Fixing a broken electricity value chain

BY SYLVESTER THOMPSON

Nigeria’s electricity crisis has deepened recently, as declining generation, gas supply constraints, and persistent grid instability have worsened outages across the country.

Data from the Nigerian Independent System Operator (NISO) indicates that power generation has hovered below 4,000 megawatts in recent periods, far below national demand.

For Africa’s most populous nation, the implications are severe–constrained industrial growth, rising cost of doing business and worsening living conditions.

The situation was further compounded by a series of grid disturbances recorded in early 2026, including system collapses in February and March that triggered widespread blackouts across several states.

Industry reports indicate that on March 7, the national grid experienced a major disruption that led to a sharp drop in generation, plunging large parts of the country into darkness.

A similar incident was recorded on February 4, highlighting persistent vulnerabilities in transmission infrastructure and system management.

Stakeholders say that while mounting sectoral debt is often blamed, the crisis reflects deeper structural weaknesses across the electricity value chain.

At the centre is a liquidity crunch. Generation companies (GenCos) state that they are owed trillions of naira for electricity already generated and supplied to the national grid.

Mrs Joy Ogaji, Executive Secretary of the Association of Power Generation Companies (APGC), said the inability of market operators to settle invoices has disrupted the value chain.

“GenCos cannot meet obligations to gas suppliers, and without gas, there will be no generation,” she said.

Industry data indicates that the debt burden continues to rise, driven by persistent revenue shortfalls and inefficiencies in collection.

In a recent warning, the Association of Power Generation Companies said GenCos were being forced to operate under severe financial strain, raising concerns over possible shutdowns of power plants.

The group noted that outstanding debts to GenCos had exceeded N3 trillion, while gas suppliers were owed more than 1.3 billion dollars, threatening fuel supply to thermal plants.

Energy economists identify Nigeria’s tariff regime as a major factor.

Electricity tariffs are not fully cost-reflective, leaving a gap between revenue and actual cost of supply.

Dr Anthony Ikpat, an energy policy analyst, told NAN that this creates a structural deficit.

“You cannot run a commercial electricity market where the price does not reflect the cost of production,” he said.

He added that government subsidies meant to bridge the gap were often delayed, worsening the sector’s debt profile.

The Federal Government has acknowledged these structural challenges and placed power sector reform at the centre of its economic agenda.

In his presentation of the 2024 Appropriation Bill to the National Assembly in November 2023, President Bola Tinubu said the administration would prioritise investment in critical infrastructure, including electricity, to support economic growth.

“We will continue to implement reforms in the power sector to ensure a reliable electricity supply,” the president said.

Consistent with this position, the government has initiated steps to improve liquidity in the sector, including plans to address outstanding obligations to GenCos.

The Federal Ministry of Power has also outlined frameworks aimed at restructuring market debts and improving payment discipline across the electricity value chain.

However, recent nationwide blackouts linked to grid failures and gas constraints have intensified public concern over electricity reliability.

In response, Minister of Power, Adebayo Adelabu, publicly apologised to Nigerians over the persistent outages.

“I want to sincerely apologise to Nigerians for the recent power outages experienced across the country,” he said.

Adelabu attributed the disruptions to gas supply shortages, ageing infrastructure and technical faults.

He assured that efforts were underway to restore stability to the grid and improve generation capacity in the short term.

Analysts say the apology reflects growing pressure on authorities amid repeated system failures and worsening supply gaps.

In April 2024, the government approved a tariff adjustment affecting Band A customers, those receiving at least 20 hours of electricity supply daily, as part of efforts to move toward cost-reflective pricing.

Authorities said the policy was designed to reduce subsidy burden while maintaining protection for lower-income consumers on other bands.

Analysts also say that the move reflects a shift toward a more sustainable pricing framework, although consistent implementation remains critical.

Nigeria’s dependence on gas-fired plants, accounting for about 70 per cent of generation, has also exposed the sector to supply shocks.

Gas supply disruptions, whether due to unpaid debts, pipeline vandalism or infrastructure constraints, directly affect power output.

Experts note that ongoing policy direction includes diversifying the energy mix through investments in hydroelectric and renewable energy sources.

This aligns with the administration’s broader commitment to energy transition and sustainability.

A former spokesman of the Transmission Company of Nigeria, Olalekan Ogunleye, said limited diversification increases vulnerability.

“We have not invested enough in alternative sources like hydro, solar and wind,” Ogunleye said.

Transmission constraints further compound the crisis as the national grid continues to experience capacity limitations and periodic system disturbances, reflecting decades of underinvestment.

Available industry data shows that repeated grid collapses often force generation units offline, leading to sudden nationwide outages and prolonged restoration periods.

The Federal Government has announced plans to strengthen transmission infrastructure through ongoing programmes, including the Presidential Power Initiative.

The initiative, implemented in partnership with Siemens AG, is designed to increase transmission capacity and improve grid reliability.

But at the distribution level, inefficiencies persist, electricity distribution companies (DisCos) face challenges including inadequate metering, energy theft and weak billing systems, all of which reduce revenue collection.

According to the Federal Ministry of Power, closing the metering gap remains a priority under the National Mass Metering Programme.

The programme is aimed at improving billing transparency, reducing estimated billing and enhancing revenue assurance across the sector.

Policy and regulatory challenges have also slowed reform outcomes, as implementation gaps and weak enforcement of market rules have affected performance since the 2013 privatisation of the power sector.

Industry analysts say regulatory certainty is critical to restoring investor confidence and ensuring market discipline. Recent developments, however, signal a shift.

Following the enactment of the Electricity Act 2023, the Federal Government began decentralising the power sector, enabling states to generate, transmit and distribute electricity within their jurisdictions.

Analysts say this reform could unlock subnational investments and reduce pressure on the national grid over time.

The administration has expressed support for this transition as part of broader efforts to improve efficiency and expand access to electricity.

Yet, the broader economic impact of the crisis remains significant. Manufacturers and small businesses increasingly depend on diesel generators, raising production costs and weakening competitiveness.

The Manufacturers Association of Nigeria (MAN) has consistently identified unreliable electricity supply as a major constraint on industrial productivity.

Households likewise face prolonged outages, often resorting to costly and sometimes unsafe alternatives.

Economists estimate that Nigeria loses billions of dollars annually due to inadequate electricity supply.

Adelabu has reiterated that ongoing reforms are focused on improving liquidity, expanding generation and strengthening infrastructure.

He assured that the government was equally working to attract private investment into the sector through clearer policies and improved market conditions.

Experts agree that resolving the crisis requires a coordinated and sustained approach.

Key priorities include transitioning to cost-reflective tariffs with targeted subsidies, investing in transmission infrastructure, improving metering, diversifying energy sources and strengthening regulatory enforcement.

There are also increasing calls for decentralised energy solutions such as mini-grids and embedded generation to complement the national grid.

Nigeria’s electricity crisis reflects a convergence of financial, technical and policy challenges.

While immediate disruptions may stem from gas shortages, recurring grid collapses and mounting debt, the underlying issue remains a weak and inefficient value chain.

Until these structural constraints are addressed, experts say the sector will continue to struggle to meet demand.

Above all, stakeholders maintain that the path to a robust, dependable electricity system is still achievable through sustained, consistent, and institutionally backed reforms.