- Nigeria plans to end electricity subsidies in 2027 to create a commercially sustainable power sector.
- The government must improve power supply and protect vulnerable consumers as tariffs rise.
Nigeria plans to end electricity subsidies from 2027, setting up a major test for a power sector that has struggled with debt, weak investment and unreliable supply.
The Honourable Minister of Power, Joseph Tegbe, announced the plan during a media session. He said the government would phase out the subsidy while working to improve the electricity supply. “I promise you, next year, by God’s grace, we will put a stop to this so-called subsidy in the power sector,” Tegbe said.
The proposed exit comes as the government works to clear debts owed to power generation companies. It also follows wider reforms to fuel pricing, foreign exchange and public finances. However, removing the subsidy creates a difficult question: how can the government reduce its fiscal burden without pushing electricity costs beyond the reach of households and businesses?
Electricity subsidies have become a major cost for the Federal Government. NERC data shows that the government spent ₦418.79 billion on electricity subsidies in the fourth quarter of 2025. The amount covered more than half of the generation invoices. The government spent another ₦358.32 billion in the first quarter of 2026. This came despite lower electricity demand from distribution companies.
At the same time, generation companies continue to face large unpaid bills. The Association of Power Generation Companies puts the debt at about N6.5 trillion.
GenCos receive only about 35 per cent of their monthly invoices, according to the association. A typical ₦280 billion monthly bill, therefore, leaves about N200 billion unpaid.
That shortfall has created a cycle of debt across the sector. GenCos struggle to pay gas suppliers and maintain plants. Lower generation, in turn, affects electricity supply and the revenues of distribution companies.
The Federal Government has responded by launching a ₦4 trillion bond programme to settle verified liabilities. It issued an initial ₦501 billion tranche in January and another ₦729 billion in July. Still, clearing old debts will not solve the problem on its own. Without changes to the market, fresh arrears could build up again.
The government sees the removal of subsidies as necessary to create a commercially sustainable electricity market. The IMF has also supported subsidy reform, arguing that governments can use public funds more effectively through targeted support rather than broad consumption subsidies. However, Nigeria is entering this phase under difficult economic conditions. Inflation remains high, while households and businesses continue to face rising food and transport costs.
Higher electricity tariffs could add to that pressure.
Manufacturers already spend heavily on diesel and other forms of self-generation because of unreliable grid supply. Higher grid tariffs could therefore raise their overall energy costs rather than replace existing expenses. Small businesses could face an even tougher adjustment. Some may reduce production or pass higher costs to consumers.
Larger companies could also increase prices, adding another layer of pressure to inflation. There is, however, a potential upside. A more reliable electricity market could encourage investment in generation, distribution and renewable energy. It could also create jobs as new projects come online.
For households, the impact will depend largely on how quickly tariffs rise and what support replaces the subsidy. Low-income families face the greatest risk. Higher electricity bills could push more households into energy poverty if the government removes subsidies without targeted assistance.
One option under consideration is the Power Consumer Assistance Fund. Such a mechanism would direct support towards vulnerable consumers instead of subsidising electricity consumption across the board. That distinction will matter as the reform progresses. A targeted system could reduce the government’s burden while still protecting households that cannot absorb higher bills.
Analysts have warned that subsidy removal cannot fix the sector on its own.
Nigeria still has problems with electricity losses, weak billing systems and inadequate metering. Transmission constraints also limit the amount of power that reaches consumers.
Gas supply remains another major obstacle for thermal power plants. Meanwhile, distribution companies continue to face collection and revenue challenges. As a result, cost-reflective tariffs alone could shift the cost of these weaknesses to consumers.
The government will therefore need to improve metering and revenue collection. It must also reduce distribution losses and strengthen the transmission network. A reliable gas supply will be equally important for sustaining generation.
Renewable energy could provide another part of the solution. Solar mini-grids, embedded generation and other distributed systems can supply businesses and communities without depending entirely on the national grid. The timing also makes the reform politically sensitive.
Nigeria is heading towards the 2027 elections. Any sharp increase in electricity costs could generate public resistance, particularly if consumers do not see better service in return. That makes electricity supply a crucial part of the reform.
Consumers may accept higher tariffs if they receive more reliable power and better service. The opposite could prove much harder. The government, therefore, faces a narrow path. It must reduce the fiscal cost of subsidies while preventing the transition from creating another economic shock.
The 2027 target could mark a turning point for Nigeria’s electricity market. Success would require more than ending the subsidy. It would depend on whether the government can create a market that pays operators on time, attracts investment and delivers reliable electricity.
In the same vain, vulnerable consumers will need protection throughout the transition. Without those safeguards, subsidy reform could deepen the very economic pressures it is meant to address.