Nigeria’s electricity decentralisation is moving faster as a regulatory idea than as an investment reality. More than three years after the Electricity Act 2023 opened the door for states to establish and regulate their own electricity markets, the central question is no longer whether states should have greater responsibility for power. It is whether they have the institutional capacity, commercial structures and financial credibility to turn regulatory autonomy into investment and, ultimately, more reliable electricity.
The stakes are high because without new investment, businesses will remain trapped in the expensive cycle of unreliable grid supply and self-generation. Manufacturers and other commercial users will continue diverting capital to diesel, gas and alternative power systems instead of expanding production. Smaller businesses, which have less capacity to absorb energy costs, will face even greater pressure. The resulting costs will eventually be reflected in prices, productivity, employment and household incomes.
Decentralisation does not create electricity by itself. It changes who regulates the market. Investors still need creditworthy customers, predictable tariffs, reliable payment mechanisms, adequate demand and clarity over who carries the risks when projects encounter problems. Where these conditions are absent, a state can have legal authority over electricity without having a market capable of attracting the capital required to develop it.
This creates a risk of a two-speed electricity economy. States with stronger institutions, deeper commercial markets and greater purchasing power are likely to attract investment more easily than states where demand is fragmented, and public finances are weaker. Without mechanisms for broader regional cooperation, decentralisation could reinforce existing economic disparities by concentrating new power infrastructure in states that are already more commercially attractive.
That should not become an argument for delaying reform. One of the strongest reasons for giving states greater control is the opportunity to develop solutions suited to their economic circumstances. A manufacturing centre may require a different electricity strategy from an agricultural state, while states with relatively small markets may gain more from cooperation with neighbouring jurisdictions than from attempting to build standalone systems. The emerging approaches in states such as Enugu, Kano, Katsina and Jigawa show the potential for different models to develop.
But experimentation will produce results only if it is accompanied by commercial discipline. States assuming electricity responsibilities need to demonstrate that their markets are ready for investment through credible regulatory, financing, and infrastructure plans. Investors should be able to determine how regulators will be funded, how tariffs will be set, how tariff shortfalls will be managed, and what protections exist when public or private customers fail to pay for electricity supplied.
Payment security is particularly important. An investor committing substantial capital to generation cannot rely solely on the expectation that electricity purchasers will eventually pay. Where necessary, states and market participants should develop bankable arrangements such as escrow accounts, guarantees, letters of credit and other credit-enhancement mechanisms. The precise structure will differ between markets, but the principle is universal: investors need reasonable certainty about how revenues will be collected and how risks will be allocated.
States should also resist the temptation to build isolated electricity markets where the economics do not support them. Regional cooperation could allow neighbouring states to pool demand, share infrastructure and create larger markets capable of attracting investment that would be difficult for an individual state to secure. Harmonised rules and interconnected markets could reduce regulatory fragmentation and give investors a clearer route into multiple customer markets.
The federal-state relationship must be equally clear. Decentralising electricity regulation does not automatically decentralise the national transmission grid, gas supply, upstream energy costs or every component of power infrastructure. Unless responsibilities are clearly defined, disagreements over licensing, infrastructure access, tariffs and system operations could become new barriers to investment. Nigeria therefore needs a framework in which federal and state institutions know where their responsibilities begin and end and how disputes will be resolved.
Transparency should accompany this process. States assuming electricity responsibilities should publish measurable targets for generation, distribution, connections, reliability, investment and service quality. Regulators should be judged by outcomes rather than simply by the creation of institutions. Investors, businesses and consumers need to see whether the new system is producing measurable improvements.
Nigeria has taken an important step by giving states greater participation in electricity regulation. But the reform will be judged by what follows the legislation and the establishment of regulators. Decentralisation will succeed only when regulatory autonomy produces commercially viable markets, attracts private capital and delivers more dependable electricity to businesses and households.
The objective should therefore not be to create 36 electricity markets merely because the law permits them. It should be to create electricity markets that are investable, accountable and capable of serving the economies around them. Nigeria must ensure that decentralisation does not simply distribute regulatory responsibility for the power sector; it must distribute the capacity to make the sector work.