Access to reliable and affordable electricity is crucial for Nigerian households, businesses, and overall economic development. In the past, government subsidies played a crucial role in keeping electricity costs manageable for consumers.
However, recent policy shifts indicate a move towards a more cost-reflective pricing structure.
Trends in Electricity Tariffs
Data from January 2021 to March 2024 reveals a steady rise in electricity tariffs across all Disco locations and consumer bands. However, the most significant change occurred in April 2024, with tariffs increasing by an average of 200% across band A (20 hours power supply daily).
While other bands remained at the same tariff. This is evident with an increase from N66 KWh to N225 KWh This rise coincides with news reports suggesting a reduction or complete removal of government subsidies on electricity costs.
While the reported electricity bills reflect the Allowed Tariff (AT) that customers pay, understanding the Cost-Reflective Tariff (CRT) provides further context for the recent price changes.
The CRT represents the ideal tariff that would recover the actual cost of electricity generation, transmission, and distribution, along with a reasonable return on investment for DisCos.
An analysis of the data reveals a significant gap between the CRT and AT in previous periods. For 2023, the CRT was approximately 55% higher than the AT, suggesting a substantial government subsidy on electricity costs during that year. This aligns with news reports indicating the presence of a subsidy system in 2023.
However, the situation changed in the first quarter of 2024. The gap between CRT and AT narrowed, with the CRT only being about 112% higher than the AT. This suggests a potential reduction in the subsidy amount or a move towards a more cost-reflective pricing structure.
Notably, the most dramatic shift occurred in April 2024. Notably, for Band A (typically urban areas with extended power supply), the AT was 45% higher than the CRT. This significant narrowing of the gap suggests a near-complete removal or substantial reduction in subsidies, with the AT closely reflecting the actual cost of electricity.
This aligns with news reports discussing the government’s move towards a less subsidized pricing model.
Impact on Customers
Image source: Vanguardngr
While a precise population breakdown for electricity consumer bands is not available from official sources, a news report by Saharareporters suggests that Band A, typically encompassing urban areas with extended power supply, might constitute around 15% of the population.
Nevertheless, this recent tariff hike is likely to have a significant impact on various customer segments not only the people in Band A. Below are the likely impacts on the daily lives of Nigerians.
- Residential Customers: Households will face increased electricity bills, potentially leading to reduced consumption due to affordability concerns. This could affect basic needs like lighting, cooking, and cooling, particularly for low-income families.
- Commercial and Industrial Customers: Businesses are likely to experience higher operating costs due to increased electricity expenses. This could impact their competitiveness and productivity, potentially leading to price increases for goods and services.
- Vulnerable Populations: Those heavily reliant on electricity for basic needs, such as medical equipment or refrigeration for essential medication, might face significant hardship due to rising costs.
However, the government is not baking down on the policy and has defended it’s action as a sustainable electricity policy, aiming to ensure the financial viability of Discos and promote investment in infrastructure.
The recent surge in electricity tariffs in Nigeria presents a multifaceted challenge. Achieving a financially sustainable electricity sector is essential, but affordability for consumers cannot be overlooked.
A balanced approach that prioritizes long-term sustainability without overly burdening citizens and businesses is imperative. Monitoring the potential role of renewable energy in shaping future tariff trends is crucial moving forward.
