cogeneration, and the generation of
an undertaking for generating electricity not electricity from renewable sources.
exceeding 1 megawatt (MW) in aggregate
at a site or an undertaking for distribution ii. Transmission license
for electricity with a capacity not exceeding
100 kilowatts (KW) in aggregate at a site, or   transmission license authorizes the
A
such other capacity as the Commission may licensee to construct, maintain, and operate
determine occasionally. a smart grid interconnection in Nigeria and
other neighboring countries. Further, a
 ailure to obtain a mandatory license attracts
F licensed transmission service provider may
a penalty of at least ten times the application provide access to its transmission system for
and license fees for the relevant license, or use by any successor generating company,
imprisonment for a maximum of five years, or independent power producer, consumers,
both, including an order for permanent forfeiture licensees, or other generators upon payment
of the undertaking to the Commission. of appropriate transmission charges.

3.2 Classification of Licenses   he Act also empowers NERC to issue

T
independent electricity transmission
 nder the repealed Act, the Transmission
U network license where there is no existing
Company of Nigeria (TCN) possessed the transmission facility and there is a need to
license to administer transmission service extend the transmission network to increase
provision, market, and systems operation electricity access or existing transmission
functions. However, Sections 65 to 69 of facilities that requires reinforcement of
the Act provide for the following classes of transmission networks to connect to new
licenses: power generating facilities.

i. G
 eneration license  However, the franchise area for the
independent electricity transmission network
  generation license allows the licensee
A license shall be restricted to only the
to construct, own, operate and maintain a greenfield sites within the States covered
generation station for purposes of generation under the license.
and supply of electricity. The Act permits
the NERC to issue multiple generation Section 108 of the Act provides for the
licenses to independent power producers for demarcation of transmission control in the

Commentaries on the Electricity Act, 2023 11

 country into a National Control Centre,
Supplementary National Control Centre, and
Regional Control Centres. The Commission
may also issue regulations on private sector
investment in the transmission network,
including powers to issue directives for
supervision and/ or control that will ensure
the stable and efficient operations of
the national grid under the control of a
transmission licensee under Section 66 of
the Act.

 F
 urther, Section 112 of the Act provides for
a public-private partnership arrangement
between the Federal or State governments
and private companies for investment
in the transmission network in line with
the provisions of the Act and the relevant
framework on infrastructure concessions and
public-private partnerships in Nigeria.

iii. Systems operation license

 S
 ection 15 of the Act requires the TCN to
incorporate an entity that will serve as the
Independent Systems Operator (ISO). The
ISO shall be licensed by the NERC to take-
over the administration of market and system
operation functions as stipulated by the
Act. Consequently, the TCN will transfer the
assets and liabilities relating to its market
and system operation functions to the ISO,
while retaining only its transmission license.
Based Section 67 of the Act, the ISO shall
perform the following functions:

• g
 eneration scheduling, commitment and  Based on the above, the TCN will focus on
dispatch; functions as are relevant to the development
and maintenance of the power transmission
• t ransmission scheduling and generation infrastructure.
outage coordination;
iv. Distribution and supply license (DSL)
• t ransmission congestion management;
   DSL shall authorize the licensee to operate
A
• international transmission co-ordination; a distribution system that will facilitate the
following activities:
• p
 rocurement and scheduling of ancillary
services and system planning for long • connection of customers to receive
term capacity; electricity supply;

• a dministration of the wholesale • installation, maintenance and reading of

electricity market, including the activity of meters, billing and collection;
administration of settlement payments, in • expansion of the distribution network in
accordance with the market rules; and the licensed areas, and

• s uch other activities as may be required • such other functions as may be prescribed
for reliable and efficient system operation. in the Act.

Commentaries on the Electricity Act, 2023 12

   ection 68 of the Act provides other
S Based on Section 72(10) of the Act, the duration
responsibilities and functions of DSL of a license will be determined by the NERC
holders. Further, the NERC and ISO will which can be renewed upon application before
be responsible for the promotion and the expiration of the valid date. Specifically,
distribution or supply of electricity from Section 73(3) of the Act provides that “the
renewable energy sources. provisions of Section 71 of this Act shall apply,
mutatis mutandis, to the renewal of licenses”.

The Act also requires the Commission to Meaning that the renewal of licenses will be
carry out a review every two years to assess subject to the same conditions stipulated for
the condition of the distribution system the initial application, with consideration of the
and the licensee’s performance in meeting necessary differences.
the average annual demand in its area of
service. The Act further provides for the 3.4 State Licensing
establishment of a forum for redress of
customers’ grievances in accordance with Section 63(2)(b) allows persons to operate
the guidelines as may be specified by the an undertaking for generation, transmission,
Commission which will be assessed by the distribution, supply, and sale of electricity
Commission during its scheduled periodic within a State, pursuant to the law enacted
reviews. by the House of Assemble of the relevant
State, provided that such a license does not
Finally, the Act provides that licensees must permit the licensee to provide inter-state
supply electricity to customers through or transnational distribution of electricity in
installed meters duly certified by the Nigeria.
NEMSA. Consequently, Consumers who
refuse the installation of electricity meters on Further, Section 63(7) of the Act empowers the
their premises shall be disconnected until the State Electricity Board to grant and provide the
supplier is permitted to install the electricity framework for the operation of the following:
meter.
(i). mini-grid licenses,
v. Trading license
(ii). Independent Electricity Distribution
  trading licensee shall be permitted to
A Networks (IEDN),
purchase, sell and trade in electricity,
subject to the NERC’s stipulated terms (iii). IEDN Operators (IEDNO),
and conditions. The Commission shall
specify in the trading license issued, the (iv). Independent Electricity Transmission
technical requirements, capital adequacy Networks (IETN), and
requirements, credit worthiness and
such other terms and condition as the (v). IETN Operators (IETNO).
Commission may deem adequate.
However, the Commission shall retain and
3.3 Application for & Renewal of Licenses exercise regulatory powers over on the above
licenses and related electricity services where
 n application for a license shall be made in a
A a State has no legal and institutional framework
form prescribed by the NERC, accompanied by for the regulation of the licenses or related
the required documents and fees. Within 30 electricity services, and/or the State relies on
days of application, the applicant shall publish a the national grid for its electricity operations.
notice of application in a newspaper circulating
in the area in which it intends to operate as a The Act also outlines administrative provisions
licensee, and in a separate national circulation regarding the amendment of licenses, intervention
newspaper, in accordance with the directions powers in failing licenses, and sale of undertakings
provided by the Commission. Further, the of failed licenses, amongst others.
Commission shall notify the applicant of its
decision on the license application within
6 months from the date of receipt of a
satisfactory application.

Commentaries on the Electricity Act, 2023 13

 Chapter Four

Tarrifs and
Subsidies
4.1 Tariffs issue a notice to relevant stakeholders to submit
their inputs within a timeframe determined by
 ection 116 of the Act governs the tariff
S the Commission for consideration before the
regulation of the following activities in the NESI: Commission may update the tariff methodology.
However, stakeholders will be duly notified of all
(i). g
 eneration and trading activities for which proposed changes to the tariff computations.
licenses are required and related activities
which the Commission considers regulation 4.2 Subsidies
of prices necessary to prevent abuses of
market power;  he Act allows the subsidization of tariffs by
T
the Federal and State Governments, as well
(ii). t ransmission, distribution, supply, and as cross-subsidization (i.e., subsidization of
system operation, for which licenses are the tariffs by one class or group of consumers
required; and by another class or group of consumers).
However, such subsidy or cross-subsidies
(iii). e
 lectricity distribution franchising or shall be implemented within the Power
other activities that the Commission Consumer Assistance Fund (PCAF) which will
may determine as being subject to tariff be established in line with Section 122 of the
regulation. Act. The PCAF will serve to subsidize power
supplied to underprivileged consumers as
 he applicable prices for these activities
T specified by the Minister in consultation with
will be regulated by tariff methodologies the Commission.
adopted by the NERC. The methodologies
will be formulated to promote the economic NERC shall determine the contribution rates to
efficiency of licensees, provide incentive for be paid by eligible customers and consumers
continued improvement of quality of services, into the PCAF, with due consideration to the
promote co-generation and generation of impact of the additional financial burden on
electricity from renewable sources, while duly such contributors which will be factored into the
informing customers about the actual cost of tariffs. All contributions received by distribution
consumption. licensees shall be compiled and paid into the
PCAF in accordance with the guidelines that
 he Act provides for the differentiation of
T will be issued by NERC.
consumers based on differences in total
electricity consumption, timing, load factors, Subsidy payments from the PCAF will be
power factors, voltage levels, location within disbursed to distribution companies (DisCos) for
the country and other relevant criteria that electricity supplied to designated consumers
may affect the cost of providing a service. at the rates and durations specified by the
However, the methodologies will not promote Commission. Further, the Commission shall
undue discrimination between consumers ensure strict implementation of cross-subsidies
and consumer categories. To aid this, Section and facilitate its gradual reduction with the
116(6) provides that the proposed tariff aim of eliminating it completely before the
methodology will be published in newspapers declaration of the commencement of a long-
and the official gazette to enable stakeholders term market stage under the Act.
to raise objections or representations to the
Commission. Additionally, the Commission will

Commentaries on the Electricity Act, 2023 14

 Chapter Five

Renewable Energy and

Efficiency
The development and utilization of renewable photovoltaics (PV) components, deep cycle
energy is at the forefront of the NERC’s objectives batteries, electromechanical components
under the Act. Consequently, the Act promotes of small hydropower technology,
the embedded generation, hybridized generation, wind power, boilers, and turbines for
co-generation, and the generation of electricity cogeneration of less than 30MW or other
from renewable sources such as solar energy, wind, components specified by the Commission
small hydro, biomass, and other defined renewable for local contents requirements;
sources.
(v). ensuring stable and long-term favorable
Based on Section 165 of the Act, the commercial pricing mechanism for renewable energy;
activities considered in the renewable energy
industry include generation, distribution, sales, and (vi). introduction of feed-in tariffs for all small
installation activities. However, the Commission hydro schemes, all biomass co-generation
may amend the scope of activities through available power plants, solar and wind-based plants
regulatory instruments. irrespective of their sizes, within the
terms of the tariffs to be up to 20 years,
5.1 Implementation Measures to guarantee buyers under standard Power
Purchase Agreements (PPAs) and provide
 ection 164 of the Act requires the NERC to
S return on investments;
implement multiple measures to increase the
contribution of renewable energy to Nigeria’s (vii). p
 rovision of support to the REA towards
energy mix. Some of the key measures efficient implementation of rural
include: electrification using renewable energy
sources specified under this Act;
(i). s implification of licensing and fees regime
for issuance of licenses to renewable (viii). issuance of renewable energy standards
energy service companies; on installation, decommissioning
and Disposal of renewable energy
(ii). p
 rovision of regulations specifying the accessories and monitor compliance
role of generation licensees, transmission in conjunction with other relevant
service providers, and ISO distribution ministries, departments, and agencies
licensees in the integration of renewable with mandates on product safety and
energy generated capacity into the national standards; and
grid and distribution network;
(ix). Issuance of guidelines on net-metering
(iii). p
 rovision of mini-grid regulations on for roof -top solar PV systems, small
renewable energy to cater for installation, wind power in line with the provisions
metering, Acting, and other requirements of this Act regarding the procedure for
for renewable energy mini-grid Systems; adoption of guidelines or other regulatory
documents by the Commission.
(iv). r eview of the extant National Content
Development Regulations for the 5.2 Renewable Energy Incentives
power sector to address local content
requirements for local skills acquisition, Section 166 of the Act provides that the
local production, and assembly of solar Federal Ministry of Finance shall introduce tax

Commentaries on the Electricity Act, 2023 15

 incentives to promote and facilitate generation  he TDS operator shall promptly upgrade the
T
and consumption of energy from renewable TDS at reasonable economic expense to feed-
energy sources. The incentives shall be in in the electricity from the renewable energy
accordance with the provisions the Industrial generator. Subsequently, the TDS may share
Development (Income Tax Relief) Act or such the agreed cost of upgrade between itself and
other fiscal policy frameworks that incentivize the renewable energy generator. However, the
the implementation of renewable energy cost of installing the metering point shall be
projects in Nigeria. borne by the renewable energy generator.

5.3 Feed-in Tariffs Rates  he Act accords necessary attention to the

T
development and utilization of energy from
 ection 168 of the Act precludes distribution
S renewable sources. Nigeria’s rapid economic
utilities from buying or negotiating PPAs with a and population growth has resulted in a
generator of electricity from renewable energy significant increase in energy demand in the
sources (“renewable energy generator”), country, which cannot be sustainably met
unless they are in accordance with specific through the finite fossil fuel sources such as
guidelines provided by the Commission. crude oil and natural gas. As renewable energy
Therefore, NERC is required to publish the gains importance as a part of Nigeria’s energy
approved feed-in-tariff rates for electricity sector, the creation of appropriate regulations
generated from renewable energy sources in to facilitate the growth of the renewable energy
the Federal Gazette and the mass media. sub-sector has become imperative.

5.4 C
 onnection to transmission and distribution  lthough Nigeria’s energy composition consists
A
systems almost entirely of fossil fuels and biomass,
renewable energy is projected to account for a
In its efforts to encourage electricity utilization major chunk of total power generation capacity
from renewable sources, the Act precludes in the next 10 years. Therefore, the promotion
transmission and distribution systems (TDS) of renewable energy as the driving force for
operators from unduly rejecting requests of rural electrification, under the Act, is a welcome
renewable energy generators to connect to a development.
TDS within the coverage area.

Commentaries on the Electricity Act, 2023 16

 Chapter Six

Offences and
Penalties
6.1 Contravention of regulations, orders, etc. of punishable offences, obstruction, and
impersonation of licensees, etc.
 ailure to comply with the orders, rules,
F
decisions, licenses, permits, codes, standards, Additionally, Section 116(13) of the Act prevents
directions in the Act or any other subsidiary any licensee that has been levied a fine or penalty
legislation issued pursuant to the Act, within under the Act or any other law or regulation from
the stipulated timeframe amounts to an recharging the levy to the licensee’s customers.
offence. Accordingly, such offender shall be
punishable by imprisonment for a term of
not more than three months or with a fine of
₦500,000, or both. However, in the case of a
continuing failure or contravention, an additional
penalty of not more than ₦100,000 per day
of the continuing failure to comply with such
subsidiary legislation shall apply.

6.2 Theft of electricity and electric materials

Illegal connection of electricity, tampering

with electric meters, unauthorized usage of
electricity and similar offences are punishable,
upon conviction, by imprisonment for a term
of at least three years or with a stipulated fine,
or both. Further, the theft of electric lines,
meters, and other materials is punishable by
imprisonment for a minimum of three years and
a maximum of five years, or a fine of at least
₦500,000, or both.

 eanwhile, persons who knowingly receive

M
stolen electric materials shall be punishable
upon conviction with an imprisonment of
fourteen years, or a fine limited to three times
the value of the stolen material, or both.

6.3 Intentional disruption of power supply

 he intentional disruption of electricity supply

T
lines or works, attracts a fine upon conviction of
not less than ₦300,000.

6.4 Other offences

 he Act stipulates the relevant punishments for

T
offences such as false declaration, abatement

Commentaries on the Electricity Act, 2023 17

Conclusion
Since 2005, Nigerian power reforms have focused consumers alike. However, the Commission must
on privatizing the generation and distribution assets ensure adequate provisions of meters to customers
and encouraging private investment in the power to avoid incidences of estimated bills and put other
sector. The Act becomes the first comprehensive regulations that will discourage energy providers
legal framework that addresses key statutory from takin undue advantage of consumers. This will
and operational challenges in the NESI. The promote equity and transparency in the NESI and
novel provisions of the Act, especially in areas minimise collection losses due to disagreements
of decoupling of distribution and retail functions between the DisCos and consumers.
and statutory recognition of electricity distribution
franchising will open new frontiers in retail However, there appears to be confusion in
competition and increase third party investments in Sections 95(2)(c) and (e) regarding the levy
the distribution subsector. to be administered by N-HYPPDEC for host
community development for communities where
The codification of the periodic review of tariff hydroelectricity is generated in Nigeria. On one
mechanism by NERC is a positive development hand, Section 95(2)(c) imposes a 5% levy of all
as the existing pricing mechanism has provoked revenue accruing from power generated by various
conflict between consumers and electricity GenCos in the affected communities, while Section
providers as Nigeria aims to promote a cost- 95(2)(e) on the other hand, exempts hydroelectric
reflective tariff regime in the NESI. This will also GenCos from the application of the levy. This
curtail disputes with customers when tariffs are appears to be a contradiction given that the Section
reviewed by the regulators. Therefore, it is expected relates to hydroelectric power producing areas in
that the proposed system for tariff methodologies Nigeria. Therefore, it is expected that subsequent
will include appropriate economic variables such as amendment to the Act will clarify this error to
inflation and foreign exchange differences to ensure avoid any ambiguity in the application of the levy to
a sustainable tariff plans for both the providers and affected companies.
consumers.
Finally, there is no doubt that the power sector
Further, the stipulation of penalties for various will continue to be under a lot of focus given
offences in the NESI will discourage the high the significant role electricity plays in national
incidences of energy theft and consumer apathy development. Therefore, the Act is an important
in electricity bill payment which has left the step in the right direction towards achieving a
electricity sector with significant market shortfalls. competitive and self-sustaining power sector market
It is expected that the penalties should curb such in Nigeria.
malicious practices by both the providers and

Commentaries on the Electricity Act, 2023 18

Key Contacts
Ayo Luqman Salami
Partner and Head
Energy Line of Business (Tax)
KPMG in Nigeria
T: +234 803 402 1015
E: [email protected]

Segun Sowande
Partner & Head
Energy Line of Business (Advisory)
KPMG in Nigeria
T: +234 803 402 0994
E: [email protected]

Ayo Soyinka
Partner and Head
Energy Line of Business (Audit)
KPMG in Nigeria
T: +234 803 402 0949
E: [email protected]

Adewale Ajayi
Partner & Head
Tax, Regulatory & People Services
KPMG in Nigeria
T: +234 127 18932
E: [email protected]

Martins Arogie
Partner
Tax, Regulatory & People Services
KPMG in Nigeria
T: +234 703 403 6318
E: [email protected]

Ikechukwu Odoh
Senior Manager
Tax, Regulatory & People Services
KPMG in Nigeria
T: +234 806 689 8804
E: [email protected]

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Commentaries on the Electricity Act, 2023 19