OPERATING IN THE LAGOS ELECTRICITY MARKET: A GUIDE TO LICENSING REQUIREMENTS UNDER THE LAGOS STATE ELECTRICITY LAW, 2024

1.    INTRODUCTION

The Lagos State Electricity Regulatory Commission (the “Commission”) has transitioned decisively from institution-building to active market regulation. Following the issuance of Order No. LASERC ORDER/001/2025 in June 2025, which formally concluded the transitional period and prohibited regulated electricity activities without a valid Commission licence, and the Commission’s inaugural Stakeholders’ Forum held on 7 May 2026, at which fourteen (14) licences and permits were issued, operators and investors in the Lagos Electricity Market are now operating within a fully live licensing regime.

This briefing note sets out the key licensing requirements under the Lagos State Electricity Law, 2024 (the “Law”) and the Commission’s Guidelines for Registration and Licensing issued in 2025 (the “Licensing Guidelines”), with particular focus on the generation space, where investor activity is most concentrated.

2.    WHO NEEDS A LICENCE?

Section 49(1) of the Law prohibits any person from constructing, owning or operating any undertaking in Lagos State, or in any way engaging in the generation, transmission, distribution, trading, supply, or system operation of electricity, without first obtaining the relevant licence or permit from the Commission. This obligation applies irrespective of whether the operator holds a subsisting licence issued by the Nigerian Electricity Regulatory Commission (“NERC”). Section 49(8) of the Law makes it explicit that holding a licence issued by any other regulatory body does not constitute a defence to operating without a Commission licence.

It is worth noting that this threshold differs from the position under the Electricity Act 2023 (the “EA“). Under Section 63(2) of the EA, two separate thresholds apply: a person may construct, own or operate a generation undertaking not exceeding 1 MW in aggregate at a site without a licence, but the exemption for distribution is set at a lower threshold of 100 kW in aggregate at a site. The Law does not maintain that distinction. By virtue of Section 49(4) of the Law, the 1 MW exemption applies uniformly, without differentiating between generation and distribution.

Operators who are uncertain whether their activities require a licence or permit from the Commission are mandated under Section 49(3) of the Law to seek clarification and clearance from the Commission.

A related but distinct point concerns captive generation. The Law defines captive generation as the generation of power from a plant owned and operated by an entity for its own use,[1] and Section 72(3) of the Law confirms that no generation licence is required to establish a captive generation plant. However, Section 74 of the Law provides that a person or entity that owns a captive generation plant exceeding 1 MW that is not for personal use must obtain a permit from the Commission. The distinction between captive generation for personal use and captive generation for third-party supply is therefore one that operators must analyse carefully in structuring their projects.

3.    CATEGORIES OF LICENCE

The Law establishes six principal categories of licence, each authorising distinct activities within the Lagos Electricity Market.

3.1 Generation Licence

Under Section 71 of the Law, the Commission may grant a generation licence authorising a person to engage in the generation of electricity within the State. Pursuant to Section 72, a generation licence may authorise the holder to construct, own, operate and maintain a generating station for the purpose of the generation and provision of electricity as specified in the licence; to sell electricity or provide ancillary services; and, where applicable, to connect to a transmission or distribution system or any electricity system for dispatch, even where that system is owned and operated by a person licensed by another regulatory agency.

At the Commission’s inaugural licensing exercise on 7 May 2026,[2] the generation licence category produced the most diverse activity, spanning three principal structures: off-grid generation (a standalone generating station supplying a single industrial customer, not connected to the State or national grid); embedded generation (generation integrated directly into an industrial facility or local distribution network, connected to the distribution system); and interconnected mini-grid (a generation and distribution system serving a defined community, connected to other mini-grids or the distribution network). The licences issued on 7 May 2026 provide concrete illustrations of each structure in practice:

i.   Axxela Limited received an off-grid generation licence for a 5.8 MW project serving Cadbury Nigeria Plc in Agidingbi;

ii. Isolo Power Gen Limited was approved for a 9 MW embedded generation project along the Apapa-Oshodi Expressway in Isolo;

iii. Daybreak Power Solutions Limited secured multiple off-grid generation licences across six major industrial facilities, including Nigerian Breweries in Iganmu, Seven-Up Bottling Company in Oregun, Crown Flour Mill in Ikorodu, Nigerdock FZE on Snake Island, Nigerian Bottling Company in Ikeja and Promasidor Nigeria Limited in Isolo; and

iv. Enaro Energy Mini-Grid Limited received an interconnected mini-grid licence for projects in Ishokan Phase 1 and Mercyland Phase 1 in Ayobo-Ipaja.

3.2 Distribution Licence

A distribution licence, granted under Section 82 of the Law, authorises the holder to own and operate a distribution system within a defined area of Lagos State independently of the incumbent Distribution Companies, namely Eko Electricity Distribution Company and Ikeja Electric.[3] In practical terms, this means that a private investor may build and run its own electricity distribution network serving a specific industrial cluster, residential estate or commercial corridor. However, it is important to note that the Commission has confirmed that the franchise and operational areas of the incumbent Distribution Companies remain substantially preserved, albeit on a non-exclusive basis. Accordingly, where a proposed distribution operation falls within an incumbent distributor’s existing operational area, the Commission will assess on a case-by-case basis whether that distributor has demonstrably failed to serve the relevant customers, and third-party operators may in practice be required to collaborate or engage commercially with the relevant incumbent or its licensed successor. The holder of a distribution licence may also supply electricity directly to customers connected to its network, subject to this regulatory framework.

On 7 May 2026, Isolo Power Supply Limited received a distribution licence for the Apapa-Oshodi Expressway corridor in Isolo. Notably, its affiliate, Isolo Power Gen Limited, simultaneously received a generation licence for a 9 MW embedded generation project at the same location. This structure illustrates an investment model that is likely to become increasingly common in the Lagos Electricity Market, where a single ultimate beneficial owner or investor group participates in both the generation and distribution segments. It is however important to note that Section 66(1) of the Law empowers the Commission to require a licensee to implement management, accounting or legal separation in respect of its licensed regulated activities, with the effect that a single entity may be prevented from directly holding licences of more than one type. A single entity therefore cannot hold both a generation licence and a distribution licence.

3.3 Supply Licence

Section 85 of the Law allows the Commission to grant a supply licence authorising the retail sale of electricity to domestic and/or non-domestic premises. Pursuant to Section 86(2) of the Law, a supply licensee may only procure bulk electricity from a generation licensee or trading licensee, and under Section 86(3), may not sell electricity to a person who purchases for the purpose of resale.

3.4 Trading Licence

Section 79 of the Law permits the Commission to license bulk trading of electricity, covering the purchase of electricity from a generation licensee (including one licensed outside the State) and resale to any distribution or supply licensee, or to a bulk consumer. A “bulk consumer” is defined under the Law as a person with a connected load of 1 MW or more for its own use and not for sale or resale.[4]

3.5 Transmission Licence

Section 75 of the Law provides for transmission licences covering the construction, ownership, operation and maintenance of a transmission system within the State, including connection to the national grid or the grid of another State as specified in the licence.

3.6 System Operation Licence

The Law establishes the Lagos Independent System Operator (the “LISO”) under Section 96 of the Law, and the Commission is empowered under Section 97 to grant the LISO a system operation licence. Under Section 99 of the Law, the LISO’s licensed activities include generation scheduling and dispatch, transmission scheduling, congestion management, wholesale electricity market administration, and managing the connection of the State grid to the national grid, among other functions. Under Sections 73(c), 77(1)(d), 81(1)(c), 84(e) and 87(g) of the Law respectively, generation, transmission, trading, distribution and supply licensees are each required, as market participants, to comply fully with all instructions and directions of the LISO given under the market rules and grid code.

4.    THE LISO INTERFACE: A MANDATORY PRE-PROCUREMENT OBLIGATION

A point of critical practical importance for generation investors, and one specifically emphasised at the 7 May 2026 forum, is the mandatory interface with LISO before any generation plant is procured. This arises from the activities assigned to the LISO under Section 99 of the Law, which include generation scheduling and dispatch, and managing the connection of the State grid to the national grid.

Two specific obligations flow from this framework. First, investors must notify LISO of their intentions prior to procuring generating plant. Second, operators must conduct technical feasibility studies in conjunction with LISO to determine the viability of their proposed project within the Lagos grid. These studies will, among other things, identify the appropriate grid interface points and determine whether the plant will be ring-fenced (that is, off-grid or localised) or connected to the broader state grid, a determination that must be made at the design stage and that has material implications for project structuring, revenue model, and dispatch obligations.

5.    NON-EXCLUSIVITY, FRANCHISE AREAS AND NEW ENTRANTS

Under Section 57 of the Law, the grant of a licence to any person does not limit the Commission’s power to grant a licence to another person for a like purpose, and a licensee cannot claim exclusivity or monopoly in its area of operation. Section 58 of the Law provides an exception: the Commission may grant an exclusive licence for a period not exceeding five years following public consultation and upon the applicant demonstrating to the Commission’s satisfaction that exclusivity is in the public interest. The Commission confirmed at the forum that the incumbent Distribution Companies retain their concession and franchise areas but do so on a non-exclusive basis. Where a Distribution Company demonstrably lacks the capacity to serve its licence area, the Commission may licence other providers to operate in that area, with the evidence of such incapacity to be determined on a case-by-case basis.
 

6.    PENALTIES FOR OPERATING WITHOUT A LICENCE

The Commission’s enforcement posture is now active. Under Section 49(7) of the Law, operating without a licence is a criminal offence attracting a fine of not less than ₦1,000,000 or a custodial or community service sentence of up to six months, or both, with a further penalty of not less than ₦20,000 per day for a continuing offence. The Commission has also, by Order No. LASERC ORDER/001/2025, prescribed an administrative fine of not less than ₦20,000,000 plus ₦20,000 per day of continuing contravention for unlicensed operators.

More broadly, under Section 30 of the Law, the Commission may impose a direction-based penalty of not less than ₦1,000,000 per contravention for non-compliance with its directions, with a continuing failure penalty of ₦200,000 per day. Section 67 of the Law further empowers the Commission to issue enforcement orders against non-compliant licensees, with a daily default penalty of not less than ₦100,000 for up to 30 days.

7.    CONCLUSION

The Lagos Electricity Market has moved from policy to practice. The Commission has begun licensing, inspecting and enforcing the provisions of the Law. For operators already active in the Lagos Electricity Market, the immediate priority is licence regularisation. For investors considering entry, the key steps are to engage the Commission early, conduct the requisite LISO feasibility studies before procuring or constructing a power plant, and structure projects with the mandatory documentation requirements of the Licensing Guidelines in mind from the outset.

Please do not treat the foregoing as legal advice, as it only represents the public commentary views of the authors. All enquiries on this should be directed to the key contacts.