Subsidising darkness will not solve Nigeria’s power crisis

Nigeria’s electricity subsidy has become one of the nation’s biggest economic contradictions. Every quarter, the government commits hundreds of billions of naira to keeping electricity tariffs below cost, yet homes remain in darkness, industries depend on generators, and businesses continue to bear some of the highest energy costs in Africa. If anything, the latest figures show that Nigeria is not subsidising electricity; it is subsidising an inefficient power sector that has failed to deliver reliable supply.

According to the Nigerian Electricity Regulatory Commission (NERC), the federal government spent N358.32 billion on electricity subsidies in the first quarter of 2026. The amount represents more than N119 billion every month to bridge the gap between the actual cost of generating electricity and the tariffs consumers pay.

Usually, subsidies are meant to cushion citizens from hardship while improving access to essential services. In Nigeria’s electricity sector, however, the subsidy has produced little visible benefit. Consumers still endure prolonged blackouts, businesses spend fortunes on diesel and petrol generators, and manufacturers continue to cite unreliable electricity as one of the biggest obstacles to competitiveness.

“The truth is that Nigeria’s electricity challenge extends far beyond tariff levels. The problem lies in a fragile value chain stretching from gas supply to power generation, transmission and distribution. Weakness in any of these segments affects the entire system.”

The painful thing is that despite spending such huge sums, electricity generation actually declined during the quarter. Average available generation dropped from over 5,400 megawatts to about 4,458 megawatts, while the national grid suffered both a total collapse and a partial collapse in January.

This raises a fundamental question: what exactly is the nation subsidising? Certainly not uninterrupted electricity.

The truth is that Nigeria’s electricity challenge extends far beyond tariff levels. The problem lies in a fragile value chain stretching from gas supply to power generation, transmission and distribution. Weakness in any of these segments affects the entire system.

Generation companies struggle with gas shortages, unpaid debts and ageing infrastructure. The transmission network remains inadequate to handle significantly higher volumes of electricity. Distribution companies continue to battle technical losses, electricity theft, poor metering, obsolete infrastructure and weak revenue collection.

Keeping tariffs artificially low does not solve any of these structural problems. Rather, it creates fresh distortions by leaving operators without sufficient revenue to invest in expansion and maintenance while forcing the government to shoulder an ever-growing subsidy burden.

This results in a vicious cycle, where the government spends more on subsidies, operators remain financially constrained, infrastructure deteriorates further and consumers receive poor service despite increasing public expenditure.

Even NERC has warned that the present subsidy arrangement exposes the government to unpredictable financial obligations because generation costs fluctuate, especially with thermal power stations that depend heavily on gas prices and foreign exchange movements.

Meanwhile, the economic consequences extend well beyond the electricity sector. Virtually every product and service consumed in Nigeria carries the hidden cost of self-generated power. Manufacturers run diesel plants; hospitals rely on generators to save lives; schools struggle to power classrooms; farmers lose produce because of inadequate cold storage, and small businesses spend a significant share of their earnings buying fuel instead of expanding operations.

In the end, consumers pay for electricity twice (first through taxes that finance subsidies and again through private expenditure on alternative power sources).

The way forward requires difficult but unavoidable reforms.

Meanwhile, subsidy policy should become more targeted. Rather than subsidising electricity consumption across broad categories, the government should protect only the most vulnerable households while allowing tariffs to gradually reflect actual production costs for consumers who can afford them. Blanket subsidies are expensive and often benefit high-volume consumers more than low-income households.

Likewise, investment in transmission infrastructure must become a national priority. Generating additional electricity is meaningless if the grid cannot evacuate and distribute it efficiently. Modernising transmission facilities would improve system stability and reduce the frequency of grid disturbances.

Similarly, distribution companies must be held accountable for service delivery. Consumers deserve reliable metering, reduced technical losses, improved customer service and measurable investments in network upgrades. Tariff adjustments, where necessary, should be matched by verifiable improvements in electricity supply.

Also important is expanding Nigeria’s energy mix. Solar, hydro, wind and embedded generation projects should receive greater policy support, particularly for rural communities and industrial clusters. Decentralised electricity systems can reduce pressure on the overstretched national grid while bringing power closer to consumers.

Equally, transparency must guide every subsidy naira. Nigerians deserve to know who benefits, how much is spent and whether such expenditure translates into measurable improvements in electricity supply.

Electricity remains the backbone of economic growth. The current subsidy regime may offer temporary political comfort, but it does not provide lasting economic solutions.