Learning from India’s state electricity market reforms
Nigeria’s electricity sector is at a defining moment. With the Electricity Act 2023, the country has begun decentralising power—allowing states to generate, distribute, and regulate electricity within their borders. This
- By Nkemjika Nnenne Ani
Nigeria’s electricity sector is at a defining moment. With the Electricity Act 2023, the country has begun decentralising power—allowing states to generate, distribute, and regulate electricity within their borders. This reform holds immense promise. But it also carries significant risk. The experience of India, which began a similar journey over two decades ago, shows that decentralisation can either transform a power sector or fragment it.
India introduced its sub-national electricity market through the Electricity Act of 2003, a landmark reform that unbundled state electricity boards into separate entities for generation, transmission, and distribution. It also established independent State Electricity Regulatory Commissions and introduced competition into the sector. A subnational (state) electricity market is a system where states manage their own electricity value chains, while the federal government oversees interstate electricity trade.
One of the most transformative features of India’s reform was open access—a system that allows large consumers to buy electricity directly from generators using existing grid infrastructure, instead of relying solely on their local distribution company (DISCO). For example, industries in Maharashtra can procure cheaper renewable energy from Gujarat while paying a regulated fee to use the network.
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India didn’t get to open access overnight—it took close to a decade after the 2003 reform for such competitive markets to really take off. That kind of step-by-step approach matters for Nigeria, which still needs to fix the basics like improving metering, and strengthening the grid and network infrastructure—before open access can truly succeed.
Recent evidence from the Indian State Electricity Transition (SET) 2026 Report highlights how uneven India’s progress has been. Electricity demand in India continues to rise rapidly due to economic growth, urbanisation, and electrification of transport. While national policies set direction, outcomes are largely determined at the state level.
The report evaluates each state’s progress across three dimensions: decarbonisation, power system readiness and performance, and market enablers. A key insight is that progress in one area does not guarantee overall success. States that perform well in renewable energy adoption may still struggle with weak distribution companies or poor market structures. For instance, Karnataka leads in decarbonisation, with renewable energy accounting for roughly 37% of its power mix. Himachal Pradesh, with its hydropower base, has an even higher renewable share of about 65%. Yet these gains do not automatically translate into strong markets or financially viable utilities. Similarly, Delhi excels in power system performance, with reliable supply and strong DISCO operations, but lags in renewable energy expansion.
This fragmentation offers a crucial lesson for Nigeria: state electricity markets must be built holistically. Focusing on one dimension—such as generation capacity or renewable energy—without strengthening distribution or regulation will lead to incomplete reforms.
India’s leading states illustrate what success can look like. Gujarat has maintained a power surplus for over a decade and attracted significant private investment, supported by strong policies and robust infrastructure. Andhra Pradesh and Rajasthan have advanced market-enabling policies, including green tariffs and time-of-day pricing, which encourage renewable energy adoption and efficient consumption.
But India’s challenges are equally instructive. Many states continue to face severe financial stress in their DISCOS. The persistent gap between the cost of electricity supply and revenue collected—known as the ACS–ARR gap—remains a major issue. In states like Punjab, politically motivated subsidies, such as free electricity for agriculture, have undermined financial sustainability.
Operational inefficiencies also persist. States such as Bihar and Chhattisgarh have improved distribution performance in recent years, but still face challenges, including low renewable energy utilisation and slow deployment of smart metering infrastructure.
Several Nigerian states—including Enugu, Lagos, Edo, Ondo, Abia, Akwa Ibom, Oyo, etc. have begun developing subnational electricity markets through new laws and regulatory frameworks. However, these efforts are still at an early stage, focused mainly on institutional setup and sector restructuring. Persistent challenges such as metering gaps, weak network infrastructure, etc. remain unresolved, and there has been little meaningful improvement in actual power supply so far.
The risks ahead are clear. First, financial sustainability remains the most critical challenge. India’s experience shows that without cost-reflective tariffs, electricity markets cannot survive. If Nigerian states adopt politically convenient but economically unsustainable pricing, they risk creating the same cycle of deficits seen in Indian DISCOs.
Second, market maturity matters. Moving too quickly to advanced mechanisms like regional power markets, open access, etc., without first stabilising the market, could create confusion. India’s gradual transition suggests that Nigeria should prioritise strengthening existing market structures before introducing full competition.
Third, infrastructure and system readiness are essential. Advanced and competitive markets require a reliable grid, accurate metering, and clear pricing mechanisms. In India, states that invested early in infrastructure like Gujarat were better positioned to implement reforms successfully. Nigeria must follow a similar path.
Fourth, institutional capacity and regulatory independence are decisive factors. The Indian SET 2026 report shows that strong, independent, and transparent institutions are essential, as weak or politically influenced regulators lead to poor outcomes.
Fifth, policy coordination across all dimensions is essential, as focusing on only one area leads to incomplete and unsustainable outcomes. To avoid underperformance, Nigerian states must align reforms across the entire electricity value chain.
India’s 20-year experience offers a roadmap. Its successes—seen in states like Gujarat and Karnataka—show what is possible with strong governance, investment, and competition. Its challenges—visible in financially distressed utilities and uneven state performance—serve as cautionary tales. Nigeria has a strategic advantage: it can learn from India’s power sector experience—replicating successes while avoiding failures.
Nigeria’s move to decentralise its electricity sector is bold and necessary, but outcomes will depend on how effectively states implement it. With strong financial discipline, capable institutions, and coordinated policies, state-level electricity markets could drive growth and innovation. Without these fundamentals, decentralisation risks spreading inefficiency rather than solving it. The key question is whether Nigeria will apply these lessons wisely.
•Ani is a lawyer, expert in Energy Law & Policy, and reachable through email: Centurylawyer123@gmail.com
