Electricity tariffs in Nigeria are still on an upward trend.
In January this year, most discos finally achieved a feat that seemed impossible two years ago when tariff reforms began—cost-reflective tariffs. However, there were still a few gaps in the tariff equation.
You see, tariffs are derived from the costs of supplying electricity by the generation, transmission and distribution companies divided by the amount of electricity supplied. However, macroeconomic variables such as inflation and the exchange rate affect these costs. While electricity tariffs currently reflect the inflation rate, the exchange rate has always been the official rate. But in reality, due to FX shortages in the country, Nigerian electricity companies have had to source forex from the parallel market for equipment procurement.
So, with President Tinubu’s exchange rate reform, where official rates at the I&E window have gone from ₦460/$ to over ₦750/$, the exchange rate used in computing our tariffs will also increase. Stears’ sources in the power sector have revealed that the Nigerian Electricity Regulatory Commission (NERC) is considering using roughly ₦650/$, slightly lower than the current I&E rates but still 41% higher than the former. To clarify, this doesn't mean power sector companies will access dollars at a special rate; this is just to reduce the shock to consumers. This means tariffs for Band A customers, who are charged the highest, could go up from roughly ₦70/kWh to over ₦90/kWh.
In light of this imminent tariff review, evaluating the power sector’s state and trends is essential as Nigerians will require better service for their money. This data story is based on the NERC’s Q4 2022 report and the NBS’ Q1 electricity report. We’ll take a top-down approach—from generation to transmission and distribution.
Starting from the top
The power sector begins where the gas sector ends, and it’s impossible to evaluate generation without peering at the gas sector. Over 70% of Nigeria’s electricity is generated from gas, but in Q4 2022, the share of electricity from gas dropped below 70%, as the chart below shows.