States, struggling DisCos test Nigeria’s power sector reform

Nigeria’s power sector is undergoing one of its most far-reaching transformations in decades, as the implementation of the Electricity Act 2023 shifts the industry from a centrally controlled system to a decentralised, multi-tier electricity market.

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This is the central finding of a new report by PwC (PricewaterhouseCoopers), published on Thursday, titled “Priority actions for the successful evolution of Nigeria’s multi-tier electricity market.”

The report draws from a high-level stakeholder engagement held during the firm’s annual power and utilities roundtable.

The meeting brought together key actors across the electricity value chain, including representatives of federal and state governments, distribution companies, off-grid developers, and project financiers.

Participants included the former Minister of Power, Adebayo Adelabu; Lagos State Commissioner for Energy and Mineral Resources, Biodun Ogunleye; the Chief Executive Officer of Eko Electricity Distribution Company Plc, Rekhiat Momoh; the Managing Director of the Rural Electrification Agency (REA), Abba Aliyu; and a senior executive of Afreximbank, Peter Olowononi.

The 26-page report highlights early signs of change in how Nigeria’s electricity market is evolving under the new law—particularly in project development, institutional coordination, and investor risk assessment.

Signed into law in June 2023, the Electricity Act repealed the 2005 legislation, ending the federal government’s monopoly and empowering states, companies, and individuals to generate, transmit, and distribute electricity. The law is designed to promote private investment, expand renewable energy, and close infrastructure gaps.

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Two years on, PwC says the sector is in transition—marked by increasing state participation, cautious investor interest, and lingering structural weaknesses that could determine the reform’s success.

States take charge

A defining feature of the reform is the transfer of regulatory authority to states, enabling them to license operators, set tariffs, and oversee electricity markets within their jurisdictions.

According to the report, more than 15 states are at various stages of activating their electricity markets, with some already establishing regulatory commissions and embedding power planning into broader economic strategies.

However, progress remains uneven.

While states such as Lagos are adopting structured, phased approaches, others lag in regulatory capacity, technical expertise, and financial readiness—raising the risk of fragmented markets with differing standards and outcomes.

Experts warn that without stronger coordination, overlaps between federal and state roles—especially on tariffs, subsidies, and technical standards—could create uncertainty and slow progress.

DisCos remain weak link

Despite policy shifts, electricity distribution companies (DisCos) continue to face deep financial and operational challenges, threatening the sustainability of the reform.

Industry losses—driven by technical inefficiencies, energy theft, and poor revenue collection—average 34–35 per cent, with only about 70 per cent of billed revenue recovered.

Mounting debts, including obligations owed by government agencies and consumers, have further weakened liquidity, while legacy loans and high interest rates constrain access to fresh capital.

Ageing infrastructure, overloaded transformers, weak feeders, and obsolete equipment, continue to undermine service delivery.

A persistent metering gap also erodes revenue and public trust, as millions of consumers remain on estimated billing. Although initiatives such as the Presidential Metering Initiative aim to close this gap, progress has been slow.

Recent tariff adjustments have improved revenues and reduced subsidy burdens, but prices remain only partially cost-reflective, sustaining liquidity pressures and raising affordability concerns for consumers.

Gains mask structural limits

The sector has recorded modest improvements, including increased revenues and fewer grid collapses. Nigeria has also synchronised with the West African Power Pool, opening opportunities for regional electricity trade.

However, these gains mask deeper constraints.

Despite an installed capacity exceeding 13,000 megawatts, actual available generation remains significantly lower due to gas supply constraints, transmission bottlenecks, and distribution inefficiencies.

As a result, electricity supply continues to fall short of demand, limiting the broader economic impact of the reform.

Renewables, off-grid gain traction

The report identifies growing momentum in renewable energy and off-grid electrification, driven increasingly by state governments.

States are integrating electricity access into development plans and budgets, while projects are becoming more commercially oriented—linking power supply to critical infrastructure such as healthcare and water systems.

This shift is improving accountability and sustainability, particularly in underserved areas, although progress varies widely across states.

According to REA Managing Director Abba Aliyu, states are becoming more proactive—presenting demand data, identifying priority projects, and proposing context-specific delivery models.

“One visible signal of this shift is the integration of electrification targets into state planning and budgeting processes,” the report noted.

This marks a departure from earlier, federally driven interventions that often lacked sustained state ownership.

Investment cautious but available

Contrary to common perceptions, the report notes that capital is available for the sector, but investors remain cautious.

Decentralisation is enabling smaller, more targeted investment opportunities, often tied to specific demand centres, which has improved confidence in some cases.

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However, concerns persist around regulatory clarity, tariff structures, and revenue assurance—particularly given the weak financial position of DisCos.

Without predictable cash flows, enforceable contracts, and transparent governance, investment decisions are often delayed or repriced.

Capacity gaps threaten progress

Beyond financing and infrastructure, the sector also faces a shortage of skilled professionals, including engineers, technicians, and certified installers.

This gap is slowing critical initiatives such as metering rollouts and network upgrades. While training efforts are underway, PwC warns that without sustained investment in human capital, reforms may not translate into tangible improvements.

At crossroads

Overall, the report depicts a sector at a critical juncture.

While the Electricity Act 2023 has created a framework for decentralisation, private investment, and market expansion, its success now hinges on execution.

Key priorities include resolving regulatory overlaps, strengthening state capacity, stabilising the distribution segment, closing the metering gap, and improving project bankability.

Ultimately, the report concludes, Nigeria’s transition to a multi-tier electricity market will be judged not by policy design but by its ability to deliver reliable power, attract sustained investment, and support economic growth.

For now, the outlook remains mixed—promising in direction, but uncertain in outcome.