Nigeria’s power sector faces a ₦6.8 trillion debt crisis. Learn why NERC pushes cost-reflective tariffs for Band A customers and how higher bills aim to fix the system for better supply.
Why Nigeria's Electricity Has to Get More Expensive Before It Gets Better
If your electricity bill has gone up repeatedly over the past two years and your first reaction is "for what exactly?", you are not alone. For many Nigerians, electricity has become a strange equation. Bills keep rising, but supply remains unreliable. Millions of households still rely on generators and inverters to bridge the gaps. So whenever regulators begin talking about another tariff review, the immediate question is why consumers should be asked to pay more for a service that many believe is already failing them.
The country's power sector is facing a severe financial crisis. According to industry estimates, debts owed across the electricity value chain had climbed to roughly ₦6.8 trillion as of the end of February 2026. Generation companies warn that figure could rise further if current conditions persist. The problem begins with a mismatch between what electricity costs to provide and what many customers pay for it. Economists call this a non-cost-reflective tariff. In plain language, it means electricity is sold below its actual cost. The gap is supposed to be covered through government subsidies. When those subsidies are delayed, reduced, or unpaid, the shortfall moves through the entire system.
Generation companies receive less revenue than expected. Gas suppliers supplying fuel to power plants receive less payment. Investment slows. Maintenance is deferred. The result is a sector that struggles to improve service because it lacks the money required to sustain itself. This is one reason regulators have spent the last several years pushing toward cost-reflective pricing.
In April 2024, NERC implemented a major tariff increase for Band A customers, the category expected to receive at least 20 hours of electricity daily. Their tariff rose from about N68 per kilowatt-hour to approximately N225 per kilowatt-hour. Although Band A customers represent a relatively small share of total consumers, they account for a disproportionately large share of electricity consumption.
The objective was straightforward: increase revenue collection from customers receiving the highest level of service and reduce the sector's dependence on government support.
The policy produced some improvement in collections, but not enough to eliminate the sector's liquidity crisis. Industry analysts continue to warn that the gap between costs and revenues remains substantial, while government support obligations continue to accumulate.
Meanwhile, the Federal Government has been attempting to address legacy debts through various settlement mechanisms. In 2026, authorities announced a broader N3.3 trillion debt resolution plan intended to stabilise the sector and restore confidence among market participants. Government officials say implementation has begun, while generation companies continue to dispute aspects of the process and argue that outstanding obligations remain unresolved.
For consumers, however, the debate is not primarily about liquidity, debt instruments, or market settlement frameworks but about trust. Only a fraction of Nigeria's electricity customers are metered. Millions still receive estimated bills. Many households experience frequent outages despite paying increasingly higher charges. From the consumer's perspective, the promise that higher tariffs will eventually lead to better service sounds more like another request for patience than a guarantee. Yet the sector's counterargument is difficult to dismiss. A power industry that cannot recover its costs cannot attract investment. Without investment, there is less money for metering, network upgrades, maintenance, and capacity expansion. In theory, better service requires a healthier financial foundation. The challenge is that Nigerians are being asked to believe in that sequence before they fully experience its benefits.
What appears increasingly clear is that Nigeria cannot sustain a power sector where costs continue rising while revenues remain constrained. Whether future tariff adjustments happen immediately or are phased in gradually, the pressure for further reforms has not disappeared. The real question is whether the industry can finally demonstrate that additional revenue will translate into the reliable electricity Nigerians have been promised for decades.
Sources: NERC, Q1 2025 Subsidy Obligations Data; Vanguard, "How Nigeria Lost 11,200MW Post-Privatisation," March 2026; BusinessDay, "Electricity Tariff Hikes: Time to Fix the Broken System," August 2025; Centre for the Promotion of Private Enterprise, Power Sector Policy Brief, December 2025; Pulse Nigeria, "GenCos: FG N3.3trn Power Debt Payment Dispute," June 2026; The Conduit, Annual Electricity and Renewables 2025 Review, April 2026
Fabian Omini
Energy Analyst
Fabian Omini is an energy analyst with a keen interest in translating complex energy and finance topics into clear, accessible narratives for everyday Africans.
