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In a bid to overhaul the power sector, the Federal Government has announced a $600 million yearly electricity subsidy for all consumers, set to take effect in 2025 as part of broader efforts to enhance energy affordability.
Designed to remain in effect until 2027, the subsidy seeks to balance the gap between actual electricity costs and regulated rates, as the government intensifies efforts to address the metering shortfall and improve the financial health of power distributors.
The subsidy program is embedded within the National Energy Compact, as outlined in Nigeria’s Energy Compact document, reinforcing the country’s commitment to expanding electrification and advancing its clean energy transition.
In a collaborative effort with Côte d’Ivoire, Zambia, and nine other African nations, Nigeria unveiled its energy compact at a summit in Tanzania, focusing on cutting-edge energy solutions to drive progress across the continent.
Framed as a short-term strategy, the subsidy policy seeks to balance affordability with the gradual implementation of cost-reflective tariffs. The document indicates that consumers may receive assistance either through a standard monthly subsidy or a discount on their initial 50 kilowatt-hours of electricity usage.
This approach intends to reduce the regressivity of previous subsidies, where a significant portion benefited wealthier households.
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By 2027, the government plans to introduce a social tariff to protect low-income and vulnerable customers once the broader cost-reflective framework is fully implemented.
The document noted the Federal Government’s trajectory to full cost-reflectivity included a “$600m per year subsidy in 2025 to 2027 (while metering gap is being closed), and then fully CRT except for social tariff for vulnerable customers.”
It added, “In order to decrease the regressivity of electricity subsidies, move towards a full cost reflective tariff system which includes a limited and uniform subsidy for all customers in 2025 while the metering gap is being closed. This scheme can take the form of a uniform monthly subsidy per customer, or the first 50 kWh per month being subsidised.”
A key focus of the reform is closing Nigeria’s metering gap, which currently stands at approximately seven million unmetered electricity end-users.
The government outlined a plan to install 1.5 million smart meters in 2025, four million in 2026, and 1.5 million in 2027.