Nigeria’s electricity subsidy remains a significant fiscal and market-liquidity burden, with the Federal Government covering N358.32 billion of generation costs in the first quarter of 2026, according to data from the Nigerian Electricity Regulatory Commission (NERC). The figure represents 51.95 per cent of the N689.72 billion invoice issued by generation companies.
A new analysis by ZKJ Energy indicates that the incidence of the subsidy is shaped by more than the simple gap between regulated tariffs and generation costs. Using NERC capacity data, Nigerian Independent System Operator (NISO) dispatch figures, current power purchase agreement tariffs and the Multi-Year Tariff Order, the firm modelled how service hours, plant dispatch, tariff bands and distribution losses influence who benefits and where costs accumulate.
On an actual-dispatch basis, ZKJ Energy estimated average generation costs ranging from N52 per kilowatt-hour for Band E customers, who receive about four hours of supply daily, to N100/kWh for Band A customers receiving at least 20 hours. Intermediate bands were placed at N86/kWh (Band B), N76/kWh (Band C) and N63/kWh (Band D). Retail tariffs of N63/kWh for Band B, N50/kWh for Band C, N43/kWh for Band D and N40/kWh for Band E left those categories below estimated generation cost before transmission, distribution and aggregate technical, commercial and collection (ATC and C) losses. Band A’s N225/kWh tariff, by contrast, provided a positive contribution against its generation cost.
A separate modelled allocation of an estimated N1.93 trillion electricity subsidy for 2025 attributed roughly 70 per cent to Bands B and C. Band B accounted for about N741 billion (38 per cent) and Band C N609 billion (32 per cent). Band D was allocated N452 billion and Band E N227 billion, while Band A made a modelled net contribution of approximately N101 billion. The distribution reflects higher assumed energy consumption in the middle bands rather than the deepest per-kilowatt-hour tariff gaps.
ZKJ Energy also compared an idealised economic merit-order dispatch with actual plant utilisation. It estimated a blended generation cost of N74.60/kWh under available-capacity merit order versus N85/kWh under actual dispatch-a difference of about 14 per cent. The firm attributed the increase to priority dispatch of must-run and fast-power plants ahead of, or instead of, cheaper available capacity and placed the annual effect at roughly N410 billion. The figure is described as an analytical estimate rather than a regulatory line item.
Distribution performance further widened the overall cost gap. Across the 11 distribution companies, the analysis placed the energy-weighted full cost of service at N182/kWh against an allowed retail tariff of N124/kWh, implying an average shortfall of N58/kWh or 32 per cent. Estimated cost-reflective tariffs ranged from N174/kWh for Ikeja Electric to N216/kWh for Yola Electricity Distribution Company, with the variation linked principally to distribution expenses and ATC and C losses.
The report cautions that the band allocation is directional. Only Band A’s estimated 40 per cent energy share is publicly sourced; the assumed shares for Bands B, C, D and E are 24 per cent, 18 per cent, 12 per cent and 6 per cent respectively. The analysis combines data from NERC, NISO and power purchase agreements and applies an exchange rate of N1,424 to the dollar for dollar-denominated generation costs.
ZKJ Energy concluded that tariff reform alone will not restore sector bankability. Lower network losses, improved metering and collection, stronger transmission capacity, firm gas supply and economically efficient dispatch are required to reduce dependence on subsidies and improve cash recovery across the value chain. Principal reform priorities identified include transmission and distribution capacity, reliable gas supply, lower ATC and C losses, performance-linked regulation and a gradual shift towards economic dispatch.
The analysis is presented as a framework for testing reform priorities rather than a substitute for metered settlement data or audited regulatory accounts.