The Federal Government has unveiled plans to introduce an annual electricity subsidy of $600 million for all customers starting in 2025, as part of ongoing efforts to reform the country’s power sector.

Set to last until 2027, the subsidy aims to bridge the gap between cost-reflective tariffs and regulated electricity rates.

It’s also intended to help address the metering deficit and improve the financial stability of power distribution companies.

Nigeria’s Energy Compact states that this initiative is part of the broader National Energy Compact and aligns with the country’s electrification and clean energy transition goals.

Nigeria, along with Côte d’Ivoire, Zambia, and nine other African countries, presented their energy compacts at a two-day summit in Tanzania focused on innovative energy solutions.

This subsidy is a temporary measure to ensure affordability as the government gradually moves towards implementing full cost-reflective tariffs.

The document notes that the subsidy could take various forms, such as a flat monthly amount per electricity customer or a subsidy for the first 50 kilowatt-hours used each month.

This approach aims to reduce the regressive nature of past subsidies, which primarily benefited wealthier households.

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By 2027, the government plans to introduce a social tariff to protect low-income and vulnerable customers once the broader cost-reflective tariff system is fully implemented.

The government’s roadmap to full cost-reflectivity includes a $600 million per year subsidy from 2025 to 2027, while the metering gap is closed, after which a full cost-reflective tariff (except for vulnerable customers) will be implemented.

A key focus of the reform is to close the current metering gap, which affects about seven million unmetered electricity customers.

The government’s plan includes the installation of 1.5 million smart meters in 2025, four million in 2026, and 1.5 million in 2027.

Closing the metering gap is expected to reduce sector losses, improve revenue collection, and align tariffs with actual consumption, ultimately reducing the need for future subsidies.

The electricity sector has faced financial sustainability challenges due to high technical and commercial losses, low tariff recovery rates, and liquidity issues.

Despite efforts under the Power Sector Recovery Programme, tariff shortfalls reached N650 billion in 2023 and are projected to exceed N2.2 trillion in 2024.

The new subsidy scheme is aimed at providing temporary relief while ensuring that distribution companies meet their financial obligations to power generation companies and the Transmission Company of Nigeria.

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