Earlier in March, President Muhammadu Buhari signed into law the constitutional amendment that allows states in the county to generate, transmit, and distribute electricity in areas covered by the national grid.
The legislation aims to increase opportunities in the power sector by allowing states or investors who have met relevant requirements to generate, transmit, and distribute power.
The Nigerian power sector has undergone major structural changes as a result of some reforms implemented by previous ruling governments. From a totally state-owned, technically regulated market with no wholesale structure, the market has developed into an unbundled system overseen by “arm’s length regulations”.
The recently signed reform would offer the ideal legal and administrative framework to leverage the numerous gains of the electricity sector in Nigeria.
This will considerably improve the sector’s output and reduce the country’s current power deficit.
The bill enables state governments to issue licenses to people who intend to operate a mini-grid within the state. Also important to highlight is the legal backing the bill provides for renewable energy generation.
Finally, the reform stipulates that no distribution license is needed for power generated in amounts less than one megawatt.
We commend the effort of the Buhari administration and past governments for beginning the reform journey and eventually breaking forth with this new bill. However, the efficacy of the new bill is greatly dependent on the effective synergy between designated local authorities and the private sector.
We believe that the new bill presents vast opportunities for existing and potential players in the power sector, bringing about healthy competition across the value chains in a sector that seems to be largely dominated by oligarchs.
Funding gaps within the sector will be bridged, thus facilitating a greater and improved quality of output, which in our opinion will most likely reflect in the overall contribution of the sector to the nation’s GDP growth, particularly from Q3-2023.
That said, our mid- to long-term outlook for the Nigerian power sector is significantly improved, buoyed by the upsides of the newly signed bill.
(Report by United Capital Analysts)