Cogent Engineering

ISSN: (Print) (Online) Journal homepage: https://www.tandfonline.com/loi/oaen20

Electricity sector assessment in Nigeria: the post-

liberation era

Olubayo Babatunde, Elutunji Buraimoh, Oluwatobi Tinuoye, Clement

Ayegbusi, Innocent Davidson & Desmond Eseoghene Ighravwe

To cite this article: Olubayo Babatunde, Elutunji Buraimoh, Oluwatobi Tinuoye, Clement
Ayegbusi, Innocent Davidson & Desmond Eseoghene Ighravwe (2023) Electricity sector
assessment in Nigeria: the post-liberation era, Cogent Engineering, 10:1, 2157536, DOI:
10.1080/23311916.2022.2157536

To link to this article: https://doi.org/10.1080/23311916.2022.2157536

© 2023 The Author(s). This open access

article is distributed under a Creative
Commons Attribution (CC-BY) 4.0 license.

Published online: 26 Dec 2022.

Submit your article to this journal

Article views: 2859

View related articles

View Crossmark data

Citing articles: 1 View citing articles

Full Terms & Conditions of access and use can be found at

https://www.tandfonline.com/action/journalInformation?journalCode=oaen20
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536
Received: 08 March 2022
Accepted: 07 December 2022
*Corresponding author: Elutunji
Buraimoh, Department of Electrical
Power Engineering, Durban University
of Technology, Durban, South Africa
E-mail: elutunji@gmail.com
Reviewing editor:
Qingsong Ai, Wuhan University of
Technology, Wuhan, China
Additional information is available at
the end of the article
ELECTRICAL & ELECTRONIC ENGINEERING | REVIEW ARTICLE
Electricity sector assessment in Nigeria: the
post-liberation era
Olubayo Babatunde1, Elutunji Buraimoh2*, Oluwatobi Tinuoye1, Clement Ayegbusi3,
Innocent Davidson2 and Desmond Eseoghene Ighravwe4
Abstract: To improve the electricity services in Nigeria, the government has
embarked on a total reform of the Nigerian Electricity Supply Industry. The reform
started with rehabilitating the government-owned electricity infrastructures in 1999
and implementing the 2010 Power Sector Reform. While some stakeholders have
seen these reforms benefit the industry, others have yet to see the positive impact
of the reforms. Based on this premise, this work presents a synopsis of the Nigerian
power sector’s past, present, and future. A review of its state of the art is explored
ABOUT THE AUTHORS PUBLIC INTEREST STATEMENT
Olubayo Babatunde completed a doctoral For more than a decade, various African countries
degree in Electrical Engineering at the Tshwane have adopted power sector reforms to enhance
University of Technology South Africa in 2020. their electricity industry. However, some have
He is a registered Engineer in Nigeria and also failed to deliver the various targets that were
a member of the American Energy Association. promised. The outcome of this research evaluates
Elutunji Buraimoh is a member of IEEE. He the successes and challenges of power sector
completed his Doctor of Engineering at Durban reform in Nigeria. This would help decision-
University of Technology, South Africa. His makers identify areas that need modifications.
research interests include inverter-based micro­
grids, renewable energy, power systems control,
and FACTS devices.
Oluwatobi Tinuoye finished his master’s degree
in Electrical Electronic Engineering, University of
Lagos. He is a registered Power System Engineer.
Clement Ayegbusi finished his master’s degree in
the Department of Electrical Electronic Engineering,
University of Lagos. He is currently with Clema
Engineering Consultants, Lagos, Nigeria
Innocent Davidson is currently a Full Professor and
the Chair of the Department of Electrical Power
Engineering, Durban University of Technology,
Durban. His research interests include grid integra­
tion of renewable energy using HVDC technologies
and innovation for smart cities. He holds a Ph.D. in
Electrical Engineering from the University of Cape
Town, South Africa, in 1998. He is also a fellow of
IET, U.K., and SAIEE, a Chartered Engineer in the U.
K., and a registered ECSA Professional Engineer.
Desmond Eseoghene Ighravwe is a professor of
mechanical engineering at the Bells University of
Technology, Ota, Nigeria. He holds a Ph.D. degree
from Ladoke Akintola University of Technology,
Nigeria. His research interests include Artificial
intelligence, Operations research, Production &
Maintenance engineering, Decision Analysis, and
Energy and Waste
© 2023 The Author(s). This open access article is distributed under a Creative Commons
Attribution (CC-BY) 4.0 license.
Page 1 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

and presented using documents and recent literature on the Nigerian electricity
sector. Findings from the study show that infrastructural deficits and administrative
lapses dominated the pre-liberation era. The privatization of electricity led to
organizational structure and infrastructure improvements. The sector was
unbundled into the GenCos, TransCo, Discos, and the regulatory bodies assigned
well-defined tasks. The generation capacity has increased to 16,384 MW against the
pre-liberation figure of approximately 6000 MW. As against the approximate figure
of 10,000 km covered by the transmission infrastructure, an additional 10,000 km
has been added to the existing transmission facilities. Although there have been
improvements in service deliveries, there are still more grounds to cover to stabilize
the Nigerian electricity sector. It is proposed that stakeholders harmonize the
various policies and structural changes to make the necessary improvements.

Subjects: Energy Policy; Energy policy and economics; Energy Industries & Utilities

Keywords: Electricity generation and supply; distributions companies; market regulation;

electricity tariff

1. Introduction
In the last three decades, many developed and developing economies have directed intense
efforts at various electricity sector reforms to stabilize the sector. These reforms are necessary
due to the different emerging themes that have emanated from the electricity market. Some of
these include the inclusion of renewable energy in the electricity mix, change of ownership
structure, market competition, and the sector’s decentralization to meet SDG 7 (Babatunde
et al., 2018). With a specific emphasis on developing economies, these reforms are triggered by
consumers’ dissatisfaction in countries whose electricity sectors are based on the inefficient,
traditional model (monopolistic). Also, successes recorded in many developed countries’ electricity
sectors are another motivation behind adopting electricity reforms in developing economies.
However, although electricity reforms in developed countries aim to improve comparatively effi­
cient market performance, the narrative is totally different in developing countries (especially the
global south). In developing countries, many electricity sectors are plagued with vandalization,
weak networks, non-cost reflective tariffs, high technical and non-technical losses, and inadequate
coverage (Eberhard & Shkaratan, 2012; Babatunde et al., 2020). Moreover, in the wake of global
economic recessions, the budgets of many governments of developing economies are no longer
capable of the state-supported electricity sector. In addition, significant reforms will open up and
suitably position a monopolistic government-funded electricity sector in developing countries for
much-needed competition and investments (Rehermann & Shi, 2016). As such, many power sector
reforms in Africa are stimulated by the states’ needs in accessing credits from international
financing institutions (Wamukonya, 2003).

Nigeria’s federal government enacted a decree as part of efforts intended to improve the
Nigerian power sector in the early 1970s. This decree led to the merger of the Niger Dams
Authority (NDA) and the Electricity Corporation of Nigeria (ECN) to create National Electric Power
Authority (Oluseyi et al., 2012). Until deregulation, the public-owned utility company operated
a vertically integrated government-funded model. With a considerable transmission and distribu­
tion infrastructure deficit, it could only generate a total power of about 6200 MW (four thermal and
two hydropower plants). The deficit in the generation, transmission, and distribution infrastruc­
tures ensured that the market’s demand side was severely underserved, with commodities char­
acterized by brownouts, blackouts, and unscheduled load shedding. The utility could not reduce
technical and non-technical losses on the supply side, adequate maintenance, timely expansion,
and a reasonable collection rate. Seeing the underfunded state-owned Nigerian power sector’s
poor condition and the need for significant restructuring for increased efficiency, the FGN

Page 2 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

promulgated the National Electric Power Policy in 2001 (Ayamolowo et al., 2019b). The policy
aimed to unbundle the Nigerian power sector for private sector participation and create enabling
structures to sustain the Nigerian electricity market. This was followed by the enactment of the
Electric Power Sector Reform (EPSR) and the creation of the Nigerian Electricity Regulatory
Commission (NERC) in 2005 (Ayamolowo et al., 2019b). Based on the EPSR, the Nigerian electricity
sector was finally unbundled and allowed private sector participation in 2013. However, the much-
expected service delivery improvements are far from being achieved, with electrification rates in
Nigeria standing at 45% (Rural: 36% Urban: 55%; USAID-United States Agency for International
Development, 2019). Apart from the fact that electricity demand far exceeds the installed and
available capacity, the transmission and distribution capacity is also grossly below the required
capacity.

With the privatization of the last distribution facility concluded in 2014, various milestones and
drawbacks have been experienced within the Nigerian electricity sector. Passed as a law almost
20 years ago, the Electric Power Sector Reforms Bill was expected to, among other issues, develop
and guarantee an efficient, reliable, affordable, safe, and cost-effective system of electricity
generation, transmission, distribution, and marketing in the NESI (Isola, 2016). Various works of
literature have been dedicated to appraising the progress or otherwise of Nigeria’s deregulated
electricity market. (E. Ogunleye, 2017) presented a political economy aspect of the Nigerian power
sector reform. The author identified regulatory uncertainty and policy inconsistencies as major
challenges in the industry. The challenges and possible solutions to the challenges of power sector
reforms in Nigeria have also been discussed in the literature (Oladipo et al., 2018; Onochie et al.,
2015). While (Oladipo et al., 2018) suggested proper funding of GENCOs as a key solution to
improving power generation in Nigeria, (Onochie et al., 2015) opined that implementing the
existing policies would go a long way in improving the NESI. Also (Gatugel Usman et al., 2015)
concludes that transforming the NESI for sustainable growth and development mitigation of
energy poverty and corruption is critical and must be pursued. Other aspects of the NESI that
have been discussed in the literature include power sector laws (Usman & Abbasoglu, 2014),
decentralization of the grid (Alao & Awodele, 2018), policy analysis (Audu et al., 2017), and
productivity analysis (Barros et al., 2014). Based on this literature, the efficacy of the reforms in
improving the Nigerian power sector has remained ambiguous. Although the network capacities
have been relatively increased, the electrification access (percentage) post-liberation era has not
significantly improved. Many consumers are still exposed to long hours and multiple national
blackouts. This paper summarizes the Nigerian power sector by improving the existing literature,
emphasizing the trends, challenges, and future perspectives. The contribution of the paper
includes the following

● Aggregation, comprehensive review of state-of-the-art and documentation of the NESI. The current
power sector market structure, market regulations, and policies and reforms were aggregated and
discussed
● Identification of the various challenges of the Nigerian Power Sector and discussion of potential
solutions to the challenges; a unique approach for improving the Nigerian Electricity Sector was
proposed in this study

This review is expected to act as a navigating compass for stakeholders in the industry in terms of
the present state of the sector and what needs to be done to improve the sustainability of the
Nigerian Electricity Supply Industry (NESI). Accordingly, the review is organized as follows:
Section 2 focuses on the current power sector market structure, Section 3 discusses market
regulations available in the NESI, Section 4 is dedicated to government-motivated policies and
reforms, and Section 5 highlights the present challenges in the NESI, Section offer some solutions
to the challenges identified in the study, while Section 7 concludes the study by discussing the
various findings drawn from the review.

Page 3 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

2. Current power sector market structure

The Nigerian power sector is one of the electricity markets that have been vertically unbundled to
allow private sector participation in Africa. Other countries with vertically unbundled markets that
allow the private sector’s participation include Ethiopia, Angola, Sudan, Uganda, Algeria, Ghana,
Zimbabwe, and Kenya (Trimble et al., 2016). Concerning Nigeria, private sector participation is only
allowed in the market’s generation and distribution sections. At the same time, the transmission is
operated and financed using a public-owned utility company. The Structure of the Power Sector
Post-Privatization is presented in Figure 1. It consists of the Generation Companies (GenCos), the
transmission company (TransCo), also known as the Transmission Company of Nigeria (TCN), the
distribution companies (DISCOs), the Nigerian bulk electricity trading company, the gas producers,
and the consumers. The interactions between these major operators (GenCos, TransCo, DisCos, and
NBET) are regulated by the Nigerian Electricity Regulatory Commission (Nigerian Electricity
Regulatory Commission, 2020). The power generated by the GenCos is transferred to the DisCos,
and spread across the country through the transmission infrastructures of the TCN. The DisCos
then sell the consumers’ power to industrial, commercial, or residential consumers. In addition, the
DisCos are responsible for distributing electricity and collecting energy tariffs served to the various
customers. The payments are forwarded to the GenCos through the NBET, while the TCN is also
paid to use its infrastructures. The NBET was established as a tool for bulk procurement to
compensate for any payment shortfall in the network through subsidies (Nigerian Electricity
Regulatory Commission, 2020).

2.1. Generation
There are four major categories of power generation in Nigeria; these include (a) transmission-grid
connected generation, (b) embedded generation (usually connected to the distribution line), (c)
off-grid generation, and (d) captive generation (Nigerian Electricity Regulatory Commission, 2020).
To operate the first three categories of generation options, a valid license is required from NERC. In
contrast, the last power generation option only involves obtaining a permit from NERC. With the
implementation of the EPSR Act of 2005, the generation part of the former state-owned PHCH was
unbundled into six privatized GenCos, National Integrated Power Project (NIPP), and Independent
Power Producers (IPPs; Nigerian Electricity Regulatory Commission, 2020). From these three
sources, the Nigerian electricity network has 23 grid-connected generators with a total installed
capacity of 12,522 MW (Hydro: 19%, Thermal: 81%; USAID-United States Agency for International
Development, 2019). However, due to various challenges, only about 58% of the total installed

Figure 1. Structure of the power

sector post-privatization
(Nigerian Electricity Regulatory
Commission, 2020).

Page 4 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

capacity is available (Hydro: 1,060 MW, Thermal: 4,996 MW; Bamisile et al., 2020). Therefore, NERC
periodically licenses IPPs who meet the specified conditions to improve electricity generation. Also,
the commission proposed Bulk Procurement Guidelines to systematically and effectively procure
bulk power.

Furthermore, a guideline targeted at connecting to and evacuating power from embedded

generations via the distribution networks has also been developed by NERC. This particular guide­
line is proposed to encourage communities, private properties, state and local governments,
investors, and DisCos to generate and sell or consume electricity without the rigours (technical
and financial) of wheeling power through the transmission lines. Although these ideas are directed
at increasing the Nigerian electricity market’s generation capacity to 40GW by 2020, it is obvious
that this is not attainable, with the present total installed capacity still standing at less than 13GW
(Nigerian Electricity Regulatory Commission, 2020). The opportunities for generation in the
Nigerian power sector are summarized in Figure 2.

2.2. Transmission
Nigeria’s transmission network is managed and operated by the state-owned Transmission
Company of Nigeria (TCN). TCN, incorporated in 2005, is responsible for expanding and improving
the transmission network’s reliability. TCN serves as a transmission service provider, system
operator, and market operator. The TCN is saddled with providing the necessary infrastructure
for wheeling electric power generated by the GENCOs to the DISCOs. The Nigerian transmission
network consists of approximately 20,000 km of 132kV lines, 330kV lines, and high voltage

Figure 2. Opportunities in the

generation sub-sector (Adopted
from https://nerc.gov.ng/index.
php/home/nesi/403-generation).

Page 5 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

substations with a theoretical wheeling capacity of about 7.5GW (Nigerian Electricity Regulatory
Commission, 2020). At present, the operational generation capacity (3,879.MW) is less than the
transmission wheeling capacity (5,300 MW); however, if the total installed generation capacity
(12,522 MW) were to be evacuated into the transmission network, there is likely to be a system
collapse. The network is also reported to suffer from transmission losses (7.4%), which are above
the average (figure 2 –6%) for emerging countries (Nigerian Electricity Regulatory Commission,
2020). The highest power to be evacuated to the transmission grid to date is 5,420.3 MW; this was
achieved in August 2020–7 years after the privatisation process was completed (Okafor, 2020).
Without redundancies, the Nigerian transmission network is radial and as such susceptible to poor
reliability and frequent collapse.

2.3. Distribution
Nigeria’s power distribution network operates majorly on low voltage (11kV) and medium voltage
(33kV). The distribution network spans approximately 366,363 km serving more than 8,645,000
customers across the 36 states of Nigeria (Ley et al., 2015).

The distribution network is radial, grossly under-maintained, and records an average technical
loss of approximately 13% (Ley et al., 2015). With few customers being metered, the non-technical
loss on the Nigerian distribution network is very high. In addition, Nigeria’s electricity sector’s
privatization in 2013 gave rise to 11 privately run (DisCos), which serve consumers across the
country’s six geo-political zones, as shown in Figure 3.

2.4. Off-grid electrification

A 2013 study reported that about 80% of Nigerian have and use off-grid backup power sources
such as fossil-powered generators and solar PV with inverters (Ley et al., 2015). The report further
stated that a decentralized diesel generator’s contribution to electrification is worth between 8
and 14 GW. Nigeria leads Africa as a generator importer and is one of the highest importers
worldwide, spending approximately $14 billion annually on installing, operating, and maintaining
fossil-powered captive generators (Nigerians spend $14 billion on generators, fuel | Nairametrics,

Figure 3. 11 Distribution
Companies (DisCos).

(Adapted from (An Overview

with a Special Emphasis on
Renewable Energy, Energy
Efficiency and Rural
Electrification, 2015) and (Ley
et al., 2015).

Page 6 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

2020). Apart from individual and corporate efforts in the off-grid generation, governments at
various levels are also dedicated to improving electricity access through several off-grid electrifi­
cation schemes. Through the Nigerian Rural Electrification Agency (REA), Nigeria’s federal govern­
ment is responsible for remote and unserved communities’ electrification through the Nigeria
Electrification Project (NEP). The REA is also responsible for administering the rural electrification
fund and coordinating rural electrification programs through various private and public sector
participation. The NEP includes the Energizing Education Programme (EEP), which targets clean
and affordable energy for 7 University Teaching Hospitals and 37 federal universities across
Nigeria. Apart from this, REA also has the responsibility of providing clean electricity access for
clusters of economic hubs (shopping malls, agricultural and agro-processing, and markets)
through private sector partnerships (The Nigeria Electrification Project (NEP)—Rural Electrification
Agency, 2020).

2.5. Regional participation

Nigeria is a member of the West African Power Pool (WAPP), an arm of the Economic Community
of West African States (ECOWAS) responsible for integrating member states’ national power grids
into a unified regional electricity market. WAPP’s target is to provide a framework to ensure cost-
effective, stable, and reliable electricity for ECOWAS region citizens at both long-term and med­
ium-term timescales. It covers the public and private generation, transmission, and distribution
companies. Nigeria contributes 53.98% of the pool’s total viable capacity (Benin ICC | WAPP
Information and Coordination Centre, n.d.). Though not adequately documented, there is a level
of electricity trading between Nigeria and some members of the WAAP (Togo, Benin Republic, and
Niger). In 2020, Togo, Benin Republic, and Niger were indebted to Nigeria up to a total sum of
N29.97 billion for the electricity supplied to them between January and September 2019 (Togo,
2020).

3. Market regulation

3.1. Regulatory agencies and functions

Several agencies of government define regulatory policies regarding the power sector in Nigeria.
These are the Nigerian Electricity Regulatory Commission (NERC), Federal Ministry of Power, Works
and Housing (FMPWH), Nigerian Electricity Management Services Authority (NEMSA), and Energy
Commission of Nigeria (ECN). The others are Nigerian Transmission Company (TCN) and Bulk
Electricity Trading (NBET) Plc. NERC is the statutory body responsible for regulating the electricity
industry in Nigeria. NERC initiates economic and technical regulation of the electricity sector via
the governing statute as a regulator. These regulations include setting tariffs while considering fair
pricing, promotion of competition, and investment, especially the private sector’s involvement,
among several other responsibilities. FMPWH stipulates government policy direction and coordi­
nates the activities of the rest of the regulatory agencies. The Ministry aims to establish and
promote electricity sector policies and programs to ensure a reliable electricity supply across all
energy sources. The technical standards and requirements in this sector are regulated and
enforced by the NEMSA. The ECN was formed with the legal provisions of the systemic manage­
ment and scheduling of national energy policies and programs. ECN promotes energy diversifica­
tion and strategically plays advisory roles, primarily regarding adequate energy funding for federal
and regional governments. The TCN operates the country’s electrical transmission system. It was
unbundled in April 2004 from the former PHCN formed by a merger of PHCN’s transmission and
system operations. The NBET manages and supervises the Nigerian electricity pool in the Nigerian
Electricity Supply Industry (NESI).

3.2. Electricity tariff

Electricity tariff methodology has evolved in Nigeria over the years, with a non-cost-reflective tariff
already in place. NERC, on 31 March 2020, issued the Order on the transition to Cost Reflective
Tariffs in NESI (Analysing the Recent Nigerian Electricity Regulatory Commission Order on the
Transition to Cost Reflective Tariffs in the Nigerian Electricity Supply Industry | Nigeria | ICLG.com

Page 7 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

Online Updates, 2020). The cost-reflective tariff is proposed to be replaced by the future service-
reflective tariff. NERC regulates and sets electricity tariffs, emphasizing the achievement of cost-
reflective tariffs over a given period. At the dawn of electricity industry privatization, tariffs were
ordinarily non-cost-reflective, implying the initial under-recovering investment. However, the tariffs
were intended to increase to an economic level that eventually led investors to over-recover their
initial and generate significant profit needed to promote competition and continuous investment.
The NERC aims to migrate from a solely cost-reflective tariff approach and sculpting idea to
a service-reflective method in the nearest future. Consequently, NERC’s emphasis on ensuring
that tariffs are enough to meet costs and provide fair investment returns will ensure that tariffs
reflect service delivery quality.

3.2.1. Multi-year tariff order (MYTO)

Multi-year tariff order (MYTO) is the incentive-based tariff model that aims to recompense all
system operators’ performance improvements above specific requirements, decrease technical
and non-technical losses, and contributes to cost recovery and enhanced standards. It is
a standardized tool for calculating the overall sectoral revenue requirement with observable
changes in performance and standards in wholesale and retail prices for electricity in the industry
(Arowolo & Perez, 2020). The MYTO aims to set cost-reflective tariffs representing the efficient
financing and functioning of the sector. The approach allows tariffs to be shaped over the
regulatory price control period to “sculpt” tariffs to avoid customer price shock. This sets out
a fifteen-year electricity industry tariff roadmap with specific slight revisions every year, consider­
ing certain parameters like inflation, interest rates, exchange rates, and production capacity.
Furthermore, significant revisions are made in consultation with stakeholders every five years
when all the feedback is analyzed. That permits the tariff upgrade to reflect new macroeconomic
and sectoral factors, for example, inflation, exchange rate variation(USD to NGN), and grid gen­
eration capacities (Adeniyi, 2019).

The MYTO implements a building block technique to set distribution and transmission tariffs that
offer price controls and incentives advantages by integrating all associated electricity costs into
a standardized financial system. The first two blocks are the return on invested capital (ROIC):
market and asset depreciation-based. The last is the overhead and resourceful running cost.
Finally, long-run marginal cost (LRMC) is the incremental cost incurred by a generating station
when all inputs are variable. Hence, The generation tariff is estimated with the most financially
viable new market entrants’ LRMC standard.

The retail electricity price to consumers consists of four units, as shown in Figure 4. MYTO
provides a simple segmentation and evaluation of required operational expenses, overhead, and
a real investment return to create transparent tariffs with credibility and widespread acceptance.

3.2.2. Service-reflective tariff

The new tariff determination is proportionate to the electricity supply to the respective customers
in compliance with service criteria (more extended and more stable supply hours and less frequent
interruptions or supply at the required voltage). The tariff model simultaneously implies cost
recovery and ensures that customers always get value for their pay. Consequently, DisCos are
now disaggregating and grouping customers into various bands (A, B, C, D, and E, as shown in
Figure 5, concerning their daily electricity supply meeting the different service criteria (including
the number of supply hours). This helps DisCos to charge customers according to the service
quality parameters.

DisCos service evaluation criteria include hours of electricity supply, supply reliability determined
by disruption frequency and length, and power quality (operating voltage magnitude and fre­
quency specified by grid code). Future tariff adjustments will be based now on negotiations and
agreements between DisCos and consumer clusters. If DisCos not meet performance goals,
incentives will be used to reimburse consumers.

Page 8 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

Figure 4. Four units of retail

electricity price to consumers
consists.

Figure 5. DisCos’ grouping of Daily supply (Hours)

customers.

E
D
C
B
A

0 4 8 12 16 20 24

3.3. Bulk electricity procurement

The NBET engages in the purchase and resale of power and associated ancillary services from
independent power producers (IPP) and the now privatised Generation Companies (GenCos) to
Distribution Companies (Discos; Longe, 2016). NBET, as a bulk electricity dealer, acts as a broker by
initiating viable power purchase agreements (PPA) with the IPPs and the GenCos, as shown in
Figure 6.

MYTO regime specifies wholesale and retail tariff services, including charges for power transmis­
sion. The base cost of the electricity tariff defined by the generation cost module is 36.36% of the
retail tariff, as shown in Figure 4. This is the wholesale price that the bulk buyer, NBET, purchased
electricity from GenCos and IPP before selling to DisCos. GenCos and IPPs can recover their capital
return, operating, and overhead costs under the cost generation module. The GenCos decide their
respective wholesale electricity price with NBET through a PPA authorised by NERC. However, the
IPPs are prohibited from recovering their capital or capital return. This is because the IPPs are paid
only for their cost of operation and not for investment in gas power plants. This module is critical
as it determines the generation lucrativeness to private investment. The government also con­
siders it significant, as it is, in reality, among the few tools to encourage competition in the market
hitherto dominated by natural monopolies. As inflation shifts, exchange rates, and gas prices
changes, the wholesale tariff is also adjusted.

The transmission cost module, also known as the “grid charge” or Transmission Use of System
(TUoS) Charge, is the second layer of the electricity tariff in Nigeria, contributing 8.16 % of the retail

Page 9 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

Figure 6. Bulk electricity

purchase.

tariff by the DisCos to TCN. Using the TCN’s transmission infrastructure to transmit power to
substations under DisCo ownership for distribution is the cost. The TUoS enables TCN to recover
current and projected capital costs and effective operational costs and make capital return and
maintenance provisions. However, NERC controls the TUoS, which is uniform across the country
and susceptible to inflation and the exchange rate.

The smallest and third module of the electricity tariff is the service and VAT, which amounts to
6.86%. The service and VAT consist of the agency running cost of NERC and NBET regulating and
operating the NESI.

The distribution cost is the highest and last layer and accounts for 48,62% of the overall price for
electricity which is charged by the DisCos. The cost is different in the eleven DisCo networks, as
shown in the year 2020 average tariff depicted in Figure 7. Hence the tariff at the distribution level
depends on the type of customer: residential, commercial, industrial, street lighting, and special
tariff. The customer categories are further subdivided into groups based on the number of phases,
voltage level, and demands.

4. Government-motivated policies and reforms

4.1. Need for reforms

The protracted non-performance compels the Electric Power Sector Reform Act 2005 and the
Roadmap for Power Sector Reform 2010 in the power sector. The reform’s implementation led to
significant developments, including disaggregating and privatizing the power sector
(E. K. Ogunleye, 2016). The Act gives legal support to the reform. At the same time, the road
maps are used as a mechanism to quickly track and ensure that the proposed structural changes
in the ownership, control, and management of the sector are enforced and enforced, particularly
to the benefit of electricity users. The Act focuses on establishing a regulatory body to ensure
efficient regulation and compliance with the electricity sector laws. The privatization of the market
is underlined. In the same vein, the concept of a feed-in tariff system is being implemented. It

Page 10 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

Figure 7. Tariff charged by the Tariff (N/kWh)

DisCos in 2020. 60

50

40

30

20

10

0
Yola Ibadan Port Jos Ikeja Benin Abuja Eko Kano Kaduna Enugu
Harcourt

Residential Commercial Industrial

allows renewable energy companies to sell electricity to the grid at prices significantly above those
producing energy via traditional gas, coal, and hydro sources: the NBET’s assured electricity
procurement and a five-year exclusion from renewable energy investment tax. As shown in
Figure 8, the apparent challenges negatively affecting businesses have necessitated the reform’s
conception as depicted.

It must be noted that moderate progress was made in executing the power sector reform. First
of all, the former NEPA and later PHCN were unbundled, and 11 distribution firms, six generating
firms, and one transmission company were born. Secondly, a cost-reflective tariff (MYTO) is
introduced to make the industry attractive to domestic and international investors. Third, many
IPPs with 2,500 MW aggregated capacity have been added to the system. Fourthly, NERC was
created. Fifthly, considerable efforts are underway to develop the gas-to-power plan, the country’s
biggest electricity supply bottleneck amidst pipeline vandalism and gas pricing policies. Finally,
many policies and market rules have been formulated to govern the evolving privatised electricity
sector at various reform phases.

4.2. Key policies

Some rationales for the unbundling of policy are the industry’s strategic importance, uniformity,
economies of scale, and efficient communication. The recent restructuring of Nigeria’s power
sector is traced to September 1990, when the former NEPA was partially commercialised (Okoro

Figure 8. Electricity outage

duration and impact on busi­
ness sales in certain selected
countries in Africa. (Africa
Energy Outlook 2019—Analysis
—IEA, 2019).

Page 11 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

& Chikuni, 2007). With the creation of the National Electric Power Policy in 2001, the change was
given a further policy drive. This policy resulted from a survey conducted by the government in
1999 to identify the power sector’s challenges and provide guidelines to transform the sector. This
policy provided the foundation for the reform plan and signified the birth of Nigeria’s modern
power sector. In 2005, the reform was given great impetus by the Electric Power Sector Reform Act
(EPSRA), introduced to provide legal support for the reform and implement the strategy. The
reform’s overall purpose is to improve the productivity, transparency, reliability, standard, and
affordability of electricity supply to spur economic transformation, growth, and development. The
former NEPA was transformed into PHCN and subsequently unbundled following the procedures
drawn in the EPSRA. Key policies since 2001 are shown in Figure 9.

The system has designed many policy measures, proclamations, and reports to steer the power
sector’s reform process. The Nigeria Energy Commission established and adopted the 2003
National Energy Policy (NEP) for the energy sector. The target of 75% electrification by 2020
encompasses all forms of electricity, including renewable energy, energy conservation, and rural
electrification. The 2007 National Energy Master Plan (NEMP) lays out the National Energy Policy
(NEP) structure for implementation. The government approved the National Electric Power Policy

Figure 9. Timeline of key

policies.

Figure 10. Power sector report:

energy generated and sent out
and consumed and load alloca­
tion (2019; NATIONAL BUREAU
OF STATISTICS, 2020).

Page 12 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

(NEPP) in 2001 to set out the power sector’s basic structure. Roadmap for Power Sector Reform in
2010 was leveraged on the Electricity Master Plan (EMP) of 2008 and 2013 to identify the critical
barriers affecting the power sector’s full liberalisation and energy sufficiency. The 2015 National
Renewable Energy and Energy Efficiency Policy (NREEEP) conceptualizes energy efficiency and
renewable energy strategy. The Energy Commission of Nigeria (ECN), along with the United
Nations Development Programme (UNDP) 2006, developed the Renewable Energy Master Plan
(REMP), which was reviewed in 2012. The structure and goals for the rural electrification program
are set out in the Rural Electrification Policy Paper (REPP), approved by the government in 2009,
which targets 10% of the energy mix for renewable sources by 2025. The Electric Power Sector
Reform Act (EPSRA) empowers the Rural Electrification Agency (REA) to develop its operational
plan and strategy. However, this must be done in consultation with the NERC and ratified by the
government.

The NREEEP, which was officially approved in 2015, is the power sector policy pool. The policy
seeks to implement programs to achieve sustainable and inclusive development by effectively
using energy resources in the country. The policy seeks to tackle various renewable energy
concerns: planning and policy implementation, regulations, research and innovation; enforcement
and rules; supply and use; funding and pricing; training and technical; performance and sustain­
ability; execution of initiatives; gender; and climate change.

5. Main challenges of the Nigerian power sector

Nigeria’s power sector has been through a difficult period necessitated by diverse infrastructure
issues, inadequate generation capacity, system collapse, government and foreign policy, inade­
quate funding, and corruption. As a result, electricity consumers have largely experienced frustra­
tion as basic electricity cannot be provided for citizens to contribute actively to our nation’s
economic growth. According to the Bureau of Statistics, Figure 10 shows the eneggy generation
and distribution in Nigeria between the years 2016 and 2019.

Over the past two decades, the successive government has tried to find a solution to generation
capacity issues by assuming a monopoly role in generating, transmitting, and distributing power
where billions of the country’s hard-earned resources have been invested in power with meagre
improvement.

In August 2010, the power sector reform roadmap was launched to lay the groundwork for
transferring the private sector’s power utilities’ operations. Finally, in 2013, six (6) power-
generation plants and 11 distribution companies unbundled from Nigeria’s power holding com­
pany were sold to private investors. (Challenges facing the Nigerian power sector, 2016),
(Ayamolowo et al., 2019a). This new transformation raised expectations as it was assumed that
the new investors would rapidly end frequent power outages and meet up with the populace’s
power demands. However, the initiative has brought little improvement as numerous issues still
hamper the electricity growth in Nigeria. Below is the graph shows the energy sent out from 2016
to 2019. The analysis shows that there is still a large deficit. This write-up aims to look at the
challenges hampering the power sector fulfillment and resolve this deficit.

5.1. Absence of bankable gas supply agreement

The bulk of power generated in Nigeria has its source mainly from thermal and hydro, with the
estimated percentage at 80% thermal and 20% hydro http://cseaafrica.org/challenges-and-
interventions-needs-in-the-nigerian-electricity-supply-industry-nesi/. The thermal plants require
natural gas to fire its turbines to generate power. However, it is unfortunate that the gas is either
unavailable or in short supply. A large part of the issue is the absence of a robust gas network to
efficiently run this plant and an inactive service level agreement, i.e., a gas supply agreement to
drive efficiency. Nigeria’s power sector is a critical institution with diverse interdependencies that
must be carefully aligned to deliver the Nigerian populace’s power demand consistently. Running
a large institution such as the power sector with significant dependency on other sectors without

Page 13 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

a service level agreement will run into chaos. Its operations will be unstable; value creation will be
limited or nonexistent.

The Nigerian national grid’s design capacity is about 7500 MW, and power generated and
supplied to the grid instantly has never been up to 6000 MW. (Nigerian Electricity Regulatory
Commission, 2020). One tends to ask the question, why? The shortage of gas has rendered most of
the thermal power plants idle. There is no accountability because there is no agreement and,
therefore, no efficiency in service delivery. This has hampered our economy. Table 1 below shows
the status of the Gas Supply Agreement for the various power plants.

5.2. Power purchase agreement

The power purchase agreement is a contractual obligation between the privately-owned power
plant and the state or government-owned electric utility like the Nigerian Bulk Electricity Trading
(NBET) in the Nigerian power sector. NBET is 100% owned by Nigeria’s Federal government and is
referred to as the “manager and administrator of the electricity pool” in the electricity supply
industry. The power purchase agreement is a powerful document that provides the guidelines and
contractual obligations of both the private power investor and NBET. It is disheartening to note
that this agreement is not yet active for most power plants. (Arowolo & Perez, 2020. This docu­
ment’s inactive nature has created a gap that makes the investor reluctant to commit more
resources to an existing investment. Most of the power infrastructure is dilapidated and requires
repair, replacement, or upgrade. This has hampered the growth of the power sector. The GIZ study
estimated electricity demand in Nigeria to rise to 45,490 MW by 2020 and 213,122 MW by 2040
(Challenges and Interventions Needs in the Nigerian Electricity Supply Industry (NESI), 2020). With
the rate we are handling the critical issues affecting electricity in Nigeria, it might just be a lofty
and unattainable foot to achieve the power demand. The economy will be the recipient. A little
wonder, our power sector reflects our economy, and unless we get this right, our economy will
remain stunted. The power purchase agreement documents include the following;

● Duration of PPA is a 20 years tenor by NBET standard and provides clauses to take care of early
termination due to either party’s default.
● Tariff Structure—makes available the guide on how NBET will make payment for the duration
of PPA
● Resolution of Conflict—defines the processes for resolving conflict as regards disputes or issues on
the invoice.
● Metering—clarify the metering and metering code rules supersedes the conflict between PPA
provision and metering code.
● Allocation of Risk—captures all the risk related to the project and allocate these risks to the best
party who can bear them.
● Testing and Commissioning—gives detail of the testing and commissioning of the power plant.
● Operation and Maintenance—provides the details of the private investor’s operation and mainte­
nance responsibilities throughout the PPA duration.
● Precedent Conditions—indicates all the prerequisite conditions that either party must fulfill before
the PPA can become active.
● Liability and indemnity—highlight the parties responsible for specific types of failures and provide
both parties’ indemnity.
● Project Document—states all the documents connected to the PPA, such as the design, procure­
ment, construction, Gas Transport Agreement, Gas Supply Agreement, and Finance documents.
● Force Majeure—Provides the scenario’s details to be considered a force majeure and the payments
to be made in the occurrence. https://nbet.com.ng/our-customers/generation/key-parts-of-ppa/

Furthermore, this essential document’s absence is counterproductive and tantamount to the

inefficiencies the country currently experiences in our power sector. Table 1 shows the status of
the PPA for the various power plants.

Page 14 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

Table 1. PPA power plants statuses (Nigerian Electricity Regulatory Commission, 2020)
S/N Power GenCo Installed PPA Status GSA Status Remarks
Plant Type Capacity
Name (MW)
1 Shiroro hydro 600 Not active Hydro No
Guarantee
2 Jebba hydro 578.4 Not active Hydro No
Guarantee
3 Kainji hydro 760 Not active Hydro No
Guarantee
4 Afam thermal 300 Not active Hydro No
Guarantee
5 Delta thermal 765 Not active Not active No
Guarantee
6 Geregu thermal 435 Not active Not active No
Guarantee
7 Sapele thermal 720 Not active Not active No
Guarantee
8 Egbin thermal 1320 Not active Not active No
Guarantee
9 Omotosho 1 thermal 336.8 Full active Not active No
PPA Guarantee
10 Olorunsogo 1 thermal 336 Full active Not active No
PPA Guarantee
11 Omotosho 2 NIPP 500 Not active Not active No
Guarantee
12 Olorunsogo 2 NIPP 750 Not active Not active No
(nipp) Guarantee
13 Alaoji nipp NIPP 504 Not active Not active No
Guarantee
14 Sapele 2 NIPP 500 Not active Not active No
(nipp) Guarantee
15 Geregu nipp NIPP 435 Not active Not active No
Guarantee
16 Ihovbor nipp NIPP 450 Not active Not active No
Guarantee
17 Calabar NIPP 625 Not active Not active No
(odukpani) Guarantee
18 Gbarain NIPP 225 Not active Not active No
Guarantee
19 Afam vi IPP 650 Full active Full active Self-Supplied
(shell) PPA GSA
20 Okpai IPP 480 Full active Full active Self-Supplied
PPA GSA
21 Trans-amadi IPP 136 Not active Not active No
ipp Guarantee
22 Rivers ipp IPP 180 Not active Not active No
Guarantee
23 Ibom power IPP 198 Not active Not active No
Guarantee
24 Omoku IPP 150 Not active Not active No
Guarantee
25 Paras IPP 85 Active- Full active N/A
Bilateral GSA

Page 15 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

5.3. Shallow domestic finance

Power generation, transmission, and distribution are not cheap. Significant investments are
required to keep the infrastructure top-notch. Nigeria’s transmission company, which is 100%
owned by the federal government, is responsible for providing the power sector’s enabling envir­
onment and critical infrastructure. The yearly power budget is still insufficient to eradicate the
years of neglect and dilapidation the power infrastructures have been subjected to. It will require
massive investment, and the government is handicapped due to limited resources and the many
facets of the economy competing for national resources. Attracting private investors is also a big
issue because the investors are not sure of making profitable returns due to the business environ­
ment and the state of the current infrastructure. The current investors also have limited access to
the loan facility and guarantees due to the Nigerian banks’ conservative nature and fear of
investment going down the drain. Most privatised power companies’ financial statements also
show consistent losses over the years, even when revenue increases. Table 2 below shows
a sample financial statement of one privatised sector.

5.4. Adequate transmission and distribution facilities

The Nigeria transmission network spans about 20,000 km with a wheeling capacity of about
7,500 MW. It is a radial network without redundancies and hence unreliable. A healthy part of
the network can easily experience power failure due to faults from the network’s parts. The losses
estimated on this transmission network are 7.4%, which is relatively high than the acceptable
threshold of 2 to 3%. Figure 11 shows the yearly transmission losses. As the population continues
to rise, the power demand increases. Studies estimated that the power demand in 2020 will be
45,490 MW and 213,122 MW by 2040. Suppose the transmission network currently has a capacity
of 7,500 MW. That case shows that the transmission network’s current capacity can not address
the present and future demands. Hence, massive investment is required in the expansion of the
network capacity. The distribution lines, transformers, and feeder pillars are in no way better as
years of neglect, and lack of maintenance and upgrade has caught up with them. The higher losses
on the lines portend a rise in the bill to reconcile power sent and power received.

5.5. Fear of policy reversal

The government is responsible for providing an enabling environment to investors through estab­
lished policies to aid the business and instill sustainability confidence. Policy change or reversal
changes the dynamics and might negatively affect the business’s future and profitability. Over the
years, the government has had to reverse policies due to foreign or local directions to achieve
a specific purpose. The power equipment used in the power sector is import-dependent, and
monetary policy changes considerably affect purchasing power. They could be detrimental to
investments needed to upgrade critical power infrastructure. In May 2020, the senate recently
requested that the government suspend the proposed increase in electricity tariff, scheduled to
take off on 1 July 2020. It also moved the motion for the immediate reversal of the power sector
privatisation completed by the government due to what they termed “failure to deliver.”This could
lead to undesirable consequences and revenue loss for current private investors. Due to this
unstable environment that the policymakers and the government have created, the fear of policy
reversal creates serious fear in private investors to commit huge resources to improve our current
power systems. Government and policymakers must invest their energy in setting regulations
encouraging investors to channel more of their resources into the power sector rather than
regulating to suffocate it.

5.6. Non-cost reflective tariffs

Due to the poor state of the power infrastructures before privatisation, there is a shortfall in the
private investment for required deliverables and expected reliability. Due to importation duties on
parts, gas pricing, exchange rates, and inflation, the ever-changing cost of running the generating
plants has made it very difficult for investors to balance their books. As a result, most of them have
been declaring losses in their end-of-year financial statements. The tariff is currently not reflective
of the cost of generating power. Hence, the loss has been declared by the investors. This will only

Page 16 of 24
 Table 2. Privatised sectors’ sample financial statement
2012 N’000 2013 N’000 2014 N’000 2015 N’000 2016 N’000 2017 N’000 2018 N’000
https://doi.org/10.1080/23311916.2022.2157536

Revenue 45,131,734 50,685,937 54,436,806 62,636,720 64,497,695 68,568,676 89,200,967

Operating Costs −49,358,087 −51,223,657 −50,860,638
Babatunde et al., Cogent Engineering (2023), 10: 2157536

Gross Loss −4,226,353 −537,720 3,576,168

Other Income −716,849 311,746 112,005
Administrative Costs −10,158,000 −6,323,012 −25,997,270
Operating Loss −13,667,504 −6,548,986 −22,309,097 −28,316,610 −84,939,100 −59,649,841 −66,561,558
Financial income 57,384 21,774 11,923
Loss before −13,610,120 −6,527,212 −22,297,174
Taxation
Taxation 3,264,821 −325,170 10,187,466
Loss for the Year −10,345,299 −6,852,382 −12,109,708 −28,616,172 −65,636,304 −76,481,236 −90,150,144
Other
Comprehensive
Income
Total Comprehensive −10,345,299 15,010,006 12,698,365 −28,616,172 −7,450,742 −76,481,236 −90,150,144
income/Loss for
the year
Total Equity 46,413,567 38,977,825 −37,503,411 −135,811,625

Page 17 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

Figure 11. Transmission losses Transmission Loss (%)

(Nigerian Electricity Regulatory
Commission, 2020). 25

20

15

10

0
15-Jan 15-Feb 15-Mar 15-Apr 15-May 15-Jun 15-Jul 15-Aug 15-Sep 15-Oct 15-Nov 15-Dec

make the electricity sector stagnant and unsustainable with limited investment and the system’s
eventual collapse.

The Nigeria Electricity Regulation Commission ensures that the investor’s tariff is fair and
adequate to finance their operations while still making sensible profits from efficient opera­
tions. NERC developed a system known as the Multi-year Tariff Order. It is a tool meant for
setting cost-reflective tariffs to enable funding and functioning of the power sector. The
minor review is twice a year, considering ± 5% changes in a defined parameter such as
generation capacity, gas prices, inflation, and exchange rates corresponding to tariff imple­
mentation adjustment. Similarly, a series of significant reviews in 5 years is expected to cover
the costs of generating electricity, transmission system usage, regulation, market operation,
and distribution charges. However, MYTO 2015 is based on specific parameters and assump­
tions that have seriously affected other factors and have become unrealistic. Moreover, the
economic parameters used have also changed rapidly and in no correlation to the 5 years
duration of the review. As a result, there has been a tariff shortfall, meaning Discos’ allowable
revenue has fallen short of what the real revenue is supposed to be. Table 3 shows the
difference in the MYTO Tariff assumption.

(Cost-reflective tariff in the Nigerian electricity supply industry (NESI)—Businessday NG, 2020)

The table clearly shows a huge difference between the forecast and the reality of
December 2019. The overall effect of this is the tariff shortfall that the private investors are
experiencing. It is non-cost reflective of their operations and a dangerous omen for the power
sector’s future.

Table 3. MYTO Tariff assumption and variations

PARAMETER MYTO Projection Reality as of December 2019
Generation Capacity (MW) 5,465 4,952
Nigerian Inflation Rate (%) 8.8 11.98
US inflation rate (%) 0.2 2.3
Exchange rate (₦/$) 198.97 307
Generation Price (₦) 13.25 19

Page 18 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

5.7. Vandalisation
The vandalisation of gas pipelines, transmission, and distribution lines is rampant and poses
a serious threat to private investors. There is also colossal revenue loss associated with this due
to the plant’s risk and cost of non-operation. The vandalisation of gas pipelines and power
infrastructure has limited the development of the power sector. Table 4 captures some of the
vandalisation recorded

6. Way forward
Like other sectors of Nigeria’s economy, the policies directed at improving Nigeria’s electricity
sector have been largely imported, with few homegrown policies addressing Nigeria’s pecu­
liarities. In this work, we put forward a proposed power sector structure that can solve the
sector’s many protracted problems; the structure will, in turn, substantially turn around the
national economy. This proposed structure is wholly deregulated, liberalised, and subject
strictly to demand and supply. Figure 12 shows that the subsector’s generation, transmission,
and distribution freely and flexibly, without regulatory restrictions, interact with one another
and the consumer. The key differences between this model and the existing structure are;

● Generation companies of different categories and sizes freely and directly trade with distribution
companies and consumers while trading with the transmission grid operators.
● The exchange of services/product for revenue is a two-way interaction among all sectors driven
solely by the free-market force of demand and supply.
● Multiple transmission grid operators with government-licensed trade associations enforce a framework
for an operation that makes these grids easy to integrate into a single, smart national grid.

6.1. Generation
The most discussed topic in Nigeria’s electricity sector is the sector’s generation capacity; as stated
earlier in this work, the national grid’s transmission capacity is less than the total operational
capacity of available grid power plants. This capacity shortage shows that generation capacity

Table 4. Recorded vandalisations

Dates Vandalisation occurrence Remark
April 1996 Two towers hosting 132kv 5 days blackout
transmission lines supplying power
to Abuja and Suleja were
vandalised
December 2002 Towers 114 and 117 along Benin- Reduced power supply to Lagos
Ikeja west 330kv line 1, towers 217 and Benin for several days
and 220 conductors and insulators
were vandalised
August 2015 Vandals cut down 132/330kv loss of the 1,390 MW power
transmission tower in Oronta
village of Abia state Valued at
N40m
May 17, 2015 Vandals carted away 10 drums of Delayed project
aluminium conductors weighing
about 40tonnes which were to be
used by Energo Nigeria limited for
the 330Kva transmission project
2016 Militants in Bonny Okrika attacked Nigeria National Petroleum
the crude supply line to Port Corporation (NNPC) shut down the
Harcourt Refinery and the two refineries without gas
Escravos-Warri crude supply line to production. As a result, 800 MW of
Kaduna Refinery. electricity was lost as Six power
plants could not operate.
February 20, 2018 Vandals destroyed the strategic Loss of feed to new 9th mile two
132kv double circuit transmission units of 60MVA 132/33KV
lines at Eziama, Enugu state. substation and Nsukka 30MVA
substations.

Page 19 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

Figure 12. Proposed approach

for improving the Nigerian
electricity sector.

shortage is not the sector’s most critical challenge, contrary to popular belief. Frequent grid
collapse and power rejection by distribution companies (Discos reject 17,657MW as power outage
persists—Punch Newspapers, 2020) show that even if more power is generated, these capacities
cannot be wheeled to the consumers. This notwithstanding, Nigeria is in dire shortage of genera­
tion capacity. The solution to this shortage is not more budget to deliver more power plants (as
most socio-political analysts believe). However, the solution lies in the right economic policies that
can attract needed investment from private investors who can key into the model described above
for opportunities.

If supported with the right policies, this model will promote a wide range of investors. Most
importantly, medium-scale investors will come into the sector as off-grid generation, captive, and
embedded generation operators; these solutions can be delivered without the hindrance of the
national grid capacity shortage. Many value chains in the electricity sector and sectors in primary
energy sources will also take a new life of their own from these activities. Typically the proliferation
of these embedded, captive, and off-grid plants will spur investment opportunities in sectors like
natural gas distribution; these are definite progressions driven by free-market forces and
opportunities.

6.2. Transmission
In the model proposed, less emphasis is on the national grid as it is currently operated. Total
deregulation and liberalisation of Nigeria’s electricity market will attract investors into the national
grid sector. The current grid capacity cannot handle the capacities this model can deliver hence
the investors’ involvement in driving toward a smarter grid. The smart grid comprises as many
mini-grids of various sizes and capacities as there can be across the nation, developing as
described under generation in the last paragraph; a privatised TCN only becomes a major player
in this free market scheme through it is existing vast infrastructure.

The main policy objective that the national grid regulations would seek to achieve would be
a framework for integration/interlinking of these mini-grids with sizeable capacities into a new
smart national grid. Today, there are technologies to achieve these interlinks. However, only
investors in a deregulated and liberalised market can bring them to bear. The government’s core
objective and responsibilities in this model are national security, not pricing or other economic
decisions. They only set the framework for regulating a deregulated electricity sector to preserve
national security, public safety, and consumer rights.

Page 20 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

6.3. Distribution
Contrary to the most popular public opinion in Nigeria, the weakest link in the Nigeria electricity
sector is the distribution sub-sector because infrastructure is most deficient in this subsector. The
deficiency impacts the sectors’ entire value chains. Most studies and public discourse have been
about generation capacity deficiency. The alarming and worse deficit in the distribution system is
rarely discussed; hence the public’s public perception sadly influences political and economic
decisions, especially by the government. In the model proposed in this work, the government is
expected to go further than its recent efforts, including privatising the distribution companies and,
most recently, the service-reflective tariff by NERC. Policies that totally deregulate and liberalise
the sector are needed to attract the right investment to bridge the distribution system’s infra­
structure gap.

Understandably, deregulation/liberalisation of the distribution sub-sector will particularly face

the most opposition from the public, given how many Nigerians see electricity as a social right
owed to them as against it being a commodity to be traded. This is particularly substantiated by
(Babatunde et al., 2020), showing how much it costs homes and small businesses to generate
captured power. Therefore, a government with the will to deregulate and liberalise the electricity
sector is what it takes to make a difference. The case modelled in this work is the totally
deregulated and liberalised electricity sector. As indicated in Figure 12, the value chains best
drive one another when the market force is allowed to play out. Consumers will pay more initially,
but as the sector evolves and grows, the tariff will come crashing; this is already evident in the
telecommunication sector. Therefore, it goes that popular say from most socio-economic pundits
to the government that; “Fix electricity, and the economy is fixed” should be “hand off electricity,
and a liberalised viable electricity sector will fix the economy”.

7. Conclusion
In the Nigerian Government, 1999 proposed implementing diverse reforms that would transform
the state-owned vertically operated electricity industry to a more efficient unbundled market
consisting of various agencies and companies coordinated by an independent regulator. The
restructuring has improved the infrastructure capacity and service deliveries across the market’s
value chain. Based on the discussions from the previous sections, the actors in the NESI pay
attention must propose effective ways of addressing the various challenges highlighted in this
study. Although the NESI is now deregulated and the private sector is driven, its significance to
industrial development and economic growth will entail strategic intervention from the govern­
ment. The following are the findings of this study:

● Various reforms have been aimed at raising the Nigerian electricity sector’s generation capacity to
40 GW by 2020, and it is clear that this is not achievable, with the current total installed capacity still
below 13 GW. Operational 3,879.MW generation capacity is smaller than the 5,300 MW transmission
wheeling capacity; nevertheless, a system failure is likely to occur if the total installed 12,522 MW
capacity were transferred into the transmission network. The transmission network is radial and, as
such, vulnerable to low reliability and frequent failure. Nevertheless, about 80% of Nigerians have
decentralized off-grid 8–14 GW backup power sources such as fossil-powered generators and
inverter solar PVs and use them. Still, there is electricity trade between Nigeria and some West
African Power Pool members amidst Nigeria’s lack of electricity supply to the extent that member
countries owed Nigeria a total amount of N29.97 billion.
● The framework for electricity tariffs has grown over the years in Nigeria, with a non-cost-reflective
tariff. Cost-reflective tariffs are proposed to replace non-cost-reflective tariffs with potential service-
reflective tariffs. MYTO comprehensively optimises and analyses the necessary operating expenses,
overhead, and a real return on investment to build straightforward tariffs with integrity and wide­
spread adoption. Non-cost-reflective MYTO 2015 is focused on essential criteria and projections,
which have become impractical and have seriously affected other variables. Future changes to
tariffs will now be focused on deals and agreements between DisCos and groups of customers. If
DisCos fails to achieve performance targets, bonuses may be used to repay customers. The IPPs are
only charged for their running expenses and not for investments. This module is significant as it
establishes the viability of the generation for private investment. It is also considered critical by the

Page 21 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

government. It is one of the few instruments to promote competition in a market previously

controlled by natural monopolies.
● The bulk of electricity produced in Nigeria comes predominantly from thermal and hydropower, with
an approximate percentage of 80 percent thermal and 20 percent hydropower. Running an exten­
sive system such as the power industry with substantial reliance on other sectors without a service
level agreement would create frustration with unpredictable services. The power purchase agree­
ment’s ineffectiveness has created a void that prevents the investor from investing more capital. The
annual power budget is inadequate to eliminate the years of mismanagement and decrepitude of
power infrastructures. Furthermore, the existing transmission network cannot transmit the installed
7,500 MW capacity, implying that the present transmission will not handle future generations and
demand. Thus, the expansion of the network capacity is inevitable with massive investment. Policy
shift or reversal affects the dynamics and may adversely impact the future and profitability. The
government has had to reverse policies due to international or local directions to accomplish
a particular goal. The tariff is currently not reflective of the cost of generating power, and the
investors have therefore declared the loss. Thereby making the electricity industry unstable, with
narrow investment unprofitable, and the system’s eventual collapse. The malicious destruction of
gas pipelines and power networks has restricted the power industry’s growth.
● Policies to promote the electricity industry in Nigeria have been mostly exported with few indigenous
solutions that address Nigeria’s particularities, like other sectors of the economy. This work proposed
a structure for the power sector with the potential to solve the many unresolved challenges of the
sector; in turn, the structure would significantly revolve around the national economy. However, this
proposed system is absolutely deregulated, liberalized, and solely subject to demand and supply.

Funding 2018, 178–183. https://doi.org/10.1109/

The authors received no direct funding for this research.
Author details
Olubayo Babatunde1
Elutunji Buraimoh2
E-mail: elutunji@gmail.com
ORCID ID: http://orcid.org/0000-0002-0054-5778
Oluwatobi Tinuoye1
Clement Ayegbusi3
Innocent Davidson2
Desmond Eseoghene Ighravwe4
1
Department of Electrical Electronic Engineering,
University of Lagos, Lagos, Nigeria.
2
Department of Electrical Power Engineering, Durban
University of Technology, Durban, South Africa.
3
Department of Electrical Engineering, Clema Engineering
Consultants, Lagos, Nigeria.
4
Department of Mechanical and Biomedical Engineering,
Bells University of Technology, Ota, Nigeria.
Disclosure statement
No potential conflict of interest was reported by the author(s).
Citation information
Cite this article as: Electricity sector assessment in Nigeria:
the post-liberation era, Olubayo Babatunde, Elutunji
Buraimoh, Oluwatobi Tinuoye, Clement Ayegbusi,
Innocent Davidson & Desmond Eseoghene Ighravwe,
Cogent Engineering (2023), 10: 2157536.
References
Adeniyi, F. (2019). Overcoming the market constraints to
on-grid renewable energy investments in Nigeria.
Oxford Institute for Energy Studies. Issue November
https://doi.org/10.26889/9781784671495
Africa Energy Outlook 2019 – Analysis - IEA. (2019).
https://www.iea.org/reports/africa-energy-outlook
-2019
Alao, O., & Awodele, K. (2018). An overview of the
Nigerian power sector, the challenges of its national
grid and off-grid development as a proposed
solution. 2018 IEEE PES/IAS PowerAfrica, PowerAfrica
POWERAFRICA.2018.8521154
Analysing the Recent Nigerian Electricity Regulatory
Commission Order on the Transition to Cost Reflective
Tariffs in the Nigerian Electricity Supply Industry |
Nigeria | ICLG.com Online Updates. (2020). https://
iclg.com/briefing/14459-analysing-the-recent-
nigerian-electricity-regulatory-commission-order-on-
the-transition-to-cost-reflective-tariffs-in-the-
nigerian-electricity-supply-industry-nigeria
Arowolo, W., & Perez, Y. (2020). Market reform in the
Nigeria power sector: A review of the issues and
potential solutions. Energy Policy, 144, 111580.
https://doi.org/10.1016/j.enpol.2020.111580
Audu, E., Paul, S. O., & Ameh, A. (2017). Privitisation of
power sector and poverty of power supply in Nigeria:
A policy analysis. International Journal of
Development and Sustainability, 6(10), 1218–1231.
www.isdsnet.com/ijds
Ayamolowo, O. J., Buraimoh, E., Salau, A. O., & Dada, J. O.
(2019a). Nigeria electricity power supply system : The
past, present and the future. 2019 IEEE PES/IAS
PowerAfrica, 64–69.
Ayamolowo, O. J., Buraimoh, E., Salau, A. O., & Dada, J. O.
(2019b). Nigeria electricity power supply system: The
past, present and the future. IEEE PES/IAS
PowerAfrica Conference: Power Economics and Energy
Innovation in Africa, PowerAfrica 2019, 64–69. https://
doi.org/10.1109/PowerAfrica.2019.8928767
Babatunde, O. M., Ayegbusi, C. O., Babatunde, D. E.,
Oluseyi, P. O., & Somefun, T. E. (2020). Electricity
supply in Nigeria : Cost comparison between grid
power tariff and fossil-powered generator.
International Journal of Energy Economics and Policy,
10(2), 160–164. https://doi.org/10.32479/ijeep.8590
Babatunde, O. M., Munda, J. L., & Hamam, Y. (2018).
Generation expansion planning : A survey. 2018 IEEE
PES/IAS PowerAfrica Generation, 307–312.
Bamisile, O., Huang, Q., Ayambire, P., Anane, P. O. K.,
Abbasoglu, S., & Hu, W. (2020). Analysis of solar PV
and wind power penetration into Nigeria electricity
system. Conference Record - Industrial and
Commercial Power Systems Technical Conference, 6,

Page 22 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536
1–5. https://doi.org/10.1109/ICPS48389.2020.
9176822
Barros, C. P., Ibiowie, A., & Managi, S. (2014). Nigeria’s
power sector: Analysis of productivity. Economic
Analysis and Policy, 44(1), 65–73. https://doi.org/10.
1016/J.EAP.2014.02.003
Benin ICC | WAPP Information and Coordination Centre. (n.
d.). Retrieved January 3, 2021, http://icc.ecowapp.org/
Challenges and Interventions Needs in the Nigerian
Electricity Supply Industry (NESI). (2020). http://
cseaafrica.org/challenges-and-interventions-needs-
in-the-nigerian-electricity-supply-industry-nesi/
Challenges facing the Nigerian power sector. (2016).
http://country.eiu.com/article.aspx?articleid=
1003980684&Country=Nigeria&topic=Economy_1
Cost-reflective tariff in the Nigerian electricity supply
industry (NESI) - Businessday NG. (2020). https://busi
nessday.ng/energy/power/article/cost-reflective-
tariff-in-the-nigerian-electricity-supply-industry-nesi/
Discos reject 17,657MW as power outage persists – Punch
Newspapers. (2020). https://punchng.com/discos-
reject-17657mw-as-power-outage-persists/
Eberhard, A., & Shkaratan, M. (2012). Powering Africa :
Meeting the financing and reform challenges. Energy
Policy, 42(1), 9–18.
Gatugel Usman, Z., Abbasoglu, S., Tekbiyik Ersoy, N., &
Fahrioglu, M. (2015). Transforming the Nigerian power
sector for sustainable development. Energy Policy, 87,
429–437. https://doi.org/10.1016/J.ENPOL.2015.09.004
Isola, W. (2016). Power Sector reforms in Nigeria:
Challenges and the way forward. Unilag Journal of
Humanities, 4(1), 47–62. http://ujp.unilag.edu.ng/
index.php/ujh/article/view/228
Ley, K., Gaines, J., & Ghatikar, A. (2015). The Nigerian energy
sector: An overview with a special emphasis on
renewable energy, energy efficiency and rural
electrification. Deutsche Gesellschaft Für Internationale
Zusammenarbeit (GIZ) GmbH, 151(1), 10–17.
Longe, Y. (2016). Opportunities in the on-Grid Re Sector in
Nigeria. https://www.africa-eu-renewables.org/wp-
content/uploads/2016/11/NBET-Opportunities-in-the
-on-grid-RE-section-in-Nigeria.pdf
NATIONAL BUREAU OF STATISTICS. (2020). https://niger
ianstat.gov.ng/elibrary
The Nigeria Electrification Project (NEP) — Rural
Electrification Agency. (2020). https://rea.gov.ng/
nigeria-electrification-project-nep/
Nigerian Electricity Regulatory Commission. (2020).
Nigerian Electricity Supply Industry. https://nerc.gov.
ng/index.php/home/nesi
Nigerians spend $14 billion on generators, fuel |
Nairametrics. (2020). https://nairametrics.com/2020/
03/17/nigerians-spend-14-billion-on-generators-fuel
-as-senators-seek-ban-on-generator-use/
Ogunleye, E. K. (2016). Political economy of Nigerian
power sector reform. In World institute for develop­
ment economics research. UNU-WIDER.
Ogunleye, E. (2017). Political economy of Nigerian power
sector reform. In D. Arent, C. Arndt, M. Miller, F. Tarp,
& O. Zinaman (Eds.), The political economy of clean
energy transitions (1st) ed., pp. 391–409). Oxford
University Press.
Okafor, P. (2020). Electricity: Nigeria records highest grid
transmission.
Okoro, O. I., & Chikuni, E. (2007). Power sector reforms in
Nigeria: Opportunities and challenges. Journal of
Energy in Southern Africa, 18(3), 52–57. https://doi.
org/10.17159/2413-3051/2007/v18i3a3386
Oladipo, K., Felix, A. A., Bango, O., Chukwuemeka, O., &
Olawale, F. (2018). Power sector reform in Nigeria:
Challenges and solutions. IOP Conference Series:
Materials Science and Engineering, 413(1), 012037.
https://doi.org/10.1088/1757-899X/413/1/012037
Oluseyi, P. O., Akinbulire, T. O., & Awosope, C. O. A. (2012).
Evaluation of the roadmap to power sector reforms
in a developing economy. 9th International
Conference on the European Electricity Market (EEM
12), 12, 8–14.
Onochie, U. P., Egware, H. O., & Eyakwanor, T. O. (2015).
The Nigeria electric power sector (Opportunities and
Challenges). Journal of Multidisciplinary Engineering
Science and Technology, 2(4), 3159. www.jmest.org
An Overview with a Special Emphasis on Renewable
Energy, Energy Efficiency and Rural Electrification.
(2015). https://www.get-invest.eu/market-
information/nigeria/energy-sector/
Rehermann, T., & Shi, L. (2016). Attracting private invest­
ment through power sector reforms. International
Finance Corporation.
Togo, N. Benin owing Nigeria N30bn for electricity –
Commission | Africa Energy Portal. (2020). https://
africa-energy-portal.org/news/togo-niger-benin-
owing-nigeria-n30bn-electricity-commission
Trimble, C., Kojima, M., Perez Arroyo, I., &
Mohammadzadeh, F. (2016). Financial viability of
electricity sectors in Sub-Saharan Africa: Quasi-fiscal
deficits and hidden costs. World Bank. https://doi.org/
10.1596/1813-9450-7788
USAID-United States Agency for International
Development. (2019). NIGERIA POWER AFRICA FACT
SHEET. https://www.usaid.gov/powerafrica/nigeria
Usman, Z. G., & Abbasoglu, S. (2014). An overview of
power sector laws, policies and reforms in Nigeria.
Asian Transactions on Engineering, 4(2), 6–12.
Wamukonya, N. (2003). African power sector reforms :
Some emerging lessons. Energy for Sustainable
Development, 7(1), 7–15. https://doi.org/10.1016/
S0973-0826(08)60344-0
Page 23 of 24
Babatunde et al., Cogent Engineering (2023), 10: 2157536
https://doi.org/10.1080/23311916.2022.2157536

© 2023 The Author(s). This open access article is distributed under a Creative Commons Attribution (CC-BY) 4.0 license.
You are free to:
Share — copy and redistribute the material in any medium or format.
Adapt — remix, transform, and build upon the material for any purpose, even commercially.
The licensor cannot revoke these freedoms as long as you follow the license terms.
Under the following terms:
Attribution — You must give appropriate credit, provide a link to the license, and indicate if changes were made.
You may do so in any reasonable manner, but not in any way that suggests the licensor endorses you or your use.
No additional restrictions
You may not apply legal terms or technological measures that legally restrict others from doing anything the license permits.

Cogent Engineering (ISSN: 2331-1916) is published by Cogent OA, part of Taylor & Francis Group.
Publishing with Cogent OA ensures:
• Immediate, universal access to your article on publication
• High visibility and discoverability via the Cogent OA website as well as Taylor & Francis Online
• Download and citation statistics for your article
• Rapid online publication
• Input from, and dialog with, expert editors and editorial boards
• Retention of full copyright of your article
• Guaranteed legacy preservation of your article
• Discounts and waivers for authors in developing regions
Submit your manuscript to a Cogent OA journal at www.CogentOA.com

Page 24 of 24