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Business models States need to develop their electricity market

States across the country will need to develop their own electricity market based on the provisions of the 2023 Electricity Act that was passed by President Bola Ahmed Tinubu in June 2023.

Electricity Market Rates and Consultants (EMRC) in a recent report, highlighted some business models that states can consider in making their entry into Nigeria’s electricity market.

These business models are highlighted as follows:

State-owned generation and distribution: States have the authority to establish their own generation plants and distribution networks, thereby becoming vertically integrated entities responsible for overseeing the entire electricity value chain within their respective jurisdictions.

This approach affords states direct control over crucial aspects such as generation, transmission, and distribution taking place within their borders.

However, it’s important to acknowledge the presence of privately owned and operated distribution utilities currently fulfilling this role within the state.

Public-private partnerships: State governments have the opportunity to partner with private sector entities for the development, operation, and maintenance of power infrastructure.

State governments furnish essential elements such as land, permits, and regulatory backing, while private companies contribute the necessary investment, technical proficiency, and managerial skills.

This collaboration also enables states to maintain partial ownership and supervisory authority. Notably, this is the existing framework governing the relationship between the federal government and distribution utilities in Nigeria.

Franchise model: In this setup, the state maintains regulatory supervision, while the private company assumes responsibilities for investments, operations, and maintenance.

Given the prevailing presence of distribution networks in the majority of states, this model can be adopted to address areas lacking such networks.

A recent example of this arrangement is Ibom Utility in Akwa Ibom State, which secured an Independent Electricity Distribution Network (IEDN) license from the Nigerian Electricity Regulatory Commission (NERC).

Energy service companies: States have the capacity to establish Energy Service Companies (ESCOs), entities geared towards furnishing a range of energy-related services.

These services encompass not only energy-efficient solutions and demand-side management but also extend to the installation of renewable energy systems.

ESCOs play a pivotal role in enhancing energy efficiency, optimizing energy consumption, and promoting the integration of sustainable energy sources.

By offering these multifaceted services, states can effectively contribute to both environmental sustainability and the overall well-being of their constituents.

Build-Own-Operate-Transfer (BOOT): Private investors are awarded a concession to undertake the development, ownership, and operation of power infrastructure for a designated timeframe.

Once this agreed-upon period elapses, ownership and authority over the infrastructure revert to the state government.

These Build-Own-Operate-Transfer (BOOT) agreements bestow private investors with consistent revenue during the concession duration, while simultaneously affording state governments the advantages of infrastructure advancement without the need for initial capital outlay.

This arrangement is particularly advantageous for states contending with fiscal constraints.

Energy cooperatives: State governments have the capacity to facilitate the establishment of energy cooperatives, which involve communities or consumer groups coming together to collectively possess and oversee their own electricity generation and distribution setups.

This collaborative approach empowers community members to combine their resources, enabling them to invest in renewable energy initiatives, operate microgrids, and partake in the advantages of accessible and eco-friendly electricity.

By promoting energy cooperatives, local ownership is encouraged, and active participation within the energy transition is cultivated, thereby enhancing community engagement.

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