Electricity customers on Band-A feeders may face a tariff increase as the Federal Government’s electricity subsidy rose to N181.63bn in September, up from N102.30bn in May.
Recall that the Federal Government had removed subsidies for Band-A customers in April, raising tariffs to N225 per kilowatt-hour, prompting public outcry.
Despite a temporary reduction in tariffs, the subsidy continued to rise, driven mainly by foreign exchange rates and inflation.
The Nigerian Electricity Regulatory Commission (NERC) has indicated that further tariff adjustments may be needed unless power generation costs drop.
According to data released by the NERC, the subsidy rose to N163.87bn in July, N173.88bn in August, and N181.63bn in September, fuelling speculations that there may be another tariff increase in the October Multi-Year Tariff Order (MYTO) unless the cost of power generation drops.
The foreign exchange crisis has been the major driver of the electricity subsidy. The NERC put the dollar exchange rate at N1,494.1 in July; 1,564.3 in August; and N1601.5 in September.
According to the regulator, the dollar rate and inflation are the determinants of the cost of power production.
In the MYTO order to all the power distribution companies for September, the NERC said, further to Section 23 of the MYTO-2024, the supplementary orders are to reflect the changes in the pass-through indices outside the control of licensees including inflation rates, naira/dollar exchange rate, available generation capacity and gas price for the determination of cost-reflective tariffs.
The Naira to the US dollar exchange rate of N1,601.50 to a dollar was adopted for September.
As of September, the NERC said it maintains the benchmark gas-to-power price of $2.42/MMBTU based on the established benchmark price of gas-to-power by the Nigerian Midstream and Downstream Petroleum Regulatory Authority, (NMDPRA) in line with Section 167 of the Petroleum Industry Act 2021.
The cost of power generation is also being impacted by contracted gas supply and transportation prices outside the domestic gas delivery obligation quantities based on effective gas sale agreements approved by the commission.
Minister of Power, Adebayo Adelabu, recently decried the rejection of power by electricity distribution companies, describing it as regrettable. According to the him, generation peaked above 5,000 megawatts recently, but “unfortunately, it had to be ramped down by 1,400MW due to the inability of the power distribution companies (DisCos) to pick the supply”.
Adelabu lamented the development, saying “This is really regrettable considering that the Government is on course to increase generation to 6,000MWs by the end of the year”.
Adelabu called on power distribution companies to take more energy to prevent grid collapse as the grid’s frequency drops when power is produced and not picked by the DisCos.
