Nigeria’s electricity sector is grappling with a fundamental power struggle as state governments and the federal regulator clash over which authority should control newly decentralised power markets, threatening to undermine a reform meant to fix the country’s chronic electricity crisis.
The legal framework governing electricity market decentralisation is clear in defining regulatory authority once a state electricity market becomes operational, with distribution companies legally obligated to report exclusively to state regulators.
Yet implementation has proven far more contentious, with some operators failing to submit required regulatory returns to state electricity regulatory commissions more than a year after the formal commencement of state market oversight.
The conflict stems from Nigeria’s historic transition to a multi-tier electricity market under the Electricity Act 2023, which restructured the power-sector landscape by enabling sub-national governments to work directly with private-sector investors to generate, transmit and distribute electricity within their territories.
The shift marks one of the biggest changes in Nigeria’s power-sector architecture since the unbundling of the former Power Holding Company of Nigeria.
Where distribution companies operate across multiple states with varying degrees of regulatory readiness, exclusive reporting cannot be instantaneously enforced without jeopardising service continuity and market coherence, according to= Adebayo Adelabu, Nigeria’s minister of power.
Dual reporting is therefore a transitional necessity, not a permanent regulatory condition, he said at a power sector roundtable monitored by BusinessDay.
But patience is wearing thin at the state level. Biodun Ogunleye, Lagos State’s energy commissioner, said while the state has informally tolerated transitional flexibility to preserve service stability and avoid public conflict, this tolerance is finite.
A clear outer boundary of six to nine months has been set for full formalisation of reporting segregation, with regulatory compliance set to shift from cooperative accommodation to formal objection beyond this period.
The standoff highlights deeper tensions in Nigeria’s electricity reform. Regulatory overlap between the Nigerian Electricity Regulatory Commission and emerging state regulators is already visible and must be deliberately addressed, according to the report on the roundtable proceedings.
The current phase of federal versus state tension should be understood as a natural stage in systemic reform rather than a sign of institutional weakness, Adelabu argued.
The minister proposed a clear solution: distribution companies must complete corporate restructuring into state-specific subsidiary entities, which then become the legally regulated market entities under state jurisdiction, while the parent company continues to interface with federal regulators for territories where state regulation is not yet operational.
Read also: Fifteen states defy funding gaps to advance electricity market plans
This model, already deployed in markets such as Enugu, provides a legally sound bridge between national oversight and state-level regulation.
Lagos officials counter that the technical prerequisites for regulatory segregation have already been materially satisfied, with federal regulators publicly releasing balance sheets of relevant distribution subsidiaries servicing Lagos and Ogun States.
Corporate incorporation timelines are not a binding constraint under Nigerian company law, and regulatory segmentation can therefore proceed without structural delay, Ogunleye said.
Subsidy Complications
Adding complexity to the regulatory dispute are unresolved questions about how national electricity subsidies should operate in a decentralized market. Outstanding unresolved issues, including legacy subsidy treatment, taxation, levies, tariff assumptions, ownership structures and sovereignty of regulatory authority, should not be left to drift into the next fiscal cycle, the Lagos commissioner warned. The continuation of national subsidy regimes into the multi-tier market without explicit realignment threatens to distort state electricity markets and undermine reform credibility.
Yet there is full alignment between federal and state authorities on one fundamental point: no state will reject subsidy support while it remains in force. The federal government has reduced subsidy obligations by approximately 700 billion naira, but by December 2024, sector indebtedness exceeded 4 trillion naira, with monthly subsidy accumulation averaging 200 billion naira.
Operational Impact
For utilities caught in the middle, the dual regulatory environment has forced operational adjustments. The transition to a multi-tier electricity market has accelerated internal operational reforms within Eko Electricity Distribution Company, particularly in efficiency, automation and regulatory engagement, with the company now operating under a dual-regulatory interface, said Chief Executive Officer Rekhiat Momoh. This dual oversight has necessitated a comprehensive review of operational standards, compliance frameworks and automation processes to ensure full alignment with both federal and sub-national regulatory expectations.
Read also: FG, GenCos seal N4trn power sector debt payment agreement
Broader Reform Context
Despite the regulatory friction, Nigeria’s power sector has shown measurable improvements since the Electricity Act took effect. Sector revenues rose from approximately 1 trillion naira in 2023 to about 1.7 trillion naira in 2024 and are projected to reach 2.3 trillion naira by the end of 2025. Grid collapses fell sharply from about 12 incidents in 2024 to one in 2025.
At least 15 states are now at various stages of establishing operational electricity markets. The passage of the Electricity Act has fundamentally altered the behaviour of sub-national governments, creating both the legal authority and institutional confidence for states to take direct responsibility for electrification outcomes, according to Dr. Abba Abubakar Aliyu, chief executive officer of the Rural Electrification Agency.
Investment Implications
The regulatory uncertainty carries implications for investors. From an investment perspective, the constraint on power-sector financing has not been the absolute absence of capital, but rather the absence of bankable certainty, with capital flowing naturally toward security of cash flows, regulatory clarity and predictable risk allocation, said Peter Olowononi, a director at African Export-Import Bank.
However, the emergence of state-driven end-to-end electricity strategies, where sub-national governments seek to integrate generation, distribution and offtake within a single investment logic, has introduced new credit-relevant structures. These arrangements were structurally impossible under the former centralised market architecture.
The minister acknowledged that resolving the federal-state regulatory standoff is critical to sustaining reform momentum. Key priorities for the next phase include clarifying federal-state regulatory boundaries, strengthening transmission and distribution infrastructure, deepening technical and regulatory capacity at the sub-national level, and establishing robust coordination mechanisms to safeguard grid stability.
For now, distribution companies continue navigating the complex dual-reporting environment, even as the countdown to exclusive state oversight ticks forward in Nigeria’s most commercially important electricity market.
Inside the rise of private solar power in Nigeria
About 40% of Nigeria’s 230 million people are without access to electricity. No other country has more without power than these 90 million Nigerians. Many more suffer unreliable electricity from power plants and a transmission grid not up to the task.
In response, households and small businesses who can afford it often fire up their own diesel generators. They are increasingly also opting for off-grid solar and battery systems, many of them manufactured in China, experts have told Dialogue Earth.
Solar companies are receiving support to sell more of their equipment through blended-finance loans that leverage both public and private capital. At the same time, the nascent Nigerian solar equipment manufacturing industry is being encouraged by some policy and enterprising companies.
Read also: Here are five solar products that are cost savings for Nigerian SMEs
The push to deliver reliable power
Nigeria is an important focus of the Mission 300 initiative, which emerged in 2024, to bring “reliable, affordable and sustainable” power to 300 million people in Sub-Saharan Africa by 2030.
Across Sub-Saharan Africa, roughly 600 million people – nearly half of the population – lack access to electricity. Mission 300, a partnership between the World Bank and Africa Development Bank, calls for half of these connections to be delivered by expanding existing national grids, with the remainder supplied by solar mini-grids and other renewable options, according to Reuters.
So far, the World Bank counts 32 million people as having been connected since 2023 through operations it has financed, representing 10.7% of the Mission 300 goal.
An example of progress in Nigeria is a project known as DARES, or Distributed Access through Renewable Energy Scale-up. Supported by the World Bank and launched in 2024, DARES seeks to deliver new or more reliable electricity access to more than 17.5 million Nigerians – almost 20% of the nation’s unserved population. The project plans to meet this target by expanding solar home systems and mini-grids and phasing out over 280,000 polluting diesel generators.
From China-made to a nascent solar manufacturing industry
Segun Adaju is former president of the Renewable Energy Association of Nigeria. He says that currently, the majority of the country’s solar components are sourced from China. Local involvement only includes assembling, retail distribution and last-mile sales, Adaju adds.
Okeke Precious, a researcher, switches her connection from the grid to her ColaSolar battery to power her one-room apartment in Abuja (Image: Samuel Ajala)
Adaju pointed to Sun King as an example of how this supply chain is evolving. The off-grid solar solutions company has so far only manufactured its products in China, but recently opened a factory in Kenya and has plans for another in Nigeria.
“Over time,” he said, “Sun King has expanded from relying on dealers to also selling directly to customers and offering pay-as-you-go models.”
Other Chinese-linked brands are following similar paths. He mentioned Qiqiang and Spark, which have introduced solar home systems designed for small households and shops. Some of these systems are pay-as-you-go, in which customers repay their cost over an extended period of time.
Adaju also confirmed that a few companies are beginning to explore assembling components locally, driven by both market growth and discussion of policies to support the industry. While companies plan to start production in Nigeria, Adaju stressed these steps are gradual, and most products continue to arrive fully built from China.
Rinret Best, program associate at Vectar Energy, a climate-tech startup based in Nigeria, explained the complexities further. Nigeria has introduced policies and frameworks to support local manufacturing and help integrate renewable energy. But the impact of these has been limited by weak implementation incentives, workforce capacity gaps, insufficient quality assurance and a lack of reliable data to build investor confidence.
Read also: More than Solar Power: Powering progress, growth, and a sustainable future for every Nigerian
As progress, Best highlights the “Nigeria First” local manufacturing push and the Green Manufacturing Policy and Investment Guide, a government-backed initiative helping the private sector and investors navigate the policy and regulatory landscape in Nigeria. Best says that together, these moves should help build a supply of solar goods produced domestically. She also highlighted the draft Net Billing Regulations published in September 2025 which provide a route for households and businesses to safely feed electricity into the grid.
Hammed Bello, a barber in Abuja, gives a customer a haircut in his shop which is powered by rooftop solar. Bello took out a loan of around NRN 1 million (USD 700) to install the system, which replaces a diesel generator costing him NRN 100,000 (USD 50) per month to run (Image: Samuel Ajala)
She added, though, that commercial players can only achieve the Mission 300 goals in Nigeria with some help from subsidies.
While the private sector drives scale, public finance and policy can ensure equity, she said. Commercial players have the ability to achieve fast electrification, but to support profitability, Mission 300 must include strong public-private coordination, she added.
Blended finance aids power access for underserved Nigerians
Experts told Dialogue Earth that underserved Nigerian communities have been aided in their efforts to access solar equipment via “blended finance”. This mixes public or philanthropic capital with private capital to reduce risk, attracting commercial investors via grants or concessional loans.
Sun King is a good example in Nigeria. The company secured a USD 80 million, naira-dominated loan facility in partnership with World Bank Group and Stanbic bank to help scale Nigerian access to off-grid solar. Customers can repay the cost of Sun King’s solar systems in a pay-as-you-go manner over 12 to 24 months.
“Nigerian financial institutions are beginning to show interest in financing [off-grid] energy projects,” says Wilson Erumebor, senior economist at the think-tank Nigerian Economic Summit Group. “But I think they should have done that a long time ago.”
“When we started some 12 years ago,” Adaju says, “it was hard to get a bank to finance solar systems”. Nowadays, he says, a few banks provide finance. He adds that scaling of such solar-system projects has been further enabled by “wholesale funds”, which see institutions like the Development Bank of Nigeria provide concessional loans to commercial banks. The banks then use the capital to lend to solar companies on preferential terms, growing access to electricity.
But there is still considerable room for expansion, Adaju says.
Erumebor says some companies have been installing solar-and-battery systems in rural communities. Coupled with a pay-as-you-go model, this has allowed households to pay as little as NGN 200 (USD 0.14) per day, he says. Banks are increasingly supporting these small-scale firms, he adds.
Best says blended finance has helped companies scaling their pay-as-you-go portfolios to “reduce foreign exchange exposure and lower capital costs”. It has also enabled products to reach more customers and lengthened loan repayment periods, she adds.
However, Best believes the scale and equity of energy access can be enhanced by linking blended finance to measurable inclusion outcomes. As examples, she mentions the percentage of off-grid low-income households reached, as well as gender targets and community engagement.
“If not, the finance may focus on expanding only the commercial sectors, which are easier to serve,” she notes.
