Over time, the Nigerian Electric Supply Industry (NESI) is expected to progress through four stages, which are to be determined by the extent of competition in the market. By the provisions of the law, the Nigerian Electricity Regulatory Commission (NERC) determines the degree to which the market has progressed competitively.
In principle, the application of the rules of vertical and horizontal unbundling, the introduction of consumer choice, the liquidity of trading (whether by contract or on the spot), the application of rules on third-party access to networks, and the extent of privatization in the market should all be taken into consideration when deciding the degree of competition in the market.
On 3rd October 2023, NERC released its Market Competition Report for 2022 (the Report). Even though this Report was issued after the enactment of the Electricity Act 2023 (EA), it was nonetheless released further to the provisions of the Electric Power Sector Reform Act 2005 (ESPRA). In this newsletter, we examine the contents of the Report in detail, provide a comparative analysis of the EPSRA and the EA on the indices for accessing increased competition in the Nigerian electricity supply industry (NESI) and on who resides the powers to declare a more competitive electricity market, while sharing our insights on what to expect in the market in the foreseeable future.
STAGES OF THE NIGERIAN ELECTRICITY MARKET
Statutorily, the NESI is expected to progress through four stages:
- Pre-Transitional Electricity Market: This stage officially commenced with the privatization of the NESI through the sale of the successor generation companies (GenCos) and the divestment of a 60% majority stake in the distribution companies (DisCos) in 2013.
- Transitional Electricity Market: This stage officially commenced on the 1st of February 2015 following a declaration by NERC.5 At this time, two important questions were raised regarding the market: (a) whether NERC in fact, and not the Minister of Power, could declare the Transitional Electricity Market? and (b) whether the Conditions Precedents prescribed in the Market Rules had been satisfied for the declaration of the Transitional Electricity Market?
- Medium-Term Market: During this stage of the market, while electricity transmission and distribution will remain regulated, the contract market in electricity generation will be partly regulated (with NERC setting the wholesale market rates), and partly unregulated. At this stage of the market, a balancing mechanism (spot market) which deals with imbalances between the metered and contracted quantities of energy, will be introduced.
- Long-Term Electricity Market: At this stage of the market, both the generation and retail (billing, metering, and collection – now bundled into electricity distribution) aspects of the electricity value chain will be unregulated. Transmission and distribution will remain regulated, being natural monopolies.