Nigeria’s power sector stands at a critical crossroads, as persistent generation shortfalls, aging infrastructure, and liquidity constraints continue to undermine reliability and economic growth. The Electricity Act 2023 and accompanying reforms were introduced to overhaul the erratic system and build a more resilient electricity market capable of addressing the country’s chronic power deficits. However, persistent outages and inefficiencies across the value chain reveal a widening disconnect between policy ambitions and actual outcomes, leaving households and businesses burdened by unreliable supply and underscoring the urgent need for deeper structural and institutional reforms, reports Assistant Editor MUYIWA LUCAS.

The Nigerian Independent System Operator (NISO), in its recent report, succinctly captures the country’s power situation, describing its reliability as “one of the most damaging constraints to Nigeria’s economy.” It estimated losses accruing from it at about $29 billion, or N40.1 trillion using the prevailing exchange rate of N1,385 per dollar. The report also warned that the country’s persistent power challenges remain a major drag on economic growth.

According to the report, Nigerians spend huge sums yearly on alternative power sources, particularly generators, to keep homes and businesses running. “Power outages cost Nigeria an estimated $29b annually. Businesses, manufacturers, and households spend billions each year generating their own electricity. A stable national grid unlocks economic growth, industrial productivity, and job creation,” the system operator stated. Indeed, Nigerians across all strata continue to face the hydra-headed problem of unstable power supply. At moments when consumers appear to be on the verge of experiencing some relative stability, the gains are abruptly reversed, dragging citizens back into prolonged periods of darkness.

For over a month, electricity consumers have faced one of the most challenging periods in recent times, with reduced or, in some cases, complete absence of supply. This situation has been largely attributed to a drop in power generation arising from insufficient gas supply to thermal power plants, which remain the country’s dominant source of electricity. Distribution companies (Discos)—the final link in the electricity value chain—have, in their characteristic manner, resorted to appeals and explanations to their customers. For instance, Ikeja Electric (IE), through its Head of Corporate Communications, Kingsley Okotie, while apologising to consumers, explained that “the ongoing reduction in electricity supply is largely due to a nationwide drop in power generation, caused by limited gas supply to thermal power plants. This has significantly reduced the energy available on the national grid and consequently, the allocation to Ikeja Electric and other distribution companies.” He acknowledged that the shortfall had resulted in intermittent outages and load shedding across its network.

Amid growing frustration among consumers, it was therefore instructive when the Minister of Power, Adebayo Adelabu, tendered an apology to Nigerians. He further explained that Nigeria’s power sector relies heavily on gas-fired plants, which have faced disruptions due to inadequate gas supply, pipeline maintenance issues, ageing infrastructure, and liquidity constraints.

Power sector reforms and market transition

With far-reaching regulatory and financial restructuring over the last three years, Nigeria’s electricity sector is undergoing a profound transformation—shifting from a centrally managed system to a decentralised, market-driven, and cost-reflective structure under the Electricity Act of 2023. The reform trajectory is defined by the devolution of regulatory powers to subnational governments, tariff realignments, subsidy rationalisation, and an aggressive push to resolve legacy debts estimated at over N4 trillion.

A central pillar of the transition is the empowerment of states. Following the Electricity Act (Amendment) Bill 2025, states now have authority to generate, transmit, and distribute electricity within their jurisdictions. By early 2026, several states—including Lagos, Edo, Ekiti, Ondo, Imo, Oyo, Kogi, Ogun, and Niger—had either initiated or fully assumed regulatory oversight from the Nigerian Electricity Regulatory Commission (NERC). This decentralisation marks a structural break from the previously centralised model and is expected to stimulate competition, efficiency, and localised solutions to power challenges.

On pricing, NERC in April 2024 implemented a 300 per cent tariff increase for “Band A” customers, signalling a decisive move toward cost-reflective tariffs. Complementing this, reforms in 2024/2025 began phasing out the Nigerian Bulk Electricity Trading Company (NBET) as the dominant intermediary, enabling generation companies (GenCos) to enter direct bilateral agreements with distribution companies (DisCos). This shift is designed to deepen market liquidity and reduce structural bottlenecks in the electricity value chain.

Institutionally, NERC has also recalibrated its role to accommodate a multi-level regulatory environment. The establishment of the Forum of Nigerian Electricity Regulators (FONER) is intended to harmonise federal and state regulatory frameworks. At the consumer end, new directives—such as the Amended Order on the Reimbursement of Meter Costs and mandatory free prepaid meter distribution—seek to close persistent metering gaps and improve billing transparency.

Financial restructuring remains a critical focus. In January, NBET announced a N501 billion bond programme under the Presidential Power Sector Debt Reduction Programme to settle legacy obligations owed to GenCos. Meanwhile, the government continues reconciliation of between N4 trillion and N6 trillion in sector debt, with about 60 per cent owed to gas suppliers—underscoring the tight interdependence between the power and gas value chains.

To strengthen the distribution segment, NERC is implementing a mandatory recapitalisation plan for the 11 successor DisCos, with the threat of re-privatisation for operators that fail to meet new capital thresholds. In parallel, the regulator is considering a transition to minimum “Take-or-Pay” contractual frameworks—anchored either on agreed volumes or 2023 average plant availability—to improve revenue certainty and overall sector bankability.

As generation capacity edges upward—reaching a peak of 5,801 MW in 2026—attention has shifted to grid resilience, supported in part by $238 million in financing from the Japan International Cooperation Agency (JICA) to reduce system collapses.

Despite these gains, liquidity constraints persist. While reforms have attracted roughly $2 billion in new investment and improved generation metrics, DisCos continue to record high technical and commercial losses alongside significant collection gaps. The Minister of Power, Adebayo Adelabu, has consistently framed the reforms within the broader Renewed Hope Agenda of Bola Tinubu. According to him, the reforms—anchored on policy overhaul, market liberalisation, and institutional strengthening—are repositioning the sector for sustainability, efficiency, and increased private sector participation.

Describing the changes as deliberate steps toward building an investor-friendly electricity market, Adelabu disclosed that the reforms have attracted over $2 billion in fresh investments. He added that efforts to transition the industry toward full commercialisation have significantly improved its financial outlook, with sector revenue growing by 70 per cent in 2024 and government liabilities reduced by about N700 billion.

Crucially, the Electricity Act 2023 has enabled decentralisation and opened the door for subnational participation, leading to the activation of 16 state electricity markets. The development of a National Integrated Electricity Policy (NIEP)—the first in over two decades—now provides a unified implementation framework, strengthening coordination between federal and state actors while accelerating access to reliable electricity. In generation, measurable progress is evident. Installed capacity has increased from 13 gigawatts to 14 gigawatts, alongside operational milestones, including a peak generation of 5,801.44 megawatts—an indication that, while challenges remain, the reform process is beginning to shift the sector toward a more stable and sustainable trajectory.

The Electricity Act 2023

Perhaps most central to the ongoing reforms is the Electricity Act (EA) 2023, whose significance and timing are designed to create an enabling environment for sustainable growth and investment in Nigeria’s power industry. The Act focuses on accelerating private sector participation, strengthening regulatory oversight, and enhancing consumer protection. Widely regarded as a landmark reform, the Act confers on states the constitutional authority to legislate on electricity matters within their jurisdictions. This includes the power to generate, transmit, and distribute electricity in areas within state boundaries, even in regions previously served solely by the national grid. At its core, the Act emphasises the need for a more transparent, accountable, and competitive electricity market—one capable of attracting investment, fostering innovation, and ultimately delivering reliable and affordable power to Nigerians.

An economist, Muda Yusuf, has called for caution, arguing that certain aspects of the Act may require reconsideration, particularly in defining the scope and limits of state-level regulation. He questioned the financial and institutional capacity of many states to undertake the enormous investment required across generation, transmission, and distribution infrastructure. “I’m not sure how many of the states have capacity to invest in power generation, power distribution, or power transmission. They (states) are still dealing with a whole lot of issues which they have not been able to fund like in education, health, transportation, roads, and so on. I think there is a need for us to go back to the drawing board and redefine the regulatory regime, particularly this whole idea of asking states to regulate electricity supply.

“I think the limits of the regulation need to be more clearly defined because you have Generation Companies (GenCos) whose activities cut across so many states. Are we not going to be having multiple regulations in a situation where you have a generating company that is supplying to three, four, five states? How are we going to manage that? So, for me, perhaps there is a need to go back to the drawing board and review the whole laws and define the limits,” Yusuf said.

These concerns gained practical relevance following developments involving the Enugu State Electricity Regulatory Commission (EERC). On August 1, 2025, the commission issued Order EERC/2025/003, reducing the Band A electricity tariff for MainPower Electricity Distribution Limited to about N160/kWh. The move, aimed at introducing a cost-reflective tariff structure that incorporated state-backed subsidies, triggered a dispute over revenue losses and supply disruptions.

Reacting to the controversy, Adelabu cautioned that states choosing to reduce tariffs must be prepared to shoulder the financial implications through subsidies. “It is already a fact today that the delay in the prompt payment of electricity subsidies has put the generation companies and gas suppliers under severe operational burden due to the almost N5 trillion outstanding to these market participants. It is important to stress that the Nigerian power market, in the short term, remains largely centrally coordinated, especially for Bulk energy purchases, Transmission, and market settlements involving Generation Companies (GenCos) and the Nigerian Bulk Electricity Trading Company (NBET).

“We understand further that the Federal Government does not have an elastic subsidy budget. Any tariff reduction… may further bloat the subsidy obligations of the federal government,” the minister said.

Dr. Yusuf aligns with these concerns, noting that investors across the electricity value chain are already grappling with acute liquidity challenges. Referencing the Enugu case as a contradiction of reform objectives, he argued that some state regulators may lack a full grasp of the complexities of electricity pricing and market dynamics. “What is clear from what happened in the case of EERC is that most of the states’ regulatory commissions do not have capacity to regulate this sector… Electricity pricing at this time is not about what is popular… It is about what is sustainable. All of them are grappling with serious liquidity crisis. As we speak now, the federal government is owing the generating companies close to N6 trillion.

GenCos and the national grid

Experts and stakeholders consistently emphasise that a stable national grid is fundamental to unlocking economic growth, industrial productivity, and job creation. Yet, the scale of Nigeria’s generation and transmission imbalance underscores the depth of the crisis. According to the Nigerian Independent System Operator (NISO), the country generates between 45,000 and 50,000 megawatts of electricity daily, but only about 5,000 megawatts—roughly 10 per cent—is transmitted to the national grid.

This structural inefficiency has worsened in recent months. As of March 25, 2026, only 2,908 megawatts was distributed to the country’s 11 electricity distribution companies, far below the already constrained 4,000-megawatt benchmark recorded earlier in the year. NISO attributed the persistent shortfall to deep-rooted bottlenecks across the electricity value chain, including limited transmission capacity, weak distribution infrastructure, and recurring disruptions in gas supply.

Thermal power plants, which constitute the backbone of Nigeria’s generation mix, are currently receiving only about 41 per cent of the gas required for optimal operations. This has forced several generating units offline, leading to a cumulative reduction of nearly 300 megawatts in available grid power. Compounding the challenge, the national grid has suffered multiple collapses in 2026 alone, with generation levels fluctuating significantly and, at times, plunging below 1,000 megawatts from peaks exceeding 5,000 megawatts. A major factor exacerbating the crisis is the mounting liquidity challenge facing generation companies (GenCos). The Association of Power Generation Companies (APGC) disclosed that unpaid invoices to its members have now exceeded N6 trillion, highlighting the financial strain across the sector. “GenCos face the greatest risk in the electricity value chain, with outstanding unpaid invoices now exceeding N6 trillion. Rather than castigate operators, attention should be focused on addressing the liquidity crisis that threatens the sustainability of electricity supply,” said the Chief Executive Officer of APGC, Joy Ogaji.

According to Ogaji, GenCos possess sufficient installed capacity to deliver stable and reliable electricity, provided that transmission and distribution systems are capable of evacuating and delivering the generated power. She stressed that the priority should be ensuring electricity availability in a sustainable and consistent manner. A review of GenCos’ performance since the 2013 privatisation highlights both progress and constraints. Ogaji noted that available generation capacity has more than doubled—from 3,427 megawatts at takeover in 2013 to 8,145 megawatts by 2020. However, of this 8,145 megawatts, only 3,987 megawatts was effectively generated and delivered, leaving a stranded capacity of 4,159 megawatts due to grid limitations.

She further explained that, beyond the initial acquisition of assets valued at over $1 billion, GenCos have invested more than $3 billion in maintenance, inspections, and major overhauls to ramp up capacity since November 2013. Despite these investments, systemic inefficiencies continue to undermine returns. “As key operators in the power value chain and the producers of the electricity—the product in issue—GenCos understand very well the entire process of electricity generation, the raw material and feedstock implications, various significant costs involved, the excruciating financial burden we are already carrying due to huge outstanding debts owed us by the market; the suffocating loan repayment obligations we owe to banks and other lenders, the continuous forex (FX) losses we have continued to bear for years.” she said.

Ogaji argued that GenCos remain the most financially exposed segment of the electricity value chain, as they generate electricity that is not fully paid for due to revenue leakages and inefficiencies across the market. The association also rejected claims that proposed government financial interventions are politically motivated, insisting that such support is critical to preventing further deterioration of the sector. Citing operational improvements, she highlighted the turnaround of the Kainji Hydropower Plant by Mainstream Energy Solutions Limited (MESL). At the time of takeover, the plant reportedly had no functioning units and relied on imported power to run auxiliary systems. Today, six units are operational at Kainji, while three of the six units at Jebba are functioning, following investments exceeding $300 million.

Despite the daunting challenges, NISO pointed to measurable improvements in grid infrastructure. Between 2024 and 2025, about 82 power transformers were installed, adding over 8,500 megavolt-amperes in capacity, while more than 30 transmission projects were completed. These upgrades have increased the grid’s wheeling capacity to approximately 8,700 megawatts. The report also noted that the grid achieved a peak generation of 5,802 megawatts in March 2025 and recorded 421 consecutive days without system collapse between 2022 and 2023. In addition, a $1.16 billion grid digitalisation project has reached 69 per cent completion, with over 3,000 kilometres of fibre optic cables deployed and more than 100 substations upgraded with advanced monitoring systems.

Metering and structural reforms in the electricity sector

The issue of metering remains one of the most sensitive and unresolved challenges in Nigeria’s electricity supply industry. Despite several reform efforts, the country still faces a significant metering deficit, estimated at about seven million meters. This shortfall has placed a heavy financial burden on the electricity value chain, while also affecting consumers who are subjected to estimated billing. These estimated bills are often perceived as inaccurate and unfair, contributing to widespread dissatisfaction and distrust toward distribution companies.

To address this challenge, the Federal Government introduced the Presidential Metering Initiative (PMI) in 2023. This is a five-year programme designed to deploy about 10 million meters nationwide, with support from the Nigeria Sovereign Investment Authority (NSIA) and the World Bank. A key objective of the initiative is to close the metering gap for a significant portion of customers on estimated billing by 2027. The initiative relies on structured funding mechanisms such as the Meter Acquisition Fund (MAF) and other federation-supported programmes.

The Meter Acquisition Fund operates as a pooled funding arrangement contributed to by all eleven Distribution Companies (DisCos), based on their revenue collections. Under the current phase, Tranche B, the focus is on completing metering for Band A and Band B customers, who are higher-value electricity users. DisCos are required to procure meters through transparent competitive bidding processes and ensure their installation within defined timelines. This system is designed to enhance accountability, improve transparency, and accelerate the rollout of meters across the country.

In addition to the PMI, the Distribution Sector Recovery Programme (DISREP) is another major intervention. Backed by a $500 million World Bank facility, the programme aims to deliver about 3.4 million smart meters to consumers free of charge. Beyond increasing access to meters, DISREP also seeks to strengthen the technical and financial performance of DisCos. However, like previous schemes such as the National Mass Metering Programme (NMMP) and the Meter Asset Provider (MAP) initiative, the cost of these meters is expected to be recovered over time. DisCos are responsible for installation, distribution, and maintenance within their franchise areas.

Despite these efforts, several implementation challenges persist. These include inadequate funding, delays in procurement, weak infrastructure, and operational inefficiencies within DisCos. As a result, the pace of meter deployment has been slow, and many consumers remain unmetered.

The way forward

Experts agree that the power sector is central to Nigeria’s economic development. With the government declaring 2026 a year of consolidation for power sector reforms, expectations are high. However, recurring challenges such as grid instability, including the collapse recorded in late December 2025, highlight the need for more robust and sustained reforms. One of the key initiatives aimed at addressing these issues is the Presidential Power Initiative (PPI), implemented in partnership with Siemens. The project seeks to upgrade the transmission infrastructure to reliably handle up to 7,000 megawatts. This would represent a significant improvement over the current fluctuating transmission capacity, which typically ranges between 4,000 and 5,000 megawatts.

Another important programme is the “Light Up Nigeria” initiative, which focuses on prioritising electricity supply to industrial clusters and agricultural hubs. This strategy aims to maximise the economic impact of available electricity by directing supply to sectors that drive production, job creation, and growth. While residential supply may remain inconsistent in the short term, the initiative reflects a deliberate focus on economic productivity. With millions of customers still without meters, closing this gap remains essential for improving efficiency, accountability, and revenue collection.

Energy expert, Prof Bart Nnaji has outlined several reforms needed to stabilise the sector. He emphasised the importance of restoring Power Purchase Agreements, settling outstanding debts owed to generating and distribution companies, and implementing cost-reflective tariffs. According to him, these measures are necessary to ensure financial sustainability and attract investment into the sector. He also recommended the development of a 765KV national super grid and decentralisation of the transmission system to reduce the risk of nationwide blackouts. (The Nation)

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