Nigeria’s PowerUp Initiative Raises Awareness Of Unsustainable Energy Trends

Nigeria’s PowerUp Initiative Raises Awareness Of Unsustainable Energy Trends

Adetayo Adegbemle, the convener and Executive Director of PowerUp Nigeria, a Power Consumer Advocacy Group, has emphasized the unsustainability of Nigeria’s electricity subsidy, citing it as a significant financial burden on the federal government…CONTINUE READING

In an industry overview reported by Vanguard, Adegbemle highlighted the historical practice of the Nigerian government subsidizing the Nigeria Electricity Supply Industry (NESI). This subsidy creates a gap between the Cost Reflective Tariff for supplying 1 kilowatt-hour (kWh) and the Allowed Tariff that consumers are permitted to pay.

Adegbemle referred to this variance as an “elephant in the chinaware shop,” explaining that the subsidy originally stemmed from government policies focused on supporting social welfare and economic stability. However, the subsidy has become unsustainable, straining government finances and promoting inefficiencies in the energy sector.

In 2020, the Federal Government, under President Muhammadu Buhari, introduced the Service Based Tariff (SBT) to phase out the electricity tariff subsidy gradually. The decision aimed to address the financial strain and inefficiencies associated with subsidies on both electricity and petrol.

Mrs. Zainab Ahmed, the Minister of Finance, Budgets, and National Planning, disclosed the government’s plan to gradually end subsidies on petrol and electricity. The subsidy payments had posed a significant financial challenge, with a reported shortfall of about N2.4 trillion between 2015 and 2020, averaging N200 billion annually.

In 2022, the Nigeria Electricity Regulatory Commission (NERC) implemented the Multi-Year Tariff Order (MYTO) to phase out the subsidy gradually. Adegbemle noted that in MYTO 2022, the Cost Reflective Tariff averaged N68.42/kWh, while the Allowed Tariff set for the Distribution Companies (DisCos) was N59.89/kWh. The federal government provided a subsidy of N8.53/kWh. In the first quarter of 2023 alone, a total subsidy of N52.7 billion was paid to the 11 Discos.

This shift away from subsidies is part of the government’s strategy to transition towards a Cost Reflective Tariff, aiming for a more sustainable and efficient energy sector.

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