How Lagos, Nigeria’s biggest electricity market, is betting on change
Lagos has signed power purchase agreements for up to 400MW of new generation this year, and its regulator has licensed 14 new operators. Writing for ENN, Richard Walker of FirstWord Media looks at the investment now reaching Nigeria’s biggest electricity market and the licensing questions operators still face.
Nigeria is in the midst of the most significant liberalisation of its electricity market since partial privatisation in 2013. Ever since the passage of the federal Electricity Act in 2023, Nigeria’s states have been moving to take advantage of their new devolved powers to set tariffs and license independent power producers (IPPs), as well as manage distribution and transmission arrangements and increase the scope for wheeling to better balance supply and demand. Of them all, the Lagos electricity market is the biggest and is seen as the test case for liberalisation, and after a halting start, investment deals are beginning to flow.
Huge demand set against limited and unreliable supply has been the story of the Nigerian electricity market for as long as anyone can remember. The World Bank estimates that only 62% of Nigerians had access to electricity in 2024, leaving around 90 million people in one of the world’s most energy-rich countries without it.
The federal Electricity Act of 2023 was designed to break the cycle of underinvestment that has left Nigeria struggling to provide power right across the economy. It allowed Nigeria’s 36 states to enact their own legislation governing power and create their own electricity regulators with the ability to issue licences to private power providers and distribution companies, and to set tariffs that give investors an economic return.
Most states have begun the process of creating a devolved electricity sector, but it is Lagos State that has moved fastest and furthest in showing investors that Nigeria is open for business in the electric power sector.
Deals begin to land
Two years after the enactment of the Lagos State Electricity Law, there are signs that the hoped-for deals are starting to materialise. In April, for example, the state signed three power purchase agreements (PPAs) with independent electricity generators to provide up to 400MW of new capacity. Mainland Power and Fenchurch Power, along with Viathan Engineering, currently have a combined capacity of less than 60MW, but are expected to scale up output over the next two to three years.
There are also positive signs of investment in the broader power economy, with various companies lining up to invest in operations such as metering, distribution and mini-grids, as well as generation. In May, the Lagos State Electricity Regulatory Commission (LASERC), which has taken over most regulatory authority from the federal Nigerian Electricity Regulatory Commission (NERC), granted 14 new licences to a range of private companies with generation or distribution capacity. Several of these licences are linked to existing industrial consumers, with Axxela securing approval for a 5.8MW embedded power project at Cadbury Nigeria’s site in Agidingbi, while Daybreak Power Solutions received approvals to supply power to industrial sites including breweries and bottling plants.
Lagos State’s needs go beyond captive power for individual industrial companies, since formal grid supply to the broader economy, including retail customers, remains below 1,000MW against estimated demand of around 12,000MW. A patchwork of private diesel-based generators and small-scale captive generation for individual companies makes up much of the shortfall. The state has recently set an ambitious target of roughly tripling power supply as early as March 2027 through a combination of grid supply and local generation sources. Hitting that target will require more licensing and investment deals, although it is open to question whether commitments will turn into actual power supply improvements.
The licensing uncertainty
The commitment of Lagos State policymakers to reforming the electricity market is not in doubt, although the devolution of regulatory and licensing authority has not been without hiccups.
The Lagos State Electricity Law gives LASERC the power to issue and supervise licences in generation, transmission, trading, distribution and power supply. A predictable licensing regime should help investors forecast revenues and returns, but a measure of uncertainty remains. Although the law has provisions to allow existing private power providers to continue operations until their present licences expire, another provision requires all existing or incoming operators to reapply to LASERC for licences, without a specific deadline.
This uncertainty over which licences are valid has not helped the flow of investment into the sector, and operators cannot afford to ignore licensing, given the substantial fines for non-compliance and the cost of the licences themselves. During 2026, LASERC has identified 38 companies operating more than 600MW of generation capacity without the authorisation the Lagos State Electricity Law requires.
A coordinated solution
Lagos State’s electricity regulators acknowledge that such uncertainties are part of the overall challenge for the sector, but insist that short-term constraints will not derail the planned long-term reform of the market. It is widely recognised that there is no single solution to the challenge of building enough capacity to power Lagos State, and LASERC is acting on the basis that what is needed is a coordinated programme that includes gas, renewables, storage, embedded generation and distributed energy, all set within a market-oriented regulatory regime.
That means regulation that is predictable for operators as decentralisation of the power sector beds in. As LASERC says, “By providing regulatory clarity and ensuring compliance with operational standards, we aim to transform Lagos into a model state for electricity governance in Nigeria.”
