Raising electricity tariffs alone will not resolve Nigeria’s long-standing power challenges. Instead, deeper structural reforms are required to restore reliable supply, strengthen the market and attract industries back to the national grid, the Agora Policy think-tank has said.
In a detailed review of Nigeria’s post-privatisation electricity market released on Tuesday, the think-tank argued that the country’s power crisis is rooted in design flaws dating back to the 2013 privatisation of state-owned power assets — shortcomings that tariff adjustments alone cannot address.
“Tariff changes are necessary but insufficient,” the report stated. “The sector still suffers from weak collections, high technical and commercial losses, gas-supply risks, transmission bottlenecks and a shrinking industrial customer base. These problems require a coordinated market redesign across federal and state levels.”
Installed Capacity Far Above Actual Supply
Agora pointed to official 2025 figures showing a significant gap between installed generation capacity and actual electricity output.
According to the report, Nigeria had about 13,625 megawatts (MW) of installed grid-connected generation capacity by the end of 2025. However, average electricity generation stood at only about 4,474 megawatt-hours per quarter, representing only a fraction of the country’s theoretical capacity.
Plant availability averaged between 39 and 40 per cent during the year, indicating that more than 60 per cent of installed capacity was unavailable for dispatch at any given time.
The report also noted that the national grid suffered two major system disturbances in 2025 — a total collapse on September 10 and a partial collapse on December 29. Although this marked an improvement from the nine grid collapses recorded in 2024, Agora said the incidents underscored the fragility of the transmission system.
Transmission remains one of the weakest links in the electricity value chain. Unlike generation and distribution, it was excluded from the 2013 privatisation exercise and remains under government ownership.
Gas Supply and Payment Challenges
The think-tank described Nigeria’s “fuel-to-power” challenge as a major contributor to the country’s electricity shortfall.
While most grid-connected power plants depend on natural gas, consistent supply is undermined by pricing disputes, unpaid invoices, weak payment guarantees and inadequate gas infrastructure.
According to Agora, installed generation capacity cannot be converted into reliable and dispatchable electricity unless upstream gas supply and payment risks are addressed.
Distribution companies (DisCos) also continue to grapple with severe commercial challenges.
Aggregated Technical, Commercial and Collection (ATC&C) losses remained elevated throughout 2025. Data from the Nigerian Electricity Regulatory Commission (NERC) showed losses of approximately 40 per cent in the first quarter, 38 per cent in the second quarter, 33 per cent in the third quarter and 35 per cent in the fourth quarter.
These figures remain significantly above the regulator’s 2025 target of about 20.5 per cent.
Agora estimated that the underperformance translated into approximately N606.5 billion in lost revenue for electricity distribution companies during the year.
Privatisation Changed Ownership, Not Fundamentals
The report traced many of the sector’s current problems to the design and sequencing of the 2013 privatisation programme.
Although the reform established the legal and institutional framework for a competitive electricity market by unbundling generation, transmission and distribution and creating an independent regulator, Agora argued that it failed to create the commercial and operational conditions necessary for private ownership to deliver improved service.
Among the key flaws identified were: selling all distribution companies simultaneously instead of piloting private participation in commercially viable areas first; privatising distribution assets without reliable baseline data on customers, network conditions and losses; reliance on debt-heavy financing structures, often denominated in foreign currency, exposing investors to exchange-rate risks; emergence of investors with limited utility management experience; and the creation of the Nigerian Bulk Electricity Trading Plc (NBET) as a single buyer, insulating upstream market participants from downstream payment risks and potentially creating moral hazard.
The report added that these weaknesses were compounded by the gradual exit of industrial customers from the national grid.
According to Agora, many large industrial users have increasingly relied on captive power generation due to poor grid reliability. The loss of these high-volume and creditworthy customers has weakened the sector’s revenue base and increased the cost burden on households and small businesses that remain connected to the grid.
Opportunities and Risks in Decentralisation
Agora noted that the Electricity Act 2023 and the accompanying constitutional amendment have opened the door for states to establish their own electricity markets and regulatory frameworks.
The think-tank said this presents a significant opportunity for states such as Lagos to develop competitive electricity markets capable of attracting industries through embedded generation, bilateral contracts and mini-grid solutions.
However, it warned that decentralisation also carries substantial risks.
According to the report, stronger states could potentially attract the most bankable customers and investments, leaving weaker states dependent on an underfunded national grid and financially distressed distribution companies.
Without effective coordination between federal and state authorities on grid operations, interstate electricity trading and tariff regulation, decentralisation could deepen regional disparities in electricity access and reliability.
Tariff Reform Necessary But Insufficient
While acknowledging that tariff reforms remain politically sensitive, Agora maintained that some level of tariff adjustment is necessary to reduce fiscal pressures and attract investment.
However, the report stressed that cost-reflective tariffs alone cannot address weak metering systems, poor revenue collection, distribution losses, gas-payment challenges or transmission constraints.
Instead, the think-tank advocated a broader reform agenda aimed at rebuilding the sector’s financial and operational foundations.
Among its recommendations are: the strengthening metering, billing and collection systems to reduce ATC&C losses; improving gas-to-power contracts and payment security mechanisms; Implementing a targeted transmission financing and rehabilitation programme with clearly defined federal and state responsibilities; developing policies to attract industrial customers back to the grid through embedded generation and reliable service arrangements; and carefully sequencing state-level electricity reforms to prevent market fragmentation and facilitate interstate electricity trading.
Electricity Reform and National Development
Agora argued that electricity reform should be viewed as a national development imperative rather than merely a sectoral policy issue.
The report noted that inadequate electricity supply continues to undermine household welfare, education, healthcare delivery, food preservation, small business growth and industrial development.
Citing World Bank data, Agora said electricity access in Nigeria stood at about 61.2 per cent in 2023, leaving nearly 40 per cent of the population without access to electricity.
The think-tank urged policymakers to measure reform success by the sector’s ability to deliver reliable, affordable and adequate electricity at scale, rather than solely by tariff levels or the bankability of contracts.
Call for Coordinated Action
The report called for an urgent national conversation involving federal and state governments, electricity distribution and generation companies, gas suppliers, regulators and development partners.
According to Agora, any credible reform agenda must prioritise rebuilding the sector’s revenue base, resolving fuel-to-power challenges, rehabilitating transmission and distribution infrastructure, and ensuring that private-sector participation translates into improved service delivery.
“Reform must move beyond price,” the report concluded. “It needs to rebuild the foundations of a market that can support industrial demand, attract long-term investment and deliver reliable electricity to all Nigerians.”
