The Federal Government is set to introduce a $600 million annual electricity subsidy for all customers starting in 2025. The subsidy will run until 2027, aiming to bridge the gap between cost-reflective tariffs and regulated electricity rates. It also targets reducing the metering deficit and stabilizing power distribution companies financially.
According to Nigeria’s Energy Compact document, this initiative forms part of the National Energy Compact and aligns with the country’s electrification and clean energy transition goals. Nigeria presented the energy compact at a summit in Tanzania alongside Côte d’Ivoire, Zambia, and nine other African nations. The summit focused on innovative energy solutions.
“This subsidy will provide temporary relief while the government moves toward full cost-reflective tariffs,” the document states. The subsidy could take the form of a flat monthly payment per customer or a subsidy on the first 50 kilowatt-hours used each month. This method aims to reduce the regressivity seen in past subsidies, which mainly benefited wealthier households.
By 2027, the government plans to implement a social tariff to protect low-income and vulnerable customers once the full cost-reflective tariff system is in place.
The reform also focuses on addressing Nigeria’s metering gap, which affects about seven million consumers. The government aims to install 1.5 million smart meters in 2025, four million in 2026, and another 1.5 million in 2027. This plan seeks to reduce sector losses and align tariffs with actual consumption, ultimately cutting the need for future subsidies.
Despite efforts under the Power Sector Recovery Programme, Nigeria’s electricity sector faces financial challenges. “Tariff shortfalls reached N650 billion in 2023 and could exceed N2.2 trillion in 2024,” the document warns. The new subsidy will provide temporary relief while helping distribution companies meet financial obligations to power generation companies and the Transmission Company of Nigeria.
