Nigeria’s Electricity Devolution Law Creates an Opportunity to Reshape Its Power System

Nigeria's new rules mean states can build a more resilient and inclusive energy ecosystem — if they take the right steps.

Nigeria stands at a pivotal juncture in its energy journey after the recent passage of the Electricity Act 2023, a landmark policy that empowers individual states to regulate, generate, and distribute electricity within their respective jurisdictions.

To date, a number of states, including Enugu, Ekiti, and Ondo, have leveraged the act to establish their own electricity regulatory commissions. For policymakers and development partners, this decentralization presents both an unprecedented opportunity and a critical responsibility to ensure that decentralization does not lead to fragmentation but to a more resilient and inclusive energy ecosystem.

This means that state-level planning is no longer optional; it is an urgent necessity to strengthen state grids and increase the share of renewable energy penetration to increase supply availability and reliability, increase access, reduce carbon emissions, and achieve economic growth.

The new legislative framework, if implemented effectively, will empower state governments to direct public investment more strategically and design regulatory frameworks that enable innovation, attract private capital, increase competition, and expand energy access.

For instance, state-level energy plans can increase transparency of procurement processes, which stimulates competition among developers and financiers, thereby driving down costs and creating stronger incentives for improved service delivery. Similarly, state-level planning that focuses on the utilization of local energy resources can support renewable distributed energy resources, which can improve supply availability and reliability. It can also accelerate the achievement of clean energy and climate goals.

Without robust state-level energy planning, decentralization risks reproducing federal-level failures at scale

While the new legislative framework could have positive implications, it also brings to the fore the urgent need for robust market structures and comprehensive state-level Integrated Resource Plans (IRPs) — a long-term, least-cost, and reliability-focused plan that guides how an electricity system will meet future demand. If not implemented effectively, the devolution of electricity regulation can amplify federal-level challenges, including chronic infrastructure gaps and non-market interventions in tariff setting, which leaves Nigeria’s utilities financially insolvent and unable to reinvest in better service delivery.

To date, national-level efforts, such as the IRP supported by the UK Nigeria Infrastructure Advisory Facility (UK-NIAF), have laid important groundwork for the long-term energy planning needed to enhance grid resilience and increase renewable energy integration. To fully align with Nigeria’s clean energy and climate goals, however, state-level IRPs must prioritize grid resilience, renewable energy deployment, and climate resilience as key planning outcomes.

Integrated state-level planning is the missing systems tool for aligning state action with national climate goals

Despite these commendable efforts, the lack of integration of state-level electricity markets into long-term national energy strategies presents a critical blind spot in Nigeria’s energy planning efforts. As states are now vested with the mandate to shape their energy sectors, the absence of clear frameworks for subnational planning could lead to uncoordinated electricity markets, policy fragmentation, infrastructure misalignment, and inefficiencies in energy deployment.

Without cohesive and well-coordinated subnational planning, the country risks replicating existing systemic failures at a smaller scale. These include challenges in coordination, financing, and resource optimization. This, in turn, could disincentivize private investment, reducing opportunities for innovation and competition and creating significant strain on Nigeria’s energy transition and climate goals.

A well-designed IRP process will offer Nigerian states a pathway to optimize local energy resources, including renewable energy, and integrate climate adaptation measures and resilience planning into the state’s economic and industrial development strategies. These plans must guide state-level infrastructure investments and policy decisions and align with energy access and climate change goals. A coordinated IRP process would also ensure that emerging state markets are not operating in silos but are actively contributing to a resilient and diversified national grid. However, the success of state-level planning will still hinge on each state’s ability to develop its own electricity markets and IRPs tailored to local realities: projected demand, renewable and fossil energy resources, industrial needs, and increased supply availability and reliability.

Development partners can catalyze state markets by building capacity, reducing risk, and aligning incentives

Development organizations and donor partners have a vital role to play to achieve this goal. Initiatives like Mission 300 and Nigeria’s Energy Compact are stepping in to bridge this gap by supporting states to develop and operationalize IRPs that align with national electrification and climate goals. Strategic support should focus on:

• Technical assistance and capacity building for state energy regulators and ministries that lack the technical expertise and institutional strength in conducting a landscape assessment of their state’s energy needs and available resources, and using the data to develop data-driven energy plans with strong institutional buy-in
• Toolkits and guidelines for state-level energy planning that align with national benchmarks;
• Pilot programs in leading states to showcase replicable models of state-level energy planning;
• Investment facilitation to attract private sector participation in state-managed energy projects;
• Coordination platforms to ensure harmonization of state and national energy goals, energy planning data, assumptions, and methodologies between federal and state actors, as well as across development agencies.

Additionally, electricity market structures must evolve to accommodate multi-level governance. This includes designing regulatory frameworks that promote private investment at the state level, ensuring consumer protection, and enforcing performance standards. For policymakers, this means putting in place enabling policies, regulatory frameworks, and institutional capacity to support effective planning and oversight. It also requires clarity on how state markets will interact with the national grid, participate in cross-border electricity trade, and coordinate with federal institutions such as the Nigerian Electricity Regulatory Commission (NERC) and the Transmission Company of Nigeria (TCN). To enable a smooth transition, states must engage existing DisCos as partners in reform by clarifying roles, harmonising approaches where operations span multiple states, and co-creating decentralisation pathways that protect service continuity while advancing new regulatory goals.

Coordinated governance will determine whether state-driven power markets strengthen or fragment the grid

In this evolving landscape, RMI can leverage its technical expertise, convening power, and deep footprint in Nigeria to establish coordination platforms that harmonize planning approaches, promote knowledge exchange, and support data-driven decision-making at both the national and state levels. Such platforms would facilitate collaboration between federal and state authorities, sector actors, and development partners to reduce duplication of effort and ensure alignment in Nigeria’s decentralized power sector. Moreover, development institutions like the World Bank can provide catalytic funds for technical assistance and capacity building.

The Electricity Act 2023 is more than just a policy reform, it is an invitation to reimagine Nigeria’s energy future through bottom-up innovation, state-driven leadership, and a coordinated national vision. It is therefore imperative for development partners to collaborate with state authorities to help shape an energy transition that aligns with national goals. Moreover, aligning state-level planning with strong, decentralized market structures presents an opportunity to increase grid resilience and supply availability and reliability at optimal cost. With the right regulatory framework, state-driven energy markets can become engines for national development and industrialization growth.

The authors wish to thank Suleiman Babamanu, Alberto Rodriguez, and Scarlett Santana for their contributions to this article.