By Benson Daniel
Consumers in Nigeria’s Band A electricity category effectively contributed about N101 billion towards subsidising customers in lower tariff bands in 2025, according to a new analysis of the country’s electricity subsidy structure.
The report by ZKJ Energy Partner Limited estimated that the Federal Government’s total electricity subsidy stood at about N1.93 trillion in 2025, with the largest share going to consumers in Bands B and C.
Band B customers accounted for an estimated N741 billion, representing 38 per cent of the total subsidy, while Band C consumers received about N609 billion, equivalent to 32 per cent. Together, the two categories accounted for approximately 70 per cent of the subsidy.
Band D consumers received an estimated N452 billion, or 24 per cent, while Band E customers accounted for about N227 billion, representing 12 per cent of the subsidy.
The analysis showed that Band A consumers were different from the other categories because they paid tariffs slightly above the estimated cost of supplying electricity to them. As a result, they did not receive a direct subsidy.
Instead, the report estimated that Band A customers generated a surplus of about N101 billion, which effectively helped offset part of the subsidy provided to consumers in the lower service bands.
The analysis estimated that the gross subsidy requirement would have been about N2.03 trillion before the Band A contribution was taken into account. The N101 billion contribution therefore reduced the estimated net subsidy requirement to N1.93 trillion.
Band A customers are guaranteed a minimum supply of 20 hours of electricity daily under Nigeria’s service classification system and consequently pay a higher tariff than customers in the lower bands.
The report noted that the arrangement creates an unusual situation in which consumers receiving the highest minimum supply commitment are effectively helping finance lower tariffs for customers receiving fewer guaranteed supply hours.
It described the subsidy structure as regressive, arguing that the cost of supplying electricity rises from Band A through Band E while tariffs move in the opposite direction.
According to the analysis, consumers in Bands B to E paid between N16 and N22 per kilowatt hour below estimated generation costs before transmission and distribution expenses, as well as the effect of technical, commercial and collection losses.
The report attributed part of the difference to the increasing cost of generating additional electricity as supply hours rise. Under its merit order model, cheaper generation capacity is allocated first, while more expensive plants are brought into operation as additional electricity is required.
The findings also highlighted differences in the performance of electricity distribution companies and the effect of network losses on the subsidy structure.
The analysis cited Yola Electricity Distribution Company, with estimated losses of about 44 per cent, and Ikeja Electric, with losses of approximately 14 per cent, as examples of significant variations between distribution networks.
It argued that customers on poorly performing networks could remain insulated from the financial consequences of high technical, commercial and collection losses because the tariff structure does not adequately reflect the performance of individual distribution companies.
The report therefore recommended greater use of decentralised and performance based regulation to create stronger incentives for distribution companies to reduce losses and improve service delivery.
The analysis also pointed to inadequate transmission and distribution infrastructure and gas supply constraints as major challenges affecting Nigeria’s electricity market.
It warned that generation capacity alone would not resolve the country’s power challenges if available electricity could not be transmitted and distributed efficiently to consumers.
The findings come amid growing concerns over the financial burden of electricity subsidies on government finances. Data from the Nigerian Electricity Regulatory Commission showed that the Federal Government covered N358.32 billion, representing 51.95 per cent of total generation costs, through tariff support in the first quarter of 2026.
The latest analysis is therefore likely to intensify discussions over the sustainability and design of Nigeria’s electricity subsidy regime.
For consumers, the central issue remains how to achieve a tariff structure that protects vulnerable households while ensuring that electricity providers have sufficient revenue to maintain infrastructure and improve supply.
For the government and regulators, the challenge is to reduce the subsidy burden without imposing unaffordable electricity costs on households and businesses.
The report’s findings suggest that reforms targeting distribution losses, infrastructure constraints and inefficient subsidy allocation could play a major role in creating a more sustainable electricity market.
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