The Electricity Act 2023 as a Catalyst for the Development and Utilization of Renewable Electricity in Nigeria
The stratospheric negative ramifications attached to climate change have led to the critical drive for developing countries such as Nigeria, to curtail greenhouse gas (GHGs) emissions – by transitioning from the use of carbon-intensive fossil fuel energy to renewable energy options. The Electricity Act 2023 (‘The Act’ or ‘The Electricity Act’), as signed into law by President Bola Ahmed Tinubu on the 9th of June 2023, proves capable of fostering renewable electricity in Nigeria. The Act is, therefore, evidently replete with imperatives for the development of renewable electricity which, when correctly implemented, could position Nigeria at the forefront of decarbonization and energy transition. This article seeks to aid the attainment of a positive assessment of the Electricity Act and a deep understanding of its provisions – as it relates to renewable energy in Nigeria. In addition, this piece critically evaluates and analyzes the role the Act plays in addressing the barriers to the development of renewable energy.
- The Case for Renewable Energy Development
Renewable energy, being clean energy, would contribute to the nation’s climate change strategies. As is known, climate change – which is caused by GHGs from the electricity sector and unsustainable land use, is the most destructive and depleting global environmental problem to date. Nigeria disclosed that the advancement and development of renewable electricity is a part of its climate change attenuation strategies under the Paris Climate Change Agreement 2015. Thus, this not only serves as a clear incentive for the use of renewable energy, but it also gives an environmental perspective as to why its exploitation should be the future and present of Nigeria. The Act is weighted with provisions aimed at combating the negative effects of climate change by way of the utilization of renewable energy sources. At the basal, it requires licensees to produce a specified approved percentage of their total power generation from a hybridized generation or from renewable energy sources, namely: solar energy, small hydro energy, wind energy, biomass etc.. So, it can be affirmed that the Act is the harbinger for the achievement of low greenhouse gas emissions, the promotion of green growth and the encouragement of sustainable economic development.
Nigeria owns an inexhaustible amount of renewable energy resources such as wind, hydropower, sunlight, biomass, and the like. There is a heightened use of renewable energy sources globally due to the myriad of environmental benefits connected to them. From the energy experts’ viewpoint, the exploitation of a Nation’s renewable energy sources will, among other things, provide fixed, definite and affordable electricity tariffs to safeguard Nigerians from volatile fossil fuel costs. Regrettably, despite the nation’s ownership of plenteous energy resources, a good majority of its populace still lack access to an uninterrupted supply of electricity. In light of this, the Electricity Act is structured such that the problem of electricity supply is adequately dealt with. Thus, the 2023 Act encourages embedded generation, hybridized generation, co-generation and the generation of electricity from renewable energy sources like solar energy, wind energy, tidal energy, hydro energy, hydrogen, and biomass, amongst a plethora of other renewable energy sources.
Another case for the development of renewable energy is to acutely and sufficiently manage the issue of energy security in Nigeria. Ultimately, Nigeria seeks to provide electricity security for its citizens, residents and businesses/enterprises/organizations such that all have access to adequate electricity resources at fair prices for the reasonably anticipated future – unaffected by the grievous risk of substantial interruption of service. Interrupted power supply has been an extreme menace to the Nation for eons, and the aforesaid involuntary interruptions of energy supply have consequently caused grave setbacks for Nigeria. This persistent lack of energy security has occasioned a tremendous decline in Nigeria’s industrial production and economic output. According to Energy economics expert, Bob Keefe, “at the core of the economics of climate change is energy security”. As such, the negative ramifications stemming from energy insecurity in Nigeria give a clear signal for there to be a concrete plan in place to ameliorate these unfavourable effects.
Furthermore, renewable energy offers a cost-competitive advantage, in that it is a cheaper alternative to fossil fuels because it is readily and freely available. Due to the recent removal of the petrol subsidy in Nigeria, there has been a consequent increase in the price of fuel. It has therefore become imperative for there to be a total consideration of renewable electricity development in Nigeria. Unfortunately, the current status of renewable electricity in Nigeria is not where it should be within the context of the dire need for it. The limited development of renewable energy cannot be divorced from the absence of capacity to manufacture and maintain it. Furthermore, investors and users struggle with the affordability and accessibility of the initial capital costs of renewable electricity which is slightly higher than that of fossil fuel. However, this difference is often compensated by the low operational costs of renewable electricity technologies which makes it cheaper in medium and long term, in comparison to fossil fuel options. In the event that investors overcome the initial capital costs of renewable electricity strategies, the inability of consumers to afford a cost reflective tariff has also undermined the development of the sector.
In addition, a good majority of Nigerians are completely oblivious of such a thing as renewable energy and, thus, do not know the imperatives for it in comparison to fossil fuels. The renewable energy industry in Nigeria is still a nascent one that is not only unplumbed but is also yet to be fully grasped and comprehended. It is trite knowledge that “when the purpose of a thing is not known, abuse becomes inevitable”. The interpretation of this statement, against the backdrop of renewable energy in Nigeria, is that the lack of its awareness will cause Nigeria to continually deny itself access to its infinite natural resources that could be frequently plenished. With Nigeria grappling with the challenge of uninterrupted power supply, the unawareness of the advantages of renewable energy – such as sustainability, reliability, job creation and reduction of GHG emissions – will stagnate the development of the Country’s energy sector.
Following on from the above-mentioned reasons, it is now apparent why the provisions of the Electricity Act are almost entirely based on the promotion of renewable electricity, along with the implementation. Quite pithily, there are some specific features in the Act that support the development of renewable energy in Nigeria.
- The Features of the Electricity Act 2023 in Support of Renewable Energy
The Electricity Act focuses on the development of renewable energy to the extent that the long title highlights its key feature of aiming to integrate renewable energy into the energy mix. In the first remove, the preliminary provisions set a target of creating an enabling environment for the optimal development of renewable energy. The Minister for Power’s mandate to produce policy directives that detail measures for the development of the renewable energy sector is identified as favorable in this context. Furthermore, the primary regulator of the electricity sector, the Nigerian Electricity Regulatory Commission (NERC), is empowered under the Act to continually promote the development of renewable electricity. There are also some financial measures adopted to facilitate the development of renewable energy such as a rural fund for renewable electricity projects, Feed-in-Tariffs, the N-HYPPADEC, and a renewable purchase obligation. These features will be analyzed in seriatim.
First, the Act vocalizes its overall intention to support the generation of electricity from a variety of renewable energy sources in various respects. First, it aims to provide a framework for the development of renewable energy through the creation of an enabling environment for investment. Following, it is expected that the Act will interact with the barriers to the development of renewable energy. Relevant to renewable energy, is an objective to promote indigenous capacity in technology in the sector. This is timely in view of the identified problem of a deficit in the capacity to manufacture and maintain renewable energy technologies. As reiterated, the Nigerian masses are oblivious to the imperatives and benefits of renewable energy, partly accounting for its stunted development. The Act proposes to promote awareness and public education on renewable energy. Besides creating a clear context for addressing the barriers to the development of renewable energy, the obvious objectives will bolster investors’ confidence to invest in the sector.
3.3. National Integrated Electric Policy and Strategy Implementation Plan (NIEPSIP)
Another identifiable feature of the Act is a policy that is aimed at driving the development of renewable energy. Section 3 of the Act authorizes the Federal Government through the Ministry of Power to adopt the National Integrated Electric Policy and Strategy Implementation Plan. It is apt to mention that policies have always been the precursor to birthing laws in Nigeria. The National Energy Policy 2003 birthed the Electric Power Sector Reform Act 2005, which was the primary law for the sector until the birth of the Electricity Act 2023. Thus, the National Integrated Electric Policy and Strategy Implementation Plan is very significant in this context as it will continue to shape the evolution of law in the sector. The Act defines the scope of the policy to include driving the optimal utilization of multiple sources to generate electricity. The sources include renewable energy sources such as solar, hydro, wind, biomass etc. It shall also contain measures for addressing the financial barriers to the development of the sector including waivers and subsidies. The Minister of Power is mandated to adopt the NIEPSIP within one year from the adoption of the Electricity Act 2023. They are also expected to review it every five years. While the Policy does not form part of the legal architecture given that it is not binding, it cannot be glossed over as it is emblematic and will continue to inform laws that promote the development of the renewable energy sector.
3.4. The Nigerian Electricity Regulatory Commission (NERC)
Under the Electric Power Sector Reform Act 2005, the NERC was vested with the overriding power to regulate the sector. The Electricity Act provides that the NERC, as the vertex regulator of the Nigerian Electricity Supply Industry (NESI), has the overriding power to promote the development and utilization of renewable energy in order to increase its contribution to Nigeria’s electricity mix. The NERC is expected to increase the optimal development of the renewable electricity sector. By way of illustration, the Act stipulates that the Commission should simplify the licensing process for renewable electricity projects. This is a welcomed development in that renewable energy projects were lopsided into the same licensing procedure as fossil fuel strategies. This invariably meant that fossil fuels had the same licensing procedure as renewable energy, except that fossil fuels had accumulated the benefit of experience of usage which translates to cheaper costs. For this reason, fossil fuels became a more palatable and better option in comparison to renewable energy. The licensing process was also complicated and expensive. The latter was argued to add to the already expensive initial capital costs of developing a renewable electricity project. As such, a simplified procedure which may likely be less expensive will reduce the additional costs of licensing which enhances the problem of affordability of the initial capital cost in the sector. The overall import is to make renewable energy more attractive to electricity investors than their fossil fuel compeers. Another way that the NERC is expected to heighten the use of renewable energy is to ensure that the pricing mechanisms put in place by the licensees favour renewable energy consumers. As reiterated, the initial capital costs of most renewable electricity projects are significant and investors cannot easily afford them, especially with an underdeveloped capital market in Nigeria. To address this, the Act mandates NERC to provide incentives to support independent power producers who invest in the energy sector such that they are able to fund their activities while allowing for the generation of reasonable revenue to implement their operations.
3.5. Rural Electrification Fund (REF) and Rural Electrification Agency (REA)
In favour of the utilization of renewable energy, one of the Electricity Act’s features also includes the creation of the Rural Electrification Fund (REF) which is managed by the Rural Electrification Agency (‘REA’ or ‘the Agency’). According to Sections 142 and 143 of the Electricity Act 2023, the REF was established and is solely committed to the promotion, provision and support of renewable electricity investments and projects in the rural and un(der)served areas of Nigeria. It is apt to mention that while the erstwhile Electric Power Sector Reform Act (EPSRA) 2005 also provided for the fund, it merely just stated that it was geared towards supporting rural electrification projects – both on-grid and off-grid. Thus, the REF under the EPSRA 2005 was supporting both renewable and fossil fuel electricity projects. Given that fossil fuel electricity strategies were already benefitting from accumulated decades of subsidies and experience to the exclusion of renewable energy strategies, uniform financial support as provided by the EPSRA 2005’s REF will not specifically benefit renewable energy projects. However, this new Electricity Act provides for the express abutment of the development of renewable energy and is therefore, unlike the ESPRA 2005, a clear-cut added advantage for the renewable energy industry. Relatedly, the Act mandates the REA to manage the operations of the REF. In addition, the REA will also be promoting the advancement, accessibility and support of rural and un(der)served electrification including through the productive use and development of renewable energy.
As seen in Section 129 (1) (g) of the Act, the REA also introduces to the Act, the espousal of the facilitation of tax incentives and affordable interest loans for local producers of renewable energy products for electrification. The latter tax incentive will be handy in reducing the cost of investment in the renewable energy sector. Affordable loan interest will additionally ameliorate the considerable investment costs in the renewable energy sector especially when juxtaposed with fossil fuel investments. Moreover, the REA is saddled with the responsibility of executing renewable energy projects on their own, in rural areas. Notably, it has been assuming the same responsibility of developing rural electricity projects including renewable energy under the ESPRA 2005. A responsibility it managed so well except that it provided similar support for some few fossil fuel projects thereby receiving backlash from scholars including Ole et al in the publication ‘the Nigerian Electricity Regulatory Framework: Hotspots and Challenges for Off-grid Renewable Electricity’ published in the Journal of World Energy Law and Business in 2020. The criticism was premised on the already upper hand that fossil fuel had in the area of accumulated decades of support and years of experience with usage which makes it cheaper than renewable. In addition, another snag with the REA, is that its coverage sadly does not extend to urban areas- as it is strictly confined to rural, unserved and underserved locations in Nigeria.
3.6. National Hydroelectric Power Producing Area Development Commission (the ‘N-HYPPADEC’ or the ‘Commission’)
Furthermore, Section 82 of the Act created the National Hydroelectric Power Producing Area Development Commission (the ‘N-HYPPADEC’ or the ‘Commission’) – which is deemed to be a novel creation. The N-HYPPADEC is solely obligated to work with both the state and federal governments to promote the development of electricity from hydro energy. One may recall that, by way of the 2023 constitutional amendments, the state governments have now been empowered to generate, transmit and distribute electricity from on-grid and off-grid sources. This is, therefore, in line with the N-HYPPADEC’s duty to work unrestrictedly with both state and federal governments to promote the utilization of hydroelectricity. The Commission is mandated to strictly promote, support and execute all plans pertaining to the development of hydroelectricity in Nigeria. Also, all ecological challenges arising from the overloading of dams and all other environmental hazards that may occur in the hydroelectric power-producing areas must be tackled by the N-HYPPADEC. The N-HYPPADEC ‘s establishment by the Act is, thus, indicative of the drafters of the Act and indeed, Nigeria’s firm dedication to providing energy security, increasing the use of renewable energy sources like hydro energy, and accomplishing its net-zero targets.
3.7. Financial Features
Moreover, the Electricity Act caters for a feed-in tariff as provided for by law – i.e., the feed-in tariff is an obligation of the Nigerian Bulk Electricity Trading Company (NBETC) and all other independent licensees under the Act that will either be transmitting, generating or distributing electricity. The feed-in tariffs mandate the mentioned parties to treat as must-buy electricity produced from renewable energy for the purpose of being fed into the national grid. The rationale behind the feed-in tariffs is that the national grid is not designed to accommodate intermittent sources of energy such as renewable. Thus, costs of system upgrade and ancillary costs required for making the national grid fit for this purpose would ordinarily deter NBET and system operators from buying and transmitting renewable energy respectively. As such, the feed-in-tariffs innovation addresses the challenges of accommodating renewable electricity in the national grid by creating some mandatoriness on relevant parties while making sure renewable energy developers’ foot the cost of system upgrade. This is in sync with what is obtainable from other jurisdictions, such as China, that have fared well in the development of the renewable energy sector.
The final feature of the Act as regards the advocation for the use of renewable electricity is the ‘renewable purchase obligation’- which is considered/mentioned in Section 167 of the Act. The ‘renewable purchase obligation’ imposes an obligation on bulk buyers/traders of electricity to ensure that they buy a certain percentage of their total purchase of electricity from renewable energy sources. To put it in plain words, if those who are licensed to trade and sell electricity to consumers (seek to) buy or sell electricity under the Act, the law stipulates that the NERC shall designate a certain percentage of electricity to them which must come from renewable energy sources. So, for example, if the NBETC in buying electricity to trade or for new entrants, purchased 100% fossil fuel, the NERC will designate that 3% of the electricity purchased must be from the renewable energy mix. It is, therefore, crystal clear that the Act is the requisite tool that would galvanize the energy sector into actively transitioning from the dependability of fossil fuels to the efficient utilization of renewable energy sources in Nigeria.
Renewable energy plays a pivotal role in the crucial reduction of GHG emissions, the vital provision of energy security and the curtailment of the reliance on depleting sources of energy – such as fossil fuels. Nigeria is blessed with an infinite amount of renewable energy sources that when properly exploited, could put an end to the protracted lack of uninterrupted electricity supply challenges that have plagued the Nation for years. The Electricity Act 2023 depicts that Nigeria, although a developing nation with poor access to electricity facilities can, notwithstanding, leverage on its ownership of renewable energy sources to curb its energy insecurity and environmental challenges. Nigeria’s astounding wealth of renewable energy sources in conjunction with the appropriate execution of the provisions of the Electricity Act is the providential answer to Nigeria’s electricity supply and climate change problems.