Nigeria must end the politics of electricity pricing

Nigeria’s chronic electricity crisis has become emblematic of its broader economic dysfunction. Despite successive reforms and billions of naira in public and private investment, power supply remains unreliable, grid collapses are routine, and millions of citizens and businesses are left in the dark, literally and economically.

At the heart of the crisis lies a fundamental policy failure: the refusal to charge the true cost of electricity. For too long, Nigeria has clung to a subsidy regime that distorts prices, deters investment, and entrenches inefficiency. The federal government’s latest proposal to implement cost-reflective tariffs, raising electricity prices by as much as 66 percent for many consumers, is therefore not only timely but essential. It is also politically fraught.

“No investor, domestic or foreign, will commit capital to a market where pricing is opaque, returns are uncertain, and the rules shift with every election cycle.”

The new pricing plan, championed by the Special Adviser to the President on Energy, Olu Verheijen, seeks to align electricity tariffs with the actual cost of supply. Only customers in Band A currently pay near-cost-reflective rates; the rest, Bands B to E, are subsidised by as much as 67 percent. Yet, the federal government has repeatedly failed to fund these subsidies in full, creating a growing backlog of debt owed to generation companies (GenCos), gas suppliers, and distribution companies (DisCos). This liquidity crunch now threatens the viability of the entire electricity value chain.

Read also: Powering progress: The case for cost-reflective electricity tariffs in Nigeria

The numbers are stark. Nigeria has spent over ₦6 trillion subsidising electricity over the past decade—₦2.4 trillion in 2024 alone. The sector is owed over ₦3 trillion, with more than half due to gas suppliers. In a country that relies predominantly on gas for electricity generation, the ripple effects are severe: unpaid suppliers cannot guarantee delivery, GenCos cannot produce, and DisCos, facing irate customers and creaking infrastructure, struggle to distribute what little power remains. It is a vicious cycle sustained by political expediency and fiscal irresponsibility.

Cost-reflective tariffs, while politically unpopular, are economically unavoidable. No investor, domestic or foreign, will commit capital to a market where pricing is opaque, returns are uncertain, and the rules shift with every election cycle. The failure to reform electricity pricing has already triggered investor flight and undermined confidence in Nigeria’s energy transition plans, including its 2060 net-zero emissions target, which depends heavily on the availability of gas as a transitional fuel.

Manufacturers have raised legitimate concerns that higher tariffs will raise input costs and exacerbate inflation. But the real risk to industrial competitiveness is not expensive energy; it is unreliable supply. Businesses currently spend billions annually on diesel generators, an unsustainable workaround that undermines productivity and erodes the competitiveness of Nigerian goods in global markets.

The answer lies not in deferring reform but in designing it carefully. Targeted subsidies must protect the most vulnerable consumers, but indiscriminate price suppression must end. A well-sequenced reform process, beginning with transparency in tariff calculations, strengthened regulatory oversight, and timely debt settlement, can provide a stable foundation for private investment and sectoral growth.

Encouragingly, decentralised electricity markets under the new Electricity Act offer a pathway for states to take ownership of power development. States such as Enugu have demonstrated early promise by adopting light-touch regulation, expanding grid supply, licensing mini-grids, and defining clear roles between state and federal authorities. But most states remain financially and technically ill-equipped. Without clarity, coordination, and credible investment frameworks, state-level electricity markets risk becoming a new theatre for confusion rather than reform.

Read also: Electricity market reforms demand state-level financial viability

Investors have made their priorities clear: legal certainty, cost-reflective pricing, and transparent governance. The distinction between federal-controlled grid-connected systems and state-regulated off-grid or intrastate markets must be sharpened. Investment, as one expert noted at the 2025 Energy Conference in Lagos, flows “in the path of least resistance”. Nigeria must remove that resistance by ensuring that its energy policy aligns with economic realities, not political calculations.

Ultimately, the choice before Nigeria is not between low prices and high prices; it is between power and paralysis. The longer the country clings to artificially low tariffs, the deeper the hole it digs for itself: fiscally, economically, and reputationally. Reform will be difficult, but the alternative is permanent dysfunction.

Ultimately, the path forward demands a fundamental shift in perspective. Nigeria must unequivocally embrace electricity not as a political tool or a social welfare handout but as the indispensable economic backbone of a modern, prosperous state. This crucial transformation begins with the courage to implement cost-reflective tariffs, ensuring that the true cost of generation, transmission, and distribution is reflected in pricing. Doing so will not only attract the vital investment needed to modernise our crumbling infrastructure but will also foster accountability across the entire power sector.

By allowing market forces to guide pricing, Nigeria can finally break free from the cycle of subsidies, debt, and chronic outages, paving the way for a reliable and sustainable power supply. This stability, in turn, will unleash dormant economic potential, empower businesses, create jobs, and significantly improve the quality of life for millions. It’s time to choose a future where the lights finally stay on, fuelling the nation’s growth and ambition.