Shock as Nigeria’s Electricity Subsidy Skyrockets by 220% to Nearly ₦2 Trillion Amid Economic Strain
Nigeria’s electricity subsidy burden has ballooned to alarming levels, with the Federal Government’s subsidy on power rising from ₦610 billion in 2023 to a staggering ₦1.94 trillion in 2024 — a 219.67% increase, according to the Nigerian Electricity Regulatory Commission (NERC).
This spike comes despite the April 2024 tariff adjustment for Band A customers and is largely attributed to the naira’s devaluation and rising inflation following President Bola Tinubu’s market reforms, including the removal of fuel subsidies and currency floatation.
NERC’s just-released 2024 annual report reveals that the government paid only ₦371.34 million of the total ₦1.94 trillion subsidy obligation — less than 0.02% — creating a gaping funding shortfall in the electricity market and threatening the financial stability of generation companies (GenCos).
“Due to the absence of cost-reflective tariffs across all DisCos, the government incurred a monthly average subsidy of ₦161.85 billion in 2024,” the report noted, blaming the subsidy surge on the federal government’s policy to freeze consumer tariffs despite macroeconomic shifts.
Tariff Freeze Triggers Mounting Debt
The report detailed that the government’s decision to hold tariffs at December 2022 levels — despite steep increases in actual generation and operational costs — caused the subsidy obligation to spike.
In Q1 2024 alone, the government’s subsidy hit ₦633.3 billion, a 303% jump from the 2023 quarterly average. Though the April 2024 adjustment for Band A customers (who consume 40% of national energy) reduced the Q2 burden to ₦380 billion, subsidy levels rebounded in Q3 and Q4 due to another directive freezing all customer rates at July levels.
By year-end, quarterly obligations reached ₦471.69 billion in Q4 — a 24% rise over Q3. The overall 2024 subsidy accounted for nearly 63% of the total Nigerian Bulk Electricity Trading (NBET) invoices for the year.
Breakdown of Subsidy Burden by DisCos
The report offers a breakdown of the ₦1.94 trillion burden by DisCo, with Abuja DisCo (₦285bn), Ikeja (₦272bn), and Ibadan (₦236bn) topping the list. Yola DisCo, meanwhile, received the highest subsidy per kilowatt-hour due to a combination of high cost-reflective tariffs (₦266.64/kWh), insecurity, and operational challenges.
The national average cost-reflective tariff in 2024 was ₦175.31/kWh, while the allowed tariff charged to consumers was just ₦100.27/kWh — leaving a subsidy gap of ₦75.04 per kilowatt-hour.
DisCos Struggle as Government Defaults
Despite the heavy obligation, the Federal Government failed to back its promises with funding, paying only ₦371.34 million out of the ₦1.94 trillion owed to NBET. This has deepened the crisis across the power value chain, where total debts owed to GenCos are now approaching ₦5 trillion.
The introduction of the DisCo Remittance Obligation (DRO) framework in 2024 — which requires DisCos to remit 100% of their allowed tariffs — was designed to reduce subsidy-related debts on their balance sheets and enhance transparency. Yet, the government’s inability to pay its share is threatening the sector’s viability.
Experts Warn of Sector Collapse
Reacting to the development, energy analyst Bode Fadipe blamed the exploding subsidy bill on the naira’s decline and Nigeria’s heavy reliance on imported infrastructure.
“Virtually everything in the power sector is dollar-denominated — from transformers to gas feedstock,” he said. “When the naira falls, tariffs should adjust. If they don’t, subsidies rise sharply. That’s what we’re seeing now.”
Fadipe warned that without structural reforms, the sector may remain in crisis for decades. “With the government now owing up to ₦6 trillion if the ₦1.94 trillion is added to the existing ₦4 trillion GenCo debt, the situation is unsustainable. This figure rivals the annual budgets of most African countries.”
On the possibility of full subsidy removal, Fadipe urged caution, citing potential spikes in electricity theft and instability. “We’ve not even determined the real cost of electricity. Band A is now over ₦200/kWh. A full removal without safeguards would trigger massive non-compliance and deepen the chaos.”
Governors Reject Electricity Act Amendment
In a related development, Nigeria’s 36 state governors have reportedly rejected proposed amendments to the Electricity Act, which may shift regulatory control to the federal level — a move many believe could undermine states’ growing interest in independent power projects.
Dangote: Nigeria Should Target 60,000MW
Meanwhile, Africa’s richest man, Aliko Dangote, weighed in on the power crisis, urging local investors to channel their resources into the power sector. Speaking at a recent industry event, Dangote disclosed that the Dangote Group generates over 1,500 megawatts for internal use and argued that Nigeria should aim for a national capacity of at least 50,000–60,000MW.
“There’s no reason why we should be stuck at 5,000MW. The refinery we built shows that big things can be done here. Nigerians should invest locally and stop taking capital abroad,” he said.
What Lies Ahead?
As the government weighs its options, including restructuring the subsidy model and transitioning to more cost-reflective tariffs, citizens and stakeholders remain concerned about affordability, sustainability, and fairness.
With debts piling up and electricity supply still erratic in many regions, analysts warn that without bold, transparent reforms and a clear subsidy strategy, the nation’s power sector may continue to drag down economic growth and investor confidence.
