Decades of Investment Fail to Revive Nigeria’s Power Sector

Nigeria’s power system is nevertheless stuck in a loop of poor performance despite decades of reforms, significant investments, and repeated promises of a turnaround.

Every reform era has come with great hopes, promising more productivity, cheaper prices, and dependable electricity, but the actual experience of people and businesses is quite different. Africa’s greatest economy struggles with an unstable and inadequate power supply as a result of the national grid’s ongoing breakdown, deficient infrastructure, and severe structural faults.

Electricity is more than just a public utility; it is a fundamental force behind industrialization, economic expansion, and competitiveness.

However, its ongoing insufficiency has grown to be a significant barrier to production in Nigeria. Profitability is steadily declining, businesses are compelled to run below capacity, and operating expenses are rising.

The Central Bank of Nigeria’s (CBN) Business Expectations Survey highlights the scope of the issue by ranking electric power supply as the third most serious issue affecting firms, after excessive or complex taxation and insecurity. The fact that electricity continues to score so highly in spite of years of improvements says a lot about how serious the problem is.

The core of the issue is the vulnerability of the national grid. Grid power is now unreliable at best and nonexistent at worst due to frequent system failures and inconsistent generation. Electricity is frequently erratic, causing equipment damage and interfering with production schedules even when it is available. Power uncertainty has become an inherent risk for manufacturers, service providers, and even small retail operators, influencing investment choices and discouraging growth.

Households and businesses have increasingly shifted away from the grid and toward alternative power sources in response to this reality. In Nigeria’s cities and semi-urban areas, solar hybrid systems, inverter-and-battery solutions, and diesel or gasoline generators are now practically commonplace. Although they come at a high cost, these substitutes have assisted in filling supply gaps. Instead of finding a solution, they have put the onus of the electricity issue squarely on businesses and consumers.

In particular, generator dependence has emerged as a defining characteristic of Nigeria’s energy environment. Although generators offer quick respite from blackouts, they expose companies to fluctuating fuel prices, particularly after deregulation of the downstream sector.

These days, fuel prices vary greatly, making it challenging for businesses to budget and control spending. In addition to fuel, generators need regular maintenance, replacement parts, and qualified personnel, which raises expenses even further. Particularly in highly populated commercial areas, the environmental and health implications—air pollution, noise, and carbon emissions—add yet another level of worry.

Despite being marketed as greener and more sustainable options, solar and inverter systems have drawbacks. They require a large initial capital expenditure even though they provide long-term savings and lessen dependency on fossil fuels.

These expenses are unaffordable for many companies, especially small and medium-sized firms (SMEs). Investing millions of naira in electricity infrastructure puts further financial strain on businesses who are just trying to survive in an economy already struggling with high interest rates and limited access to affordable finance.

Despite their necessity, these coping strategies draw attention to a more serious flaw in the electricity industry. A network of structural flaws that continue to impair performance is hidden beneath the surface of an unreliable supply. Generation capacity is limited by gas supply restrictions, while timely maintenance and investment are hindered by financial illiquidity throughout the value chain.

Even as generation improves, transmission bottlenecks limit the amount of power that can be supplied. Inefficiencies at the distribution level are exacerbated by inadequate metering, energy theft, and low customer confidence.

The seriousness of these issues is demonstrated by recent statistics from the regulator’s Q3 ’25 report. Out of a total energy offtake value of N854.5 billion, distribution firms (DisCos) billed N706.6 billion during that time, representing a billing efficiency of almost 82.7%.

This shows considerable losses in the system, even though it also points to some improvement in billing performance. The discrepancy between what is billed and what is actually collected is more concerning. DisCos’ total income of N570.3 billion was significantly less than the N706.6 billion that was billed, indicating ongoing liquidity issues throughout the energy value chain.

This revenue shortage is caused by long-standing problems that have not been fixed; it is not an accident. Probably the most obvious is the metering gap. Just 6.7 million of the 12.0 million active registered electricity users were metered as of Q3’25, which translates to a 55.4% metering rate.

Because of this, 44.6% of customers are not metered and must rely on estimated billing, which frequently leads to disagreements, nonpayment, and a great deal of mistrust between customers and DisCos. Energy theft flourishes in such conditions, further depleting revenues and undermining the system’s financial sustainability.

The issue is made worse by low customer confidence. Many consumers are hesitant to pay for a service that they believe is unreasonably expensive and unreliable. This leads to a vicious cycle whereby low revenue collection restricts DisCos’ capacity to invest in infrastructure and service enhancement, hence sustaining low supply and further undermining willingness to pay.

In light of this, the passage of the Electricity Act 2023 marks a potentially revolutionary moment for Nigeria’s electricity industry. The Act gives states the authority to produce, transmit, and distribute electricity within their borders by establishing a new legal framework that decentralizes the electrical market.

The reform seeks to break the monopoly of a centralized, underperforming system and promote innovation, competition, and investment by opening the door to further governmental and private sector participation.

However, decades of structural deterioration cannot be reversed by legislation alone. Stakeholders must address the industry’s ingrained problems if the Electricity Act 2023 is to bring about significant change. This entails upgrading transmission infrastructure, resolving gas supply limitations, closing the metering gap, and reinstating financial discipline throughout the value chain. Decentralization runs the risk of reproducing current subnational inefficiencies in the absence of these fundamentals.

Nigeria’s electricity industry is at a turning point. Stunted industrial growth, diminished competitiveness, and an increase in company closures are already signs of the cost of failure. Although alternative energy sources have kept the economy going, they are an expensive and unsustainable replacement for a working grid.

Nigeria’s power paradox—billions spent, hopes raised, yet businesses and people remain, quite literally, in the dark—will continue until the promise of transformation is matched by consistent execution and accountability.