• Sunday, May 26, 2024
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Cost-reflective tariff

Cost-reflective tariff

By Ifeanyi Ukwuoma

The Nigerian Electricity Regulatory Authority (NERC) recently announced a significant 300 percent upward review of electricity costs for Band A customers, with rates soaring from N68 per kilowatt-hour to as high as N225 per kilowatt-hour. NERC cites the concept of “cost-reflective tariff” as the driving force behind this adjustment, emphasising the need to abolish electricity subsidies, which alone will cost the government approximately $2.3 billion, earmarked for 2024. This proposed increase aims to attract fresh investments into the energy sector and is anticipated to affect around 15 percent of Nigeria’s population, accounting for as much as 40 percent of the electricity distribution.

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Amidst the multitude of discussions and analyses surrounding these issues, my objective isn’t to add further to the confusion but rather to pinpoint the fundamental problem and why I believe the proposed price review may exacerbate the situation, benefiting only a select few. Moreover, I intend to provide insights from the perspective of the end-customer and offer strategies to enhance electricity availability and reduce costs.

If you’re seeking to curtail your electricity expenses in your office or home, the initial question that warrants consideration is: how can one reduce the cost of generating electricity in the first place? Does your electricity come from the grid, which may be unreliable and increasingly expensive, or from alternative sources such as generators? The average cost of generating and distributing electricity from a diesel or petrol generator stands at approximately N400 per kilowatt. For Band A customers, presumed to have access to over 20 hours of grid electricity, the revised price per kilowatt now stands at N225. Meanwhile, solar energy, inverters, and batteries offer a more economical option, priced at approximately N125 per kilowatt and declining.

Returning to the notion of “cost-reflective tariff,” I’ve consistently argued that Nigeria’s electricity conundrum originates from its heavy reliance on gas. The initial cost of electricity generation significantly impacts its supply price. Notably, about 73% of electricity generated in Nigeria is derived from gas. When gas is purchased in US dollars for electricity generation but revenues are collected in Nigerian Naira from customers, any fluctuation in the USD-NGN exchange rate poses a significant challenge due to its sensitivity to gas prices.

So, how does this dynamic affect you? The Nigerian Midstream/Downstream Petroleum Regulation Authority (NMDPR) recently announced a hike in the 2024 natural gas price for power sector companies and commercial entities, elevating rates from $2.18 to as high as $2.42 per 1 million British thermal units (MMBTU). Upon receiving this news, stakeholders, including myself, foresaw an inevitable surge in electricity prices. Therefore, when NERC references the “cost-reflective tariff,” it essentially mirrors the costly nature of gas. Moreover, if you believe this review solely impacts Band A users, you’ll soon realise its broader ramifications. This marks the commencement of gas-driven cost reflectivity, projected to affect all customer bands, commencing with Band A and extending to Band E, that have only a minimum of 4 hours of daily power supply.

Given this gas context, where do we go from here? For residential and commercial units alike, solar energy emerges as a superior alternative. It’s imperative to engage reputable suppliers offering robust warranties and top-notch products to mitigate potential defects. If you’re searching for a credible option, consider visiting www.powerfull.tech, where you can contact the sales team, and they will be sure to guide you through the next steps.

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In conclusion, the proposed cost-reflective tariff signals a significant shift in Nigeria’s electricity pricing paradigm, with implications extending beyond Band A customers. While challenges persist, alternative solutions such as solar energy offer promising avenues for both reducing costs and enhancing reliability. By embracing innovative technologies and engaging reputable suppliers, consumers can navigate these turbulent waters and secure a more sustainable energy future for Nigeria.

Electricity is the lifeblood of any modern society, and ensuring its accessibility and affordability is crucial for socio-economic development. Therefore, it’s imperative for policymakers, regulators, and stakeholders to collaborate effectively in devising comprehensive strategies that address the root causes of Nigeria’s electricity challenges while prioritising the welfare of its citizens. Only through concerted efforts and innovative solutions can Nigeria truly harness its energy potential and pave the way towards a brighter future for all.


Ifeanyi Ukwuoma is both an energy policy analyst and an energy consultant. Founder and CEO of Powerful Technology Limited, a solar financing company bridging the energy-deficit gap in Nigeria. He writes from Lagos, Nigeria.