Economy | Power & Energy

Power Sector Still Below Potential

Feb 07, 2023   •   by   •   Source: FBNQuest   •   eye-icon 133 views

Power is a major catalyst for economic productivity and development in any country. Despite Nigeria’s energy resources potentials, the country’s lack of reliable power supply has remained a hindrance to its economic development. The latest quarterly report from the Nigerian Electricity Regulatory Commission (NERC) shows that average daily electricity production declined by -4.3% q/q to 4,508.38 megawatts (MW) in Q2 ‘22, compared with 4,712.34MW the previous quarter. Considering the frequent grid disruptions last year, the drop does not come as a surprise. The level of power generation is very low for a developing country like Nigeria with a population size of over 200 million people.


Although significant portions of the sector's value chain, including generation and distribution, were privatized in 2013, the supply of electricity to homes and businesses has not significantly improved.


According to the 2022 SDG7 energy tracking report, Nigeria has the world's largest energy deficit, with 92 million people lacking access to power. This compares with the Democratic Republic of Congo and Ethiopia, with 72 million and 56 million respectively.


The sector is faced with various challenges which have continued to stall power generation in the country. Some of the challenges include gas supply shortages, constant power losses, deficient traffic policies, and electricity subsidies.


Nigeria’s huge metering gap continues to remain a key challenge in the industry. According to the NERC report, out of almost 13 million customers registered by the commission, just over 4.9 million customers had been metered as at Q2 ’22.


This represents a metered customer rate of 38.7% and a metering gap of 61.3%.


However, the metered rate of 38.7% in Q2 ‘22 was +3% higher relative to the previous quarter.


Revenue collections by the Discos amounted to NGN188.3bn, out of the NGN265.7bn billed to customers, representing a collection efficiency of 70.9% in Q2 ’22.  


In terms of transmission and distribution losses, the average aggregate technical, commercial and collection losses recorded by the sector was 44.6% in Q2 ‘22, significantly higher than the 15% figure that is seen as best practice internationally, and the c.20.8% allowance as stated in the Multi-Year Tariff Order (MYTO) for the quarter.


According to NERC, these losses were due to a combination of energy theft, inefficient distribution networks, and customers’ unwillingness to pay their bills.


The FGN also funds the electricity tariff shortfalls for the rest of the country. The Nigerian power supply industry has accumulated a tariff shortfall of NGN2.5trn since 2015, while the average aggregate technical, commercial and collection losses of energy distribution companies is expected to exceed NGN600bn in 2023, according to a report by the Nigerian Energy Support Programme.


The huge funding shortfall continues to remain a source of burden for the federal government, as well as a major threat to the growth of the Nigerian economy.


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