Executive Summary

Nigeria’s electricity market is undergoing a structural transformation. The Electricity Act 2023 created a framework for a more decentralised electricity market, allowing states to establish and regulate electricity markets within their territories while preserving federal oversight over areas falling within national and inter-state jurisdiction. As implementation progresses, the traditional model of a predominantly centralised electricity market is giving way to a multi-level regulatory structure involving federal and state institutions.

The transition is no longer merely legislative. By July 2026, NERC reported that 16 states had transitioned to state electricity regulation, with State Electricity Regulators assuming responsibility for intrastate electricity activities in those jurisdictions. NERC continues to regulate inter-state and national grid activities and electricity markets in states that have not transferred regulatory oversight.

For investors, developers and businesses, this developing framework creates a broader range of potential participation models across generations, distribution, supply, trading, mini-grids and other distributed energy projects. It also introduces a more complex regulatory landscape in which the applicable regulator, licensing route, tariff framework and contractual structure may depend on the location and nature of the project.

1. The Shift from a Centralised Electricity Market

The Electricity Act 2023 fundamentally changed the constitutional and statutory architecture of Nigeria’s electricity sector.

The reform followed amendments to the Constitution that expanded the ability of states to legislate electricity generation, transmission and distribution within their territories. The Electricity Act subsequently established the framework for the orderly transfer of regulatory oversight from the federal level to states that exercise the relevant statutory option.

The result is not the replacement of NERC by state regulators. Rather, Nigeria is developing a multi-level electricity market in which federal and state regulators operate within defined spheres of responsibility.

NERC continues to oversee inter-state electricity activities, national grid operations, transmission, system operation and other federally regulated activities. States that establish the necessary regulatory institutions can assume responsibility for intrastate electricity activities within their jurisdictions.

This distinction is central to understanding the commercial significance of the reform.

2. The State Electricity Market Is Becoming a Commercial Reality

The decentralisation framework has moved progressively from legislation to implementation.

NERC reported in May 2026 that 15 states had transitioned to regulating their state electricity markets. By July, the Commission reported that 16 states had fully transitioned. State Electricity Regulators in those jurisdictions are responsible for intrastate market oversight, including electricity generation, distribution, supply and trading within their respective territories.

For the private sector, this creates the prospect of electricity markets being developed around local conditions rather than relying exclusively on a uniform national structure.

States may develop regulatory frameworks suited to their electricity demand, industrial base, geographic characteristics and investment priorities. This could create opportunities for private developers involved in generation, distribution networks, embedded power, mini-grids and other decentralised electricity solutions.

At the same time, the transition remains uneven. States that have not assumed regulatory authority remain within the federal regulatory framework. The result is a market in transition rather than a single uniform state-level regime.

3. Understanding the Licensing Landscape

The decentralised framework makes the question of regulatory jurisdiction increasingly important.

Under the federal framework, NERC continues to issue licences and authorisations for activities within its jurisdiction, including generation, transmission, distribution, electricity trading and system operation. It also administers various permits and authorisations, including those relating to captive generation and mini grids.

The appropriate regulatory pathway may differ where an electricity activity is wholly within a state that has established its own electricity regulatory authority and does not involve the national grid or inter-state supply.

This creates an important commercial consideration for developers. The location and design of a project may affect not only its commercial model but also the regulatory institution with which the project interacts.

The distinction becomes particularly relevant to projects involving multiple states, national grid connections or electricity supplied across state boundaries, where federal regulatory oversight may remain applicable.

4. New Opportunities in Distributed Energy

One of the clearest areas of commercial potential lies in decentralised electricity solutions.

NERC’s 2026 Mini Grid Regulations provide a more developed framework for mini-grid projects. The regulations classify isolated mini-grids with installed capacity of up to 5MW per site and interconnected mini-grids of up to 10MW per site. The framework also introduces provisions concerning site exclusivity, grid arrival and compensation, creating greater structure around the commercial relationship between mini-grid developers and existing distribution infrastructure.

These developments are particularly relevant to unserved and underserved communities where conventional grid expansion may be commercially or technically difficult.

The regulatory landscape is also expanding beyond conventional generation. NERC issued Net Billing Regulations 2026 in June 2026, alongside the new Mini Grid Regulations. Together, these developments point towards a broader regulatory environment for distributed and customer-side electricity solutions.

For energy developers, the significance lies in the emergence of multiple project models rather than reliance on a single centralised supply structure.

5. Power Purchase Agreements and Bankability

The commercial viability of a power project depends not only on the ability to generate electricity, but also on the ability to sell it under a sufficiently reliable contractual arrangement.

Power Purchase Agreements (PPAs) remain an important component of the contractual architecture surrounding electricity projects. NERC’s licensing requirements for generation projects identify an off-take agreement or PPA among the mandatory application documents. For embedded generation, applicants may also be required to provide draft PPAs alongside connection and distribution system agreements.

A PPA therefore sits at the intersection of regulation and commercial structuring. It can define the volume of electricity to be purchased, pricing arrangements, payment obligations, performance standards, default consequences and the allocation of risks affecting supply.

The importance of these arrangements becomes more pronounced as electricity markets become more decentralised. Different projects may involve different combinations of generators, distributors, eligible customers, traders, communities and other off takers.

The regulatory framework consequently forms part of the commercial environment within which the parties negotiate bankable energy contracts.

6. The Growing Role of Eligible Customers

The evolving market also creates greater scope for direct commercial relationships between generators and large electricity users.

NERC’s Eligible Customer Regulations 2024 provides a framework intended to facilitate competition in electricity supply and third-party access to transmission and distribution infrastructure. The regime allows qualifying customers to obtain electricity from sources other than their existing distribution company, subject to the applicable regulatory requirements. NERC has indicated that customers using a threshold of 6MW can qualify for eligible customer status under the relevant framework.

This has potential implications for large industrial and commercial users whose electricity requirements may justify alternative supply arrangements.

For generators and energy investors, the eligible customer framework can therefore form part of the broader commercial landscape for identifying potential off-takers and structuring electricity supply arrangements.

7. Compliance Becomes More Jurisdiction Specific

Decentralisation creates opportunities, but it also changes the nature of regulatory analysis.

Under a centralized framework, determining the relevant regulator was comparatively straightforward. Under the emerging structure, the answer may depend on the state in which the project operates, whether the state has assumed regulatory authority, whether the project connects to the national grid and whether electricity crosses state boundaries.

This creates the possibility of different regulatory requirements applying to projects that may appear commercially similar but operate in different jurisdictions.

The transition also makes coordination between federal and state institutions increasingly significant. In July 2026, the Federal Government and National Assembly reiterated the need for complementary regulatory roles, while an inter-agency committee was established to address issues arising from the decentralization of the electricity market.

The emerging framework is therefore not simply about transferring regulatory authority. It is also about developing workable relationships between different levels of electricity regulation.

8. What the Developing Market Could Mean for Investors

The commercial implications of decentralization extend across several parts of the energy value chain.

Generation: State level markets may create opportunities for embedded, distributed and other generation projects designed around local demand.

Distribution: The development of state electricity markets may create room for investment in distribution infrastructure and independent distribution models within applicable regulatory frameworks.

Mini grids: The 2026 regulatory framework provides a more structured environment for projects serving unserved and underserved communities.

Energy supply and trading: Federal and state frameworks provide different avenues for electricity supply and trading, depending on the nature and geographical scope of the activity.

Industrial power solutions: Eligible customer arrangements may create opportunities for generators and large users to develop alternative electricity supply relationships.

The significance of these opportunities is not that decentralisation guarantees commercial success. Rather, it creates additional structures through which private capital can participate in solving Nigeria’s electricity supply challenges.

9. The Regulatory Landscape Going Forward

The most important feature of Nigeria’s electricity reform may be that the framework is still developing.

NERC and state regulators continue to establish institutional arrangements, clarify jurisdictional boundaries and develop regulatory instruments. The creation of the Forum of Nigerian Electricity Regulators in March 2026 and the subsequent federal-state discussions on regulatory harmonization demonstrate the continuing effort to coordinate the emerging multi-level market.

For businesses and investors, this suggests that regulatory analysis will increasingly form part of commercial assessment when evaluating electricity projects. The relevant questions extend beyond whether a project is technically feasible. They include which regulatory framework applies, what licensing or authorization route is available, how electricity can be sold, and how the project interacts with existing grid or distribution infrastructure.

The direction of travel is therefore toward a more differentiated electricity market, with commercial models increasingly shaped by the location, scale and structure of individual projects.

Conclusion

The Electricity Act 2023 has changed the architecture of Nigeria’s electricity sector by creating space for state participation alongside continuing federal regulation. By 2026, that framework had moved substantially beyond legislation, with a growing number of states exercising regulatory authority over their intrastate electricity markets.

For the private sector, the significance lies in the range of commercial possibilities emerging from this transition. Generation, distribution, mini-grids, electricity trading, eligible customer arrangements and other decentralized energy models can increasingly be considered within a more differentiated regulatory environment.

The reform also introduces a more complex regulatory landscape. Federal and state jurisdiction, licensing requirements, tariff structures, grid connectivity and contractual arrangements all intersect in determining the viability of an electricity project.

Nigeria’s electricity market is therefore becoming less defined by a single regulatory centre and more by a network of federal and state markets operating within a common statutory framework. For energy investors and developers, that shift is creating new commercial possibilities while making regulatory architecture an increasingly important part of understanding where and how those opportunities can be pursued.

LexMarke LP Insights Team
Law Beyond Borders
www.lexmarkelp.com