The Federal Government’s electricity subsidy disproportionately benefited middle-income electricity consumers in 2025, with Bands B and C accounting for about 70 per cent of the total N1.93tn subsidy paid during the year, according to a new report.
The report by ZKJ Energy Partner Limited also revealed that consumers in Nigeria’s highest electricity service category, Band A, did not receive any portion of the government subsidy, but effectively contributed an estimated N101bn to cross-subsidise customers in lower tariff bands.
According to the analysis, Band B consumers received the largest share of the subsidy with an estimated N741bn, representing 38 per cent of the total payout, while Band C consumers received N609bn, or 32 per cent.
The findings challenged the common assumption that the electricity subsidy primarily protects the poorest consumers, noting that Bands D and E consumed significantly less electricity despite having wider gaps between their tariffs and the actual cost of power generation.
The report noted that Band A customers, who are entitled to a minimum of 20 hours of electricity supply daily, paid tariffs slightly above the estimated cost of supplying them with electricity. Consequently, Band A did not benefit from the subsidy and instead generated a financial surplus that helped offset the cost of subsidising consumers in Bands B, C, D, and E.
The report stated, “Band A pays just above cost, so it receives no subsidy; it contributes N101bn that offsets the rest,”.
This implies that while the electricity subsidy is widely seen as a government-funded initiative to cushion consumers from cost-reflective electricity prices, a portion of the financial support for lower bands was directly financed by Band A customers.
The analysis showed that the gross subsidy requirement stood at about N2.03tn before factoring in the N101bn contribution from Band A, which reduced the net subsidy requirement to about N1.93tn.
It stated, “Band A receives nothing; it pays just above cost and effectively returns N101bn, trimming the gross N2.03tn subsidy to the N1.93tn net figure,”.
The report added that Band D received N452bn, representing 24 per cent of the total subsidy, while Band E accounted for N227bn, or 12 per cent.
The document noted, “Band B is the single largest beneficiary, N741bn (38 per cent of the total), followed by Band C at N609bn (32 per cent). Together the two mid-bands take 70 per cent,”.
Describing the pricing architecture, the report stated, “The subsidy is real and regressive by design: cost-to-serve rises A > B > C > D > E, yet tariffs fall in the same direction,”.
It explained that electricity generation costs escalate as supply hours increase because additional demand must be met by progressively more expensive power plants.
Under its merit-order model, the analysis ranked power plants from the cheapest to the most expensive and allocated electricity in four-hour blocks, ensuring that every tariff band received its first four hours from the cheapest available source before costlier plants were brought online.
The report estimated that consumers in Bands B to E paid between N16 and N22 per kilowatt-hour below their generation costs, excluding transmission and distribution charges as well as aggregate technical, commercial, and collection losses.
It further noted that the first-quarter 2026 data from the Nigerian Electricity Regulatory Commission confirmed the subsidy burden, showing that the Federal Government covered N358.32bn, or 51.95 per cent of total generation costs, through direct tariff support.
The report raised concerns regarding uniform electricity tariffs across distribution companies, arguing that consumers under poorly performing distribution networks were shielded from the consequences of severe operational losses. It cited the wide disparity between Yola Electricity Distribution Company, with an estimated loss level of 44 per cent, and Ikeja Electric, with about 14 per cent.
The report noted, “Consumers in poor-performing franchises face no price signal to protest inefficiency, so ATC&C losses there keep rising,” while advocating decentralised, performance-based regulation for distribution companies.
The analysis identified gas supply shortages and weak transmission and distribution infrastructure as more severe bottlenecks than merit-order cost distortions, stating, “Cheap capacity that cannot be wheeled to load is not really cheap,”.
To address these challenges, the report recommended expanding grid capacity, securing firm gas supply contracts, reducing aggregate technical, commercial, and collection losses, and introducing loss-benchmarked regulation before adjusting must-run generation agreements.
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