Nigeria’s electricity sector continues to grapple with deep-rooted structural and contractual challenges, even as the country maintains sufficient gas supply to meet generation needs, according to a new industry insight released by the Association of Power Generation Companies (APGC).
The report highlights that recent financial interventions, including loans from the Central Bank of Nigeria (CBN) to the Nigerian Electricity Supply Industry (NESI), have failed to address the underlying inefficiencies plaguing the sector. It warned that continued financial injections without resolving systemic issues could further compound existing problems.
According to Independent, a major concern identified is the weak enforcement and sanctity of contracts across the power value chain. The report notes that effective contracts are essential for long-term planning and risk mitigation, yet many agreements within the sector lack proper securitisation.
This has left power generation companies (GenCos) particularly vulnerable, especially in securing bankable gas supply agreements.
According to the APGC, GenCos have often been forced to rely on alternative arrangements outside the electricity market to sustain operations and support gas supply, underscoring the fragility of the system. Despite the sector’s potential to attract significant investment and deliver competitive returns, persistent government and political interference continues to deter growth.
The report further revealed that liquidity constraints—not gas availability—remain the primary bottleneck. While Nigeria has enough gas to generate required electricity, inadequate financial flows within the market have hindered its utilisation.
Industry experts, including former Chairman of the Nigerian Electricity Regulatory Commission (NERC), Sam Amadi, have called for improved leadership and reforms in the sector.
Amadi emphasized the need for immediate efficiency-driven measures, including ensuring that up to 90 percent of generated power is effectively delivered to homes and businesses.
The report also pointed to existing contractual obligations binding successor generation companies. These include performance agreements with the Bureau of Public Enterprises (BPE) and power purchase agreements with the Nigerian Bulk Electricity Trading Plc (NBET), which require strict compliance from all parties.
However, the lack of coordination between public and private stakeholders has hindered performance. The APGC stressed the need for stronger collaboration to ensure obligations are met and to stabilise the market.
On infrastructure, the report warned that inadequate transmission and distribution capacity continues to undermine gains in generation. Nigeria currently has an installed generation capacity of about 13,000 megawatts, but transmission capacity stands at roughly 5,000 megawatts, while actual distribution fluctuates between 3,500 and 4,200 megawatts. This imbalance has led to stranded power and inefficiencies across the grid.
Operational challenges were also highlighted, including directives from system operators requiring power plants to run below optimal capacity. This has reduced efficiency and increased gas consumption by as much as 15 to 20 percent, costs which are not reflected in existing pricing frameworks.
The report concludes that the Nigerian power sector is burdened by a combination of financial, operational, regulatory, and market risks. It calls for a holistic restructuring of the electricity market to ensure alignment across generation, transmission, system operations, and distribution.
