Ten major talking points in Lagos state electricity law

In December 2024, the Lagos State Government passed the Lagos State Electricity Law (LSEL), an ambitious piece of legislation designed to create a robust energy market and address the state’s power needs.

The law, which received assent from the Governor, marks a significant step in reshaping Lagos’s electricity landscape. As the commercial hub of Nigeria, Lagos faces an energy demand of around 12,000 MW, and this law is designed to reduce reliance on the national grid and ensure energy sufficiency.

Here are ten major talking points from the LSEL, drawn from a detailed analysis by Olaniwun Ajayi LP, a leading Nigerian law firm

1. Establishment of the Lagos Electricity Market

The LSEL creates the Lagos Electricity Market, which will function independently of the national grid. The law designates the Lagos Ministry of Energy and Mineral Resources as responsible for promoting investment, supporting sustainable electricity production, and collaborating with the federal government to establish this market. The aim is to reduce Lagos’s dependence on the national grid by fostering local power generation and distribution.

2. Lagos State Electricity Regulatory Commission

The law establishes the Lagos State Electricity Regulatory Commission, an independent body tasked with overseeing the operations within the state’s electricity sector. The Commission will regulate the market, issue licenses, and ensure market participants operate efficiently. Its role includes preventing the misuse of market power and ensuring a fair and competitive environment for electricity producers, distributors, and consumers.

3. Licensing Requirements and Tariff Methodology

The LSEL mandates that all entities involved in electricity generation, transmission, and distribution must obtain a license from the Commission. The law also provides a framework for tariff setting, ensuring that pricing remains fair and competitive while addressing the financial sustainability of electricity providers. It also introduces penalties for non-compliance, including fines and potential imprisonment for operators who fail to meet licensing requirements.

4. Off-Grid Electrification and Renewable Energy

A key provision of the LSEL is its focus on off-grid electrification, particularly for underserved communities. The law creates the Lagos State Electrification Agency, which will manage public electricity utilities and promote the use of renewable energy. The law encourages businesses to adopt solar energy and other renewable sources to reduce environmental impact while addressing the state’s energy shortage.

Read also: Eight big changes to expect with Lagos electricity law

5. Emission Control and Energy Efficiency

The LSEL sets guidelines for controlling emissions from electricity generation. It also emphasizes energy efficiency and the use of renewable energy. By integrating cleaner energy practices and setting emissions limits, Lagos State aims to transition to a more sustainable energy model. This provision is in line with global climate goals and aims to reduce environmental harm from power plants.

6. Market Regulation and Industry Standards

The Commission is empowered to set standards for the operation of the electricity market. These standards include the safe and reliable operation of power plants, as well as consumer protection measures. The LSEL mandates the adoption of international best practices to enhance the overall efficiency, safety, and environmental sustainability of the electricity market.

7. Dispute Resolution Mechanisms

The law introduces a streamlined dispute resolution process, with the Commission working alongside the Lagos Multi-Door Court House to facilitate timely resolutions. This system ensures that disputes within the electricity market, such as conflicts between providers and consumers, are resolved efficiently without causing market disruptions.

8. Host Community Development Trust Fund

Recognizing the importance of local communities, the LSEL establishes a Host Community Development Trust Fund. Power-generating companies must contribute 2% of their annual operating expenses to the fund, which will be used for infrastructural development in host communities. This provision seeks to ensure that communities hosting power plants benefit directly from the projects in their vicinity.

9. Transparency and Public Participation

Transparency is a cornerstone of the LSEL. The law requires the Commission to engage with stakeholders, including electricity providers, consumers, and other market participants when drafting regulations. Public consultations are mandated before any major policy changes, ensuring that the interests of all parties are considered and that decisions are made with broad input.

10. Penalties for Non-Compliance and Enforcement

The LSEL introduces stringent penalties for non-compliance with its provisions. Operators who fail to obtain licenses or meet the requirements for electricity generation and distribution face hefty fines, daily penalties, and even imprisonment. The law grants the Commission the authority to enforce these penalties to maintain order and accountability in the market.