The Nigerian Electricity Regulatory Commission declared in April that the N140.7 billion subsidy in areas classified as Band A feeders would no longer be provided.
In order to maintain sector liquidity, the government increased Band A customers’ cost to N225 per kilowatt-hour and discontinued providing subsidies. Band A consumers get at least 20 hours of electricity every day.
The decision generated outcries among Nigerians, including labour unions, and education and health institutions, whose electricity bills tripled following the removal of the subsidy.
Nigerians were outraged by the decision, notably labor organizations and educational and medical institutions whose electricity rates increased after the subsidy was removed.
The government cut the Band A price to N206.80/kWh in May after the subsidy amount fell to N102.30bn.
But while the subsidy increased once more to N158 billion in June, the rate was abruptly raised to N209/kWh in early July.
Data from the NERC indicates that the subsidy increased to N163.87 billion in July, N173.88 billion in August, and N181.63 billion in September. These figures stoked rumors that, should the cost of electricity generation decline, there would be another rate rise in the October Multi-Year rate Order.
The primary cause of the electricity subsidy has been the foreign exchange issue.
In July, August, and September, the NERC reported that the dollar exchange rate was N1,494.1, N564.3, and N1601.5, respectively.
The regulator claims that the factors that determine the cost of producing power are inflation and the dollar rate.
In addition to Section 23 of the MYTO-2024, the NERC stated in the MYTO order to all the power distribution companies for September that the supplementary orders must take into account changes in the pass-through indices that are outside the licensees’ control, such as inflation rates, the naira/dollar exchange rate, available generation capacity, and gas prices, in order to determine cost-reflective tariffs.
The National Bureau of Statistics’ 33.40 percent July 2024 inflation rate for Nigeria was used to update the country’s inflation rate projection, while the US Bureau of Statistics’ 2.90 percent July 2024 inflation rate was used to update its 2024 inflation rate projection.
In accordance with Section 167 of the Petroleum Industry Act 2021, the Nigerian Midstream and Downstream Petroleum Regulatory Authority created the benchmark gas-to-power price, which the NERC maintains as of September. This price is $2.42/MMBTU.
Aside from the domestic gas delivery obligation volumes, contracted gas supply and transportation prices based on effective gas sale agreements approved by the commission also affect the cost of power generation.
The Nigerian Electricity Commission reduced the Band A tariff to N206/KWh in May due to naira appreciation in the foreign exchange market. Despite rising power generation costs, the Federal Government has not approved another tariff hike, possibly due to economic hardships and the rise in petrol prices.
The Nigerian National Electricity Corporation (NERC) has reported that the end-user cost-reflective tariff in AEDC was N185/kWh in July, N192.2/kWh in August, and N195.5/kWh in September, while the end-user allowed tariff was N117.31/kWh in the three months. Discos are now complaining over non-cost-reflective tariffs, refusing to off-take electricity allocated to them from the grid and demanding subsidies be removed in all bands. The Minister of Power, Adebayo Adelabu, has condemned the rejection of power by electricity distribution companies.
The minister stated that although generation had recently risen above 5,000 megawatts, “it had to be ramped down by 1,400MW due to the Discos’ inability to pick the supply.”
“This is really regrettable considering that the government is on course to increase generation to 6,000MW by the end of the year,” Adelabu said, bemoaning the trend.
Adelabu urged power distribution companies to use more energy in order to keep the system from collapsing because when power is generated but not selected by the Discos, the frequency of the grid decreases.
