Nigeria’s Electricity Sector: Cost-Reflective Tariffs and Targeted Subsidies on the Horizon

The Federal Government is set to implement a significant shift in Nigeria’s electricity sector, moving towards cost-reflective tariffs while simultaneously introducing targeted support mechanisms for vulnerable households. This strategic reform aims to sustain the removal of existing electricity subsidies and address the sector’s persistent underperformance.

Sadiq Wanka, the Special Adviser to the President on Power Infrastructure, articulated this policy direction at Asharami Square 3.0 in Lagos. He acknowledged that the transition to cost-reflective tariffs represents a challenging but necessary conversation for investors and market participants. The initial phase of this reform, which saw Band A customers move to cost-reflective pricing, is now being extended across the entire sector. This comprehensive approach is underpinned by a commitment to protect low-income and vulnerable Nigerians through a proposed Power Consumer Assistance Fund, a key immediate priority identified in accompanying presentations.

Wanka highlighted Nigeria’s significant lag in electricity access and per capita consumption compared to other emerging economies like India and South Africa. He stressed that accelerated reforms and substantial investment are crucial to bridge this gap. Currently, Nigeria attracts approximately $1 billion in annual investment across generation, transmission, and distribution. However, to achieve universal electricity access and meet industrial demand, the country requires an investment ten times that amount. Projections indicate an annual investment need of $9 billion to $12 billion through 2045, with total investment requirements estimated at $121 billion over the same period, according to the Nigeria Integrated Resource Plan. Solar and hydropower are anticipated to constitute 80% of installed capacity by 2045, driven by their cost-effectiveness.

The Electricity Act 2023 is seen as a catalyst for change, liberalising the sector and empowering states with greater responsibilities. Wanka pointed to state-level investments and improved market discipline as early indicators of reform success. He assured investors that despite structural challenges, regulatory reforms have created insulated investment opportunities, mitigating historical risks associated with tariffs and payment uncertainties from distribution companies. Key investment avenues include embedded generation, mini-grids, industrial clusters, transmission infrastructure, hydropower, distribution networks, and the local manufacturing of power equipment.

Earlier, Ejiro Gray, Executive Director of Governance and Sustainability at Sahara Group, urged a re-evaluation of how Africa’s energy transition is reported. She advocated for journalism that interrogates prevailing assumptions rather than merely amplifying external narratives, emphasizing the need to capture the continent’s lived experiences and operational complexities.

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