REA Urges Shift from Power Subsidies to Sustainable Market

Nigeria must move away from relying on electricity subsidies and build a financially sustainable power market capable of attracting private investment, the Managing Director of the Rural Electrification Agency (REA), Abba Aliyu, has said, as government spending on keeping electricity tariffs below cost continues to rise.

Speaking at the Samuel Ibiyemi Memorial Lecture in Lagos, Aliyu said the country's electricity sector must prioritise building a market that can recover its costs, rather than focusing solely on increasing electricity generation.

His position coincides with a sharp rise in subsidy spending. The Federal Government paid N358.32 billion to keep electricity tariffs below cost-reflective levels in the first quarter of 2026.

Figures from the Nigerian Electricity Regulatory Commission (NERC) show the subsidy accounted for 51.95 per cent of the total generation invoice during the quarter, increasing pressure on public finances as electricity demand and operating costs continue to rise.

"For too long, our conversations have focused almost entirely on generating more electricity," Aliyu said. He added that investors need confidence that the market can sustain itself without indefinite government support.

Rather than eliminating subsidies altogether, he said public funding should be targeted at reducing investment risks, supporting innovation and encouraging greater private sector participation.

The REA is pursuing that approach through decentralised renewable energy projects, including isolated and interconnected mini-grids under the Distributed Access through Renewable Energy Scale-up (DARES) Programme. Aliyu said the projects are strengthening electricity distribution, improving reliability and making the sector more attractive to investment.

Subsidy burden keeps growing

Nigeria's electricity subsidy bill continues to climb despite persistent supply challenges. NERC's first-quarter 2026 report shows the government retained electricity tariffs at their July 2024 levels, resulting in N358.32 billion in subsidy payments during the review period.

Electricity supply weakened over the same period. Average available generation capacity fell by 17.45 per cent to 4,457.96 megawatts, while total electricity generation declined by 9.64 per cent to 8,883.47 gigawatt-hours.

The national grid experienced one total system collapse and one partial collapse in January, triggering widespread power outages.

The Federal Government is also grappling with an estimated N4 trillion legacy debt owed to power generation companies. Industry operators say unpaid subsidy obligations continue to accumulate, limiting investment across the electricity value chain.

Pressure to extend cost-reflective tariffs beyond Band A customers has grown, although concerns over inadequate metering and the impact on households have slowed wider reforms.

Industry analysts say tariffs set below cost discourage investment, weaken the finances of electricity companies and limit their ability to improve infrastructure and service delivery.

A financially sustainable electricity market could ease the government's subsidy burden, unlock more private investment and improve long-term electricity supply.

Balancing those reforms with protections for vulnerable consumers remains one of the sector's biggest challenges.